Sorry, Apple is not the world's most valued company ever

Apple emerging as the biggest company ever because of the sheer size of its market cap is grabbing headlines across the globe today.

On Monday, Apple’s surging stock propelled the company’s value to $624 billion, the world’s highest, ever. It beat the record for market capitalization set by Microsoft Corp in the heady days of the Internet boom, said various media reports. Market capitalisation is the total number of shares of a company, multiplied by the share price.

This sudden spurt in the stock can be attributed to investor euphoria over new product announcements from Apple - in this case, the expected introduction of the iPhone 5 in mid-September.

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[caption id=“attachment_425000” align=“alignleft” width=“380”]  Apple isn’t the most valuable company in the world. Reuters[/caption]

However, the truth is this $624 billion is a mere nominal record and does not take inflation into account. This means it assumes that money has the same value now as it did back at the turn of the century. Accounting for inflation, $1 in 1967 is worth $6.85 today as the annual inflation over this period was 4.37 percent. Similarly $1.00 in 2012 had the same buying power as $0.15 in 1967.

Apple’s stock closed at $665.15. That was an all-time high, up $17.04, or 2.6 percent, from Friday’s close.

Microsoft’s 1999 peak was $620.58 billion, according to Standard & Poor’s. But in inflation-adjusted dollars, the software giant was worth about $850 billion on 30 December, 1999. This essentially means Apple has to add another $225 billion dollars to its market cap before it can overtake Microsoft.

“Apple’s $622 billion market cap is a nominal record, which means ‘in name only,’ or alternatively, not really,“ Ryan Chittum wrote on The Audit, a Columbia Journalism Review blog."That’s because it’s a record only if you don’t adjust Microsoft’s 1999 market cap for inflation. Sorry, but you have to adjust any number like this that’s that old for inflation-it’s comparing apples to oranges not to do so.”

And not only does he say that Microsoft’s valuation is still more than that of Apple, but further argues that IBM remains the historic winner with a 1967 value of $1.3 trillion.

“IBM’s 1967 value of $193 billion is worth around $1.3 trillion in today’s money.” So Apple’s Monday market cap is not even half of IBM’s value back then, after adjusting for inflation.