Apple 2.0

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Google's enterprise value has overtaken Apple's. Do we care?

February 14, 2014: 11:14 AM ET

Google would cost more to acquire, but Apple has four times the free cash flow.

Screen Shot 2014-02-14 at 10.40.03 AMFORTUNE -- This may be one of those milestones with no real meaning.

But according to Seeking Alpha, Google (GOOG) has overtaken Apple (AAPL) to become the world's most valuable company in terms of how much it would cost to take it over.

The changing of guard was noted by a self-described contrarian named Ashraf Eassa. He's using a standard measure called Enterprise Value that's usually defined as follows:

 EV = market cap
+ (debt + minority interest + preferred shares)
- (total cash and cash equivalents).

It's that last bit that pushed Google (with $58 billion in net cash on the books) past Apple ($141 billion).

Of course, it's unlikely that anyone is about take over either company. And as Eassa points out in Apple: This Is Ridiculous, "there is absolutely no contest as to who the real 'boss' is" in terms of generating cash. (See chart.)

"I think this valuation gap is, frankly, absurd and worth exploiting," he concludes. "I'm starting to believe that Google has run far ahead of itself and -- despite how much I absolutely adore Google -- think that the pair trade here is probably to short Google/buy Apple until Apple's enterprise value is, once again, squarely ahead of Google's."

His advice, not mine.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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