Apple, the most valuable company in the world as measured by valuation, ranks fifth behind China’s Tencent Holdings. According to Forbes’ Bruce Upbin few of the “376,000 views across all the bits of related stories, landers and galleries” questioned the methodology Forbes used to calculate a company’s “innovation premium.”
To quote Upbin:
This number is the proportion of a company’s market value that cannot be accounted for from the net present value of cash flows of its current products in its current markets. Put another way, it’s the premium the stock market gives a company because investors expect it to launch new offerings and enter new markets that will generate even bigger income streams.
First, one has to question the method used to qualify companies to even appear on Forbes’ radar screen before having their innovation premium calculated. After all, there are some 63,000 publicly traded companies around the globe. The most innovative company according to Fast Company, Huawei Technologies, does not even show up on Forbes’ list.
More importantly, non-publicly traded innovators, like the groundbreaking Square Inc., do not have a calculable innovation premium.
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