Dear biz reporters: Stop comparing GDP to market cap

Dan Mitchell writes for Columbia Journalism Review about how business journalists are incorrectly comparing a company’s market capitalization to a company’s gross domestic product.

Mitchell writes, “Thursday’s USA Today story similarly described what Apple could ‘buy’ with the money represented by its market cap. But that’s not Apple’s money—it’s owned by shareholders. If Apple wanted to use its outstanding stock to buy the several huge companies that USA Today said it could now afford, it would have to first purchase all of its own stock on the open market—which would be impossible. Even with its gargantuan cash hoard, Apple doesn’t have nearly enough money or assets to buy that much stock. Its latest annual balance sheet, from last September, showed the company to have about $20 billion in cash, and $375 billion in total assets—cash plus buildings, inventory, desks, phones., etc. Assuming Apple’s assets are still at roughly that level (the latest available figure), if it sold everything it owned, it would still fall about $625 billion short of the amount it would take to purchase all of its own stock and buy the things Blumenthal said it could buy, including 1 billion iPhones Xs. Apple, Blumenthal wrote, ‘could go out and buy’ Netflix, Disney, and AT&T.

“Asked for comment, USA Today’s deputy money editor David Brinkerhoff, writes: ‘The goal of this article was to put a huge number in context for general readers. We have clarifying language in the story to ensure accuracy, as always. That said, this was not the only Apple story we wrote Thursday and does not reflect the breadth of our coverage.’

“Such stories are rampant. There were several just on Thursday, riffing on the Apple news. The Guardian did it. So did Gizmodo. Business Insider’s Graham Rapier, trying to describe just how much money $1 trillion is, wrote: ‘Apple now has a value greater than the gross domestic product of all but 26 major countries; its value is higher than the GDP of Argentina, the Netherlands, Sweden, and Switzerland, among others, according to the CIA’s World Factbook.’ Of course, the CIA’s World Factbook does not mention Apple.”

Read more here.