Revenue, market cap, brand value – what is the difference? - November 04, 2018

Revenue, market cap, brand value – what is the difference?

Revenue, market capitalization and brand value. We read about these things almost every day. They are all mentioned when talking about the success (or failure) of companies, but why are they so different? We explain all of them and their connection through the example of Apple, the biggest (public) company.

There are several valuation methods that we (and other analysts) use when talking about the worth of a company. Although they are all connected to each other it might be hard to know which means what. What’s more, there are huge differences between their values. Now we explain them all through the example of Apple, the biggest publicly traded company on Earth.

Revenue – the root of all things

Every valuation is closely connected to sales (or revenue). This is rather simple: the money a company makes through selling products and/or services in one year. According to the Forbes 2000 list, which ranks the biggest companies on Earth, Apple had a $247.5 billion sales by June 6 this year. It will surely go higher, but it already seems that this will be a record year for the company as last year they had a revenue of $229.23 billion.

Revenue of Apple

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This is how much money Apple makes a year. After they pay all their expenses they keep $53.3 billion in profits. These are important numbers. Generally speaking, the higher sales (and profits) they have, the higher their market cap and brand value will be.

Market cap – future of the company

Market capitalization is the product of the total number of a company’s outstanding stocks and the actual price of one stock. This means that market capitalization changes all the time, according to stock prices. The better a company does, the higher their stock prices will be. Therefore, market cap will also go higher. That’s why yearly sales are so important: they can make stocks more or less expensive.

Market cap of Apple

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But market cap is more than just sales. It’s also an expectation of how a company will do in the future.  That’s why Apple’s market cap now is over $1 trillion (which is above their $247.5 billion sales). Apple is a money-making machine now, and investors expect that to remain so. This belief of a bright future makes investors to trust Apple. They are putting their money in it, because they expect Apple prices (and dividends) to go even higher in the future.

Brand value

Brand value might be the hardest to explain, as it’s not only based on hard data. This number is also closely connected to revenues and profits. But there’s another factor in it: the importance of the brand. As Forbes puts it (which has its own most valuable brands list every year): they factor “the role brands play in each industry”. This role is especially important in the tech industry.

Brand value of Apple

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There are other lists that calculate a brands perceived value by consumers. Interbrand factors in financial forecasts, role of brand and brand strength too. This last one is important, as it measures “the ability of the brand to create loyalty and, therefore, sustainable demand and profit into the future”. Apple is superb in creating brand loyalty (even hardcore fanbase), therefore it is worth a lot as a brand. Still, brand value is usually lower than the other figures as its more connected to the value of the name, and not just of economic performance.

How do revenue, market cap and brand value add up?

To see how these figures move together, we also created a chart that shows the changes in Apple’s revenue, market cap and brand value at once.

Revenue, market cap and brand value of Apple

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As it can be seen, they don’t move perfectly together, but they go along the same pattern. Because at some point they are all connected to sales performance. This is how revenue, market capitalization and brand value are all different things, but still, they are all about the success of a company.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.