Saudi Aramco Makes a Lot of Money

A thing that people sometimes talk about in financial journalism is “stocks versus flows.” The idea is that there are some things that are measured by a number of dollars, and other things that are measured by a number of dollars per year, and it is important not to mix them carelessly. So someone will say that Apple Inc.’s market capitalization is bigger than the gross domestic product of some country, and someone else will get mad and say, no no no, Apple’s market cap is a stock and a GDP is a flow, and you can’t compare them.

This sometimes seems a bit overstated to me. Of course you can compare a stock to a flow; people do it all the time; it’s called “valuation.” A stock is a flow times a number of years. If you get $X per year, then after a year you have $X. If you have a company that trades at a price-earnings ratio of 15, then that means you would pay about $15 (a stock) for $1 of recurring annual earnings (a flow). It’s fine. The point of a flow of money is that it increases your stock of money.