Image: jobsplane.in

Image: jobsplane.in

Apple has now been overtaken by Google in ‘Enterprise Value,’ a key measure of the value of a company, despite generating four times as much cash flow, reports Seeking Alpha.

While Apple’s market capitalisation (the total value of all its shares) remains higher, this value includes $141B in cash. Enterprise Value deducts any cash held by a company as – if you were wealthy enough to buy Apple – you effectively immediately get that back from the price you paid. EV is thus considered a better measure of the underlying value the market places on a company. By this measure, the market reckons Apple is worth $339B, while Google is now valued at $342B … 

What makes the respective market valuations of the two companies difficult to comprehend is the fact that Apple generates four times as much ‘free cash flow’ – essentially a measure of net income after adjusting for a few technicalities like depreciation.

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Seeking Alpha‘s Ashraf Eassa points out that Apple’s market value is just 7.7 times its free cash flow, while the multiple for Google is 30x – a disparity he describes as “absurd.”

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21 Responses to “Apple overtaken by Google in Enterprise Value despite having four times the cash flow”

  1. rogifan says:

    Ha, so someone has found a metric whereby they can claim Google is more valuable than Apple so in the anti-Apple press that becomes the better way to measure the real value of a company.

    • Agreed… Also it’s pretty well known that majority of contributors to “Seeking Alpha” (who get paid by the click) are basically investment trolls.

    • Ben Lovejoy says:

      Well, this is the thing: it actually is a better measure of the underlying value of a company. The irrationality here is that of the market rather than a commentator.

      • Ben Lovejoy says:

        Cash is good, but if you offer to sell me your iPhone for $300 and throw in $50 cash too, then effectively the price of the iPhone is $250. So it makes sense to look at the value net of cash.

      • Toby MacLeod says:

        How do you get a value of $250 when the actual value of the transaction would be $350. Maybe I’m missing something, but it seems that people in the financial markets like to make stuff up, and over complicate things.

      • Ben Lovejoy says:

        You have an iPhone for which you want $300. But you will include $50 cash when I buy it. So the real cost to me is $250. This is the situation if someone buys Apple: they pay the full price, but they get a bunch of cash too.

      • jpatel330 says:

        ben u silly goose, it doesn’t matter what metric you use to compare Apple with Google. Apple generates 4x more cash flow. Anyone with a sane mind would be able to say Apple is the more valuable company (cash or ex-cash). This comparison is a hogwash. Ashraf Eassa knows what he is talking about. The disparity between Google and Apple is indeed absurd.

      • Ben Lovejoy says:

        You’re preaching to the choir here …

  2. I hate to say it, but I am actually starting to like Icahn’s proposal more and more. I would rather like it if Appler were to go private. That way all of these moron analyst wouldn’t have anything to blather insanely about.

    • Len Williams says:

      Oh Mike, you give analysts too much credit. They’d still blather insanely about Apple doing the wrong thing, whatever it is they’re doing. I’d like someone to do an analysis of analysts. I wonder how many, if any of them, have ever owned and operated a profitable business that delivered a real product or valuable service (besides “advice”). My bet is that NONE of these guys know a thing about running an actual profitable company, and couldn’t run one successfully if their lives depended on it. Putting your trust in these kind of people who are full of opinions that reek of “authority” yet who themselves wouldn’t have a hope of creating a successful company is sheer folly. There are 3 types of people in the business world: Executives, workers and analysts (in descending order of importance, intelligence and capability).

  3. It’s Google’s recently acquired assets that have driven their value up.

  4. And Wallstreet is giving FB a value of 1/3 Apple with a tiny fraction of the cash flow. Investors sure are stupid.

  5. rogifan says:

    Who’s to say that Apple’s market cap is fair? Or that Google’s is either? Cash is being subtracted from a value that might be too high or too low. Markets aren’t always right. I personally think the valuation of companies like FB, Twitter, Amazon, and yes even Google are ridiculous.

  6. rottenbittenfruit says:

    How sad. Tim Cook is going to let Google ride roughshod over Apple without even putting up a good fight. Google always seems to get the upper hand over Apple when it comes to Wall Street’s measure of value.

  7. So … “Enterprise Value” is just a made up nonsense thing that has no bearing on the actual profitability or financial soundness of the company then. Got it.

  8. Nobody is commenting that Apple has reduced this “Enterprise Value” by buying back its shares?

  9. gargravarr says:

    More evidence as to why I would never directly invest in the share market again. Analyst bullshit. At least they’re comparing Apple with someone worthy. Whether or not you respect Google’s output and products, they have been very successful at doing what they do.

  10. So what? This just tells me Apple should and must create new market defining products and applications. Now means now is the opportunity . The question is does Apple lead or follow? Apple usually, with established products, waits until they can make a significant product change and direction

  11. Apple is actually going to secretly instal iBeacons Android versions all over Google to identify their best and brightest. They then steal them from Google with offers to good to resist. What will happen to Google then?

  12. You’re making a mistake when you say “this value includes $141B in cash”

    Any Market Capitalization is simply the number of outstanding shares *times* the current share price. NO assets of the company (cash, IP, infrastructure, etc) are included in the calculation.

    That doesn’t mean that the Enterprise Value number is incorrect, just misleading.

    The more cash Apple has in its pockets, the less the *net cost* would be to buy Apple outright. Of course, buying Apple outright is not going to happen so I agree that this EV metric is pretty much meaningless – except that Google fans get to crow.