Last week was tech-reporting week — you may have noticed? — a fun-filled, quarterly event during which we contemplate the large sums of money made by the companies who, arguably, run our social and working lives. (Full disclosure: I’m writing this on a Mac, Facebook is open and I Googled something every 30 seconds while writing this article.)
It was also the week we compare either the profits or the revenues of these companies to a country in order to provide a sense of their size. This is especially true when it comes to Apple, which just announced a record-shattering net profit of $18 billion in the past three months alone, a number that is just $500 million short of the GDP of Honduras.
I made this comparison — and I wasn’t alone. In Apple’s case, the numbers were so large it seems to make some sense, if you overlook what GDP actually represents. But for the other tech companies’ quarterly net profits or net incomes, this tool doesn’t hold up quite as well. (I used 2013 GDP numbers from the World Bank, all in USD.)
Samsung: Q4 net profit of $4.89 billion, hitting between the GDPs of Montenegro and Suriname.
Google: Q4 net income of $4.76 billion, also between Montenegro and Suriname.
Facebook: Q4 net income of $701 million, $8 million less than St. Vincent and the Grenadines.
Amazon: Q4 net profit of $214 million, between the Marshall Islands and Palau.
Hands up if you know a single thing about the economies of Palau or Suriname. In short, the comparison offers no context.
Several British newspapers, including The Guardian, reported that if Apple’s revenue keeps this pace, it will reach almost $300 billion – equal to the GDP of Denmark, Hong Kong, Israel or Greece.
Forbes, among others, took issue with this comparison (among other things, none of those countries has a G DP of $300 million), and they have a bigger point. Regardless of the need to put numbers into context, neither corporate revenue nor corporate profits are comparable to what GDP actually means.
GDP is like the price sticker on the whole economy: the combined value of all the goods and services produced in a year. Put another way, it’s the combined income of everyone in the country — before taxes and including benefits — plus profits. This means a company’s profits or revenue are only elements of their GDP, not the whole picture.
Comparing countries to corporations has an obvious appeal: it can give context to numbers (well, ideally), conveying how truly huge, and therefore powerful, multinational corporations can be.
But if you’re going to do it, there’s a slightly better way, or so Matthew C. Klein argues on the Financial Times’ Alphaville blog. (Note: the blog is free even if you’re not an FT subscriber, but you have to register.)
The best way to do it, he claims, is to add all the salaries of employees together, and add the EBITDA (earnings before interest, taxes, depreciation and amortization), which will at least get you to the gross value added (GDP – taxes + subsidies).
Using some guesswork, he estimates this puts Apple’s “GVP” at $87 million, which is below the GDPs of Ecuador and Slovakia, and above Oman.
Another comparison might be to look at the “liquid assets” aka, their currency reserves: on this measure, he says, the company is comparable to oil-rich Norway.
And that could really tell us something about the Republic of Apple.