Funny how the financial and technology press like stampede onto the same story like uneducated mass of Angus cattle. Yesterday’s example: 15,000 stories about how Apple has surpassed Microsoft in market cap.
Seriously folks, who cares? Unless you are contemplating a merger, market cap isn’t the most useful metric for evaluating a company. It’s also subject to the whims and fads of trading in the markets, and can sometimes be a gargantuan contrarian indicator (such as when we were all making market-cap comparisons between Myhomie.com and Ford Motor Company back in 1999).
Give me metrics that matter. Market cap is the metric for superficial people, the kind that like the quote the square footage of their McMansion. So I decided to dig into some more revealing statistics on the Microsoft vs. Apple comparison and look at various metrics that I like to look at.
Return on Equity
Rev. per Employee
Overall, Microsoft leads in most metrics, including some important metrics of profitability and shareholder efficiency such as net income and return on equity. However, Apple clearly has more operating leverage at this point, it’s growing faster, and it’s eye-popping revenue-per-employee number is quite simply astounding.
So why the premium valuation on Apple? Partly because people think it’s going to grow faster and partly because it’s a much more fashionable stock to own.
But overall, though, both of these companies have incredible numbers. They have shown strong profits year-over-year, have golden balance sheets, and have very strong financials.