Yesterday afternoon, Apple's market value surpassed Microsoft's. 
 
 For those who were around in the 1990s, this is a remarkable, watershed event, one that was basically unthinkable a decade ago. 
 
 A decade ago, Microsoft was worth 35X more than Apple was: $556 billion to $16 billion. In the intervening 10 years, Microsoft's value has been cut in half, while Apple's has risen about 15X. 
 
 (Microsoft has also paid out at least ~$40 billion in dividends, so the company's value collapse isn't quite so stark, but it has still been a rough decade). 
 
 Stock market value is more about the future than about the present or past, so it's worth asking whether the market's current opinion about the relative value of these two companies is an accurate reflection of the future...or whether it's a complete hallucination, like the market's assessment a decade ago turned out to be. 
 
 How do we ask (and answer) that question? 
 
 One way to begin is to look at the companies' relative cash flows and growth prospects and think about what the market is saying will happen to them in the future. 
 
 All else being equal, the market's assessment that Apple and Microsoft are worth about the same amount (ignoring the relatively minor difference in their cash and debt balances) means that the market thinks Apple and Microsoft will generate about the same amount of cash for shareholders over the next 100+ years. 
 
 Is this reasonable? 
 
 Let's take a look at where things stand now. 
 
 In the past year (through March), Microsoft has generated about $21 billion of free cash flow (cash from operations less capital expenditures). Apple, meanwhile, has generated about $12 billion. Right now, therefore, Microsoft is generating about $2 of cash for every $1 of cash that Apple generates. 
 
 If Apple and Microsoft were to go on generating this amount of free cash forever, Microsoft would be worth about twice what Apple is worth--and the current market values would be way out of whack. 
 
 Of course, Apple and Microsoft won't generate this amount of free cash forever. If recent trends continue, both companies will continue to increase the amount of cash they are generating, with Apple's free cash flow growing at a much higher rate. If Microsoft's competitive position continues to erode, moreover, Microsoft's free cash flow might stop growing (or even start to shrink) at some point, which would make it easier for Apple to catch up. Still, given the huge current difference between the companies' free cash generation, it will take Apple a while to close the gap. 
 
 The theoretical value of a company is the present value of all future cash flows that will accrue to shareholders. So if Apple continues to close the free-cash-flow gap with Microsoft over the next few years--and then eventually surpasses it--the current market values make sense. Of course, thanks to risk, opportunity cost, and inflation, dollars that shareholders get today are worth a lot more than dollars shareholders think they will get in 10 years, so for today's market values to make sense, Apple has to catch up and pass Microsoft's cash flow within, say, 5-10 years. 
 
 Based on the companies' relative positioning in the market, the relative market values seem reasonable. Apple is positioned to capture a huge share of the growth of mobile and tablet computers in the next decade and to continue to gain share in laptops and desktops. Microsoft, meanwhile, is exposed to major competitive threats to both its Windows operating system business AND its Office juggernaut, and, combined, these products generate the vast majority of Microsoft's cash flow. So, again, the market's current assessment of relative future cash generation seems reasonable. 
 
 But before Apple shareholders get too comfortable, it's worth, once again, looking back 10 years. 
 
 A decade ago, it seemed reasonable to think that Microsoft would continue on its inexorable path to world domination and Apple would disappear into the annals of history. That's why the market valued Microsoft at 35X Apple--because that scenario seemed reasonable. 
 
 But look what happened: Microsoft did continue to grow, but at a much slower rate, and its once-unassailable monopolies began to come under attack. Apple, meanwhile, pulled off one of the most amazing turnarounds in corporate history, creating several huge new markets in the process. 
 
 From today's perspective, the market's current forecast seems as reasonable as the one a decade ago did. If history has taught us anything, though, it is that we should expect the unexpected. And between Apple's key-man risk (here's looking at you, Steve!), Google's Android, Microsoft's enormous financial resources, and one of the most rapidly evolving competitive landscapes in history, anything can happen. 
 
 So step right up and place your bets! ||||| Microsoft's quarterly profits and revenues were eclipsed for the first time in 20 years by Apple as a slowdown in the PC business and continuing huge losses in its search division held it back. 
 
