Apple passes Exxon who passes Apple
Yesterday Apple’s market cap passed Exxon’s to become the most valuable company, however it fell behind today. Either way, its market cap is very high for a company that was not expected to survive 1997.
Market cap is the value obtained by multiplying a company’s outstanding shares by its stock price. Apple’s and Exxon’s market caps are each around $348 billion. Each of these companies is equal in value to Alcoa, Travelers, DuPont, Boeing, Home Depot, American Express, Caterpillar and 3M combined.
Values continuously change. In some cases such as with Disney whose stockholders lost $6 billion in value today and whose stock closed 29% lower than its 52 week high, value is illusory, fleeting or ephemeral. In 1997 just before Steve Jobs was rehired after earlier being kicked out, Apple was a non starter with minimal value and influence. Ten days ago Apple had more cash than the U.S. Treasury, and Apple’s sales are greater than 20 of the 30 companies in the Dow Jones Industrial Average.
A company’s value is transitory and subjective. Even in Apple’s case, there is disagreement as to its value. Some people claim that Apple’s $76 Billion cash hoard should be subtracted from its market cap reducing its “enterprise” value to $270 billion thus making it much smaller than Exxon. I am sure that if we put ten valuation experts in a room, we will get ten different views of Apple’s worth. Now, consider a family owned business that wants to transfer some ownership to children. The value there will be perceived as being different depending upon who gets the shares. A child working in the business in a management capacity will value it differently than a sibling working in a non essential spot or a sibling who is totally uninvolved in the business, and the IRS will look at the value differently to make sure the proper value is claimed for gift or estate tax purposes, as will a bank lending funds based on the company’s value, or a supplier extending a large credit line. I also know that an owner’s widow will look at the value differently than the remaining owners who have to make after tax payments to the estate to redeem the shares. Value will also be different to a spouse divorcing the person that owns a business than to the spouse running the business trying to meet payrolls, make loan payments, keep customers happy, personnel motivated and balance its inventory.
Complicated? You bet! Some things we cannot control, but the things we can, should be. For example, a business buy-sell agreement, a sound succession plan, an estate plan that considers distribution of assets in the most appropriate manner, periodic meetings with the banker, properly audited financial statements and sound personal financial planning are all under an owner’s control. What you can control should be. Otherwise you surrender part of your hard earned wealth and financial security to others.