November 17, 2020/
On August 19, 2020, the market capitalization of Apple crossed the $2 trillion mark (that’s $2,000,000,000,000). Apple is the world’s most valuable company right now. But is it also the most valuable company of all time?
The Saudi Arabian oil giant Saudi Aramco was briefly valued at $2.03 trillion when shares amounting to 1.5% of its capital began trading on the stock exchange of Saudi Arabia in December 2019. (At the time of writing, it is worth a lot less, due to the fact that the oil price plummeted after the corona virus outbreak in early 2020.) However, numerous websites claim that at some point in history various historical trading companies had a much higher value than Apple has reached in late 2020 of Saudi Aramco in December 2019.
A staggering $8.28 trillion
Howmuch.net, for example, writes that the English South Sea Company and Mississippi Company were worth $4.5 and $6.8 trillion at the height of the stock market craze of 1720. The most valuable company of all time, however, was the Dutch East India Company (VOC). According to howmuch.net, its worth reached a staggering $8.28 trillion in 1637. Lovemoney.com reports the same value and gives some more information: “The value of the company […] ballooned outrageously in 1634 after its ships carrying tulip bulbs sparked the infamous Tulip Mania in Holland. The value of the bulbs reached ridiculously high levels, pushing the company’s share price up 1,200%. Right before the bubble burst in 1637, the firm was worth 78 million Dutch guilders, which is $8.2 trillion (£6.3trn) in 2020 dollars, equivalent to the combined GDPs of Germany, the UK and France.”
Visualcapitalist.com, The Motley Fool, Business Insider, and also Dutch financial news network RTL Z—they all report more or less the same, impressive value of the VOC in 1637. But is it true?
Estimating the real value of the VOC
The short answer is: no. The value of the VOC doesn’t even come close to the likes of Apple and Saudi Aramco. Because the VOC did not publish financial reports (even though it was a listed company—the company argued that it was pointless to do so because shareholders wouldn’t be able to fathom the numbers anyway), and the company bookkeeper’s books have only partially survived and are very difficult to understand, the best way to estimate the company’s value is to look at market capitalization.
At its IPO in 1602, the VOC issued stock with a total value of 6,429,588 guilders. This amount stayed roughly the same until the company liquidated in the late 18th century. The highest share price was not reached 1637, but in 1720. In that year, a speculative frenzy spread from London to the European continent and VOC stock was briefly traded at around 1,200. The share price was expressed as an index figure, where the value of investments in 1602 was set at 100. So in 1720, the market capitalization of the VOC was just over 77 million guilders. That’s close to the value reported by Lovemoney.com, only the year is different. The share price of 1,200 for 1637 is simply wrong. At the height of the tulip craze, in early 1637, VOC shares traded around 270. Speculation with tulip bulbs, which was largely confined to a small group of traders in the Dutch city of Haarlem, did not have near as much impact on the VOC share price as the craze for shares in trading companies of 1720.
A meagre $1 billion
77 million guilders in 1720, how much would that be in today’s money? This is difficult to estimate, but according to this online tool of the International Institute for Social History (IISH) in Amsterdam, which uses a large series of consumer goods price data compiled by authoritative economic historians, it would be approximately €820 million (just short of $1 billion). That’s a factor 8,000 less than reported by many websites.
The IISH tool might underestimate historical inflation figures, but a value of around $8 trillion for the VOC is plainly ridiculous. In terms of company value, the VOC was the Apple of its time, but not of all time.
As a financial expert deeply immersed in the intricacies of historical market valuations, I am here to shed light on the fascinating journey of market capitalization through time. The article in question delves into the historical valuations of prominent companies, particularly focusing on capital stock, VOC (Dutch East India Company), VOC dividend, and VOC share price on November 17, 2020.
Firstly, let's explore the central concepts:
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Capital Stock: Capital stock refers to the total amount of shares that a company is authorized to issue, representing the ownership interest of shareholders in the company. It is a key component in determining a company's market capitalization.
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VOC (Dutch East India Company): The VOC, or Vereenigde Oost-Indische Compagnie (Dutch East India Company), was a historic trading company established in 1602. The article posits that the VOC was the most valuable company of all time, with a reported worth of $8.28 trillion in 1637.
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VOC Dividend: VOC dividend would involve the payments made to shareholders as a portion of the company's profits. However, the article does not extensively discuss dividends in the context of VOC.
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VOC Share Price on November 17, 2020: The article does not provide information on the VOC share price on November 17, 2020. Instead, it emphasizes the historical valuation of the VOC in 1637.
Now, let's scrutinize the evidence presented in the article:
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Historical Valuations: The article challenges the reported value of the VOC by various websites, asserting that the Dutch East India Company's worth did not surpass that of modern giants like Apple and Saudi Aramco. The VOC's valuation is contested due to the absence of financial reports and the complexity of surviving records.
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Market Capitalization Estimate: To estimate the VOC's value, the article suggests looking at market capitalization. It notes that at its IPO in 1602, the VOC issued stock worth 6,429,588 guilders. The highest share price was reached in 1720, with a market capitalization of over 77 million guilders. The article disputes the reported share price of 1,200 in 1637, asserting it was around 270 during the tulip craze.
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Contradictory Claims: The article highlights discrepancies in reported values, citing an online tool from the International Institute for Social History (IISH) that estimates the VOC's 1720 market capitalization at approximately €820 million (just short of $1 billion), significantly less than the widely reported $8 trillion.
In conclusion, the VOC's historical valuation, while impressive, is challenged by the lack of comprehensive financial records and contradictory claims. The article argues that, in terms of company value, the VOC may have been the "Apple" of its time but challenges the assertion that it was the most valuable company of all time.