 Though the company reported net income up 30% to $5.2bn (£3.1bn) from $4bn, and revenues up 13% to $16.4bn from $14.5bn, both were smaller than figures released by Apple last week showing $6bn profits on revenues of $24.7bn. 
 
 The overshadowing of Microsoft's financial might by Apple will be seen by some as marking a key moment in the industry, as Apple's iPad tablet computer and iPhone smartphone have both become important sources of revenue even while its desktop and laptop computers – the areas where Microsoft dominates – have become less important. Microsoft overtook Apple in profits in 1991, and revenues in 1995. But since the launch of the iPhone in 2007 and then the iPad in 2010, Apple has grown rapidly, and its market capitalisation overtook Microsoft's in May 2010. 
 
 Microsoft's dependence on the PC industry, which recorded a surprise year-on-year fall in sales during the first quarter, means that its profits from Windows licences, which generate roughly half its profits, are vulnerable to any slowdown. 
 
 Analysts believe that the iPad and other tablets using Google's Android software are eating into Microsoft's PC business, and have not seen any convincing response from the Redmond-based giant. Sales of its Windows Phone have been unimpressive so far, and are not mentioned in the formal earnings announcement. 
 
 Trip Chowdhry, managing director of Global Equities Research, said: "This is the best they can do in the industry they have. The quarter was almost in line. There is nothing to get excited about. But 2012 is going to be much weaker versus 2011. It's all about innovation and the pace of innovation. The question to ask is: is there any product line in Microsoft that they are not playing catch-up on?" 
 
 Colin Gillis, an analyst at BGC Financial, said: "The concern is PC markets are being disrupted. There's some validity [in that]. 
 
 "But it's also overblown when you factor in that Windows 7 is the fastest-selling OS in history. There was $4.5bn in [Windows] revenue. You've got to put it in perspective. Tablets are not going to replace PCs. OK, they are definitely eating into laptops in some markets. But Microsoft will be in that game. You're going to see Windows 8 come in September, that's going to help offset the tablet concerns, because it's going to run tablets." 
 
 Channing Smith of Capital Advisors Growth Fund said: "It's hard to get excited about the Microsoft story when there are more exciting growth opportunities in the marketplace. With that said, Microsoft to me is no longer a growth stock but it is a very attractive value stock." 
 
 Search remains a source of financial pain for the company. Its Online Service division, which contains its search engine Bing, recorded a loss of $726m (previously $709m) on revenues of just $648m, up from $566m last year. By contrast Google's latest quarterly results showed a profit of $2.3bn on revenues of $8.5bn – more than 10 times larger than Bing and its properties. 
 
 The only other sources of encouragement were higher sales of Office, the company's other established monopoly, which generated profits of $3.1bn on revenues of $5.2bn, and the Kinect games add-on, the fastest-selling consumer electronics device ever, which contributed to a 60% growth in its Entertainment and Devices division, which includes the Xbox 360 console. 
 
 • RIM, maker of the BlackBerry, slashed its quarterly profit and revenue forecasts from the already lower numbers given at its last quarterly results. It said phone shipments would be closer to 13.5m, and that more would be cheaper models. It cut its earnings forecast by 12%.
– In case you haven't heard, Apple has passed Microsoft in market value. But is it really worth more? Sure, if you're feeling lucky, writes Henry Blodget for Business Insider. Microsoft's free cash flow is roughly double Apple's, so right now they're way out of whack, but Apple is growing much faster. If you think that'll continue—and based on its current product outlook, that seems reasonable—then sure, buy some AAPL. Because "for today's market values to make sense, Apple has to catch up and pass Microsoft's cash flow within, say, 5-10 years." But 10 years ago, the fact that Microsoft was worth 35 times more than Apple seemed just as reasonable. Things changed—so much so that, as Dan Nosowitz of Fast Company points out, Apple and Microsoft might not even be competitors anymore. This is a story about very different companies; it “isn't Pepsi overcoming Coke.” Right now superior marketing has put Apple on top, but the landscape's evolving even more rapidly now. “Anything can happen," Blodget warns. "So step right up and place your bets!”