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Comment by lpolovets | Hacker News Reader

It's hard to compare market caps to GDP because GDP is kind of like "aggregate value of everything produced this year" while a market cap is "estimated total profits for a company from now until the end of time." So you might have a company like Walmart with $200b in market cap but ~$500b in annual revenue (3% of GDP by itself!) and $15b in net income. On the other hand there are companies like Adobe with $60b market caps and $6b in annual revenue and $1b in net income. So the GDP vs market cap comparison is somewhat apples to oranges, although there's no disputing the companies in the brief have a large impact on the US economy.

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To be clear: it's not just hard, it is explicitly wrong.

A more correct measure is a much simpler one: the aggregate product of all these companies over the GDP. Note that this aggregate product is of course a component of the GDP, so you can express this neatly as a percentage. I see only one major accounting complication in constructing this metric, and that's the inclusion/exclusion of foreign products and subsidiaries. (See e.g. offshore revenues that are not repatriated, and therefore not part of the domestic product calculations -- I think?)

Are product numbers (domestic or multimarket) accessible somewhere to construct this? (Would revenue numbers suffice or is there more that should be factored in?)

Or is there an accepted measure of national economy that might play a sensible denominator for the sum I put together?

As I said, I don't know enough about economics to pretend to be making a reasonable comparison, I just went for the numbers I could find on a whim at 2am :-)

Thanks for actually knowing things

Could look at the GNI, gross national income. It's gdp plus net foreign income

Another way is to estimate the net present value of America's GDP by multiplying it by 20 or so, which implies that it's roughly 1% of American wealth.

Alternatively, percentage of rents at office and industrial zoned land would be a good measure. That'd separate out national vs international activity, at the cost of being significantly more difficult to estimate and calculate. I actually don't know how well rents and imputed rents are tracked at aggregate levels and broken down by company, so this may very well be data that we simply don't have access to.

Out of curiosity, why ~20?

P/E ratios are around 20 on average I suppose. Meaning earnings are 5% of the market cap of a stock.

GDP doesn't directly correlate to earnings though.

It's just a rule of thumb as to what long run P/E ratios look like in the equity markets.

Historically, $20 is the price of something that gives you $1/year. This, like, goes back to the medieval era.

Fair points, both you and akiselev; thanks for the clarification

I am not an especially economically-(or even really quantitatively) inclined person; I just see GDP bandied about as a metric of "size of economy" and market cap as "value of company". Revenue is probably locatable if someone wants to dig into quarterlies... I probably spent too much time on this exercise already

It's actually pretty easy but for a first order estimate: http://wolframalpha.com/input/?i=total+2015+revenue+of+Googl...

I'm on mobile so I can't get the interface to work properly but it's much easier on desktop Mathematica or WolframAlpha. In the above figure, I only included names from the OP that I was certain were public after a quick glance and I didn't even get to Microsoft. The number is something like $500 billion a year but as a sibling comment to yours mentions, this includes international revenue that may never make it to the US.

Accurate data on this scale is hard to come by without a working Bloomberg terminal.

Here's a very, very rough ballpark estimate based on your data:

- $2.7T in market cap

- let's say average P/E ratio is 25 (P/E is approximately the ratio of company valuation to annual profits)

- let's say the profit margin of a typical tech company is 20%

- let's say 40% of a typical tech company's revenue is in the US

Estimated US revenue of the companies in your spreadsheet: $2.7T / 25 / 0.20 * 0.40 = $216b (about 1.5% of GDP, which is still huge)

By the way, I think your initial estimate of the total market cap of companies signing the brief is quite useful and informative, it just shouldn't be compared to GDP :)

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