Financial Analysis Of Apple Inc: Evaluation Of Performance, Position, And Investment Opportunity

Objectives and Purpose

Financial management is an analysis process to evaluate and analyze the position of the company. This process helps the analyst to evaluate about the performance of the company so that it becomes easy for them to make better conclusion about the company. This report has been prepared to evaluate the performance and financial position of the company, APPLE INC so that the investment opportunity of the company could be evaluated and it has been analyzed that how is the manpower position of the company.  

Apple Inc. is an American company which is operating its business in information technology industry. Headquarter of the company is in California. The company designs, sells and develops the computer software, electronic devices, mobile phones and online services. Hardware product of the company includes iPhone, iPad, iPod, Mac personal computer, Apple TV, HomePod speaker, smart watches etc. On the other hand, software of apple includes macOS, iTunes, iOS operating system, iLife, safari web browser, iWork, Xcode etc. company also offers various online services such as iTunes stores, Apple music, Mac app store, iCloud (Home, 2018).

Company was founded in April 1976 by Steve Jobs, Steve Woozier and Ronald Wayne. Firstly, the main business of the company was developing and sell personal computer named by Wozaniak’s Apple. The company was incorporated as Apple computer Inc in 1977. The current position of the company explains about various significant moments, revenue growth and market position of the company. Apple Inc went public for achieving the instant financial success in 1980. According to the annual report (2017), total turnover of the company is US$ 229.234 billion. Total number of employees of the company is 1,23,000. The company is serving its products and services worldwide (Baker and Nofsinger, 2010).

The company has enjoyed huge level of loyalty and it has also been repeated that the company has been awarded as most valuable brand of the company. However, the company has received significant criticism in context with the labour practices, business practices, environmental practices which also includes anti competitive behaviours and the sources of materials.

Apple inc. is the largest information technology company in worldwide in terms of its revenue and it is second largest mobile manufacturing company. In the year of 2015, apple Inc has become the first US Company which has been valued more than UD$ 700 billion. Currently, company is maintaining around 499 retail stores in 22 countries and on the other hand, it is world’s largest music retailing company. According to the report of 2016, around 1 billion apple products are used around the world actively (Arnold, 2013). It is a joint stock company which has been registered with the SEC. The main stakeholder of the company is The Vanguard Group which is holding 6.43% of total stock of the company.

Steps in Preparation of Financial Analysis Report

The main competitive company of Apple inc. is Microsoft Corp. Microsoft corp. is an American company which is operating its business in information technology industry. Headquarter of the company is in Washington. The company designs, sells and develops the computer software, electronic devices, mobile phones and online services. The best software product of the company is Microsoft windows line of Microsoft office suit, operating system, edge web browser (Home, 2018). The hardware product of the company is Xbox video game, Microsoft surface tablet etc.

Company was founded in April 1975 by Paul Allen and Bill Gates. Firstly, the main business of the company was developing and sell personal computer. The current position of the company explains about various significant moments, revenue growth and market position of the company. According to the annual report (2017), total turnover of the company is US$ 89.95 billion. Total number of employees of the company is 1, 24,000. The company is serving its products and services worldwide.

The financial statement (Income statement, balance sheet, cash flow statement etc) of the company are as follows:

Figure 1: income statement

(Annual Report, 2016)

Figure 2: Balance Sheet

(Annual Report, 2016)

Figure 3: Cash Flow Statement

Figure 4: Shareholder’s Equity

(Annual Report, 2016)

The above figures explains about the financial position and performance of Apple Inc. the figure 1 expresses about the total turnover, revenue, cost of goods sold, net profit, operating income etc of the company. According to the figure 1, total revenue of the company was US $ 229234 million in 2017 whereas the total cost of goods US $141048 which explains that the gross profit of the company is US $ 88186 or 38.47% of total revenue (Morningstar, 2018). Further, it explains that the total operating expenses of the company is US $ 26842. Hence, the net profit of the company was US $ 48351 in 2017. It expresses that the net profit f the company is 21.09% of total revenue. The earnings per share of the company are 1.55 whereas the outstanding shares of the company are 31297 million.  

Apple’s Balance sheet:

Further, the figure 2 expresses about the total current assets, total assets, total liabilities, current liabilities and equity etc of the company. According to the figure 2, total current assets of the company were US $ 128645 million in 2017 whereas the total assets of the company were US $ 375319 which explains that the company has enough resources to maintain the operations (Gapenski, 2008). Further, it explains that the current liabilities of the company are US $ 100814. On the other hand, the liability of the company was US $ 241272 in 2017. It expresses that the equity of the company is US $ 134047.

Background of Apple Inc.

In addition, the figure 3 expresses about total cash inflow and outflow of the company. According to the figure 3, total operating, investing and financial cash flows of the company are US $ 63598, US $ -46446 and US $ -17347 respectively. The statement expresses that the net cash flow of the company is US $ -195 which means the cash outflow of the company is higher than inflow. Lastly, figure 4 expresses about the changes in the equity position of the company and explains about the following changes:

Stockholders’ equity
Common stock	35867	31251	27416	23313
Additional paid-in capital					19764
Retained earnings	98330	96364	92284	87152	104256
Accumulated other comprehensive income	-150	634	-345	1082	-471
Total stockholders’ equity	134047	128249	119355	111547	123549

 

Ratio calculations of Apple Inc and its competitive company, Microsoft Corp. Are as follows:

Financial Ratios of five years:  Apple inc vs. Microsoft inc
Financial Ratios	2017	2016	2015	2014	2013
Liquidity of Short-Term Assets
Current Ratio
Apple inc	1.28	1.35	1.11	1.08	1.68
Microsoft inc	2.48	1.35	1.11	1.08	1.68
Cash Ratio
Apple inc	1.28	1.35	1.11	1.08	1.68
Microsoft inc	2.48	1.35	1.11	1.08	1.68
Quick Ratio
Apple inc	0.15	0.23	0.23	0.18	0.29
Microsoft inc	0.08	0.23	0.23	0.18	0.29
Long-term Debt-paying Ability
Debt Ratio
Apple inc	64.28%	60.13%	58.91%	51.89%	40.31%
Microsoft inc	69.97%	62.83%	54.56%	47.92%	44.57%
Debt-equity Ratio
Apple inc	86.30%	67.86%	54.01%	31.64%	13.73%
Microsoft inc	119.06%	74.57%	44.07%	25.22%	19.76%
Times Interest Earned
Apple inc	26.41	41.23	97.18	136.73	360.29
Microsoft inc	10.05	41.23	97.18	136.73	360.29
Profitability
Profit Margin (Net Income/Sales)
Apple inc	21.09%	21.19%	22.85%	21.61%	21.67%
Microsoft inc	23.57%	21.19%	22.85%	21.61%	21.67%
ROA (Net Income/Assets)
Apple inc	36.07%	35.62%	44.74%	35.42%	29.98%
Microsoft inc	29.29%	63.46%	66.67%	44.01%	46.92%
ROE (Net Income/Shareholder Equity)
Apple inc	21.09%	21.19%	22.85%	21.61%	21.67%
Microsoft inc	23.57%	21.19%	22.85%	21.61%	21.67%
Asset Utilization/Management Efficiency
Total Asset Turnover
Apple inc	1.64	1.49	1.24	1.27	1.21
Microsoft inc	2.68	0.90	0.75	0.94	0.83
Inventory Turnover Measures
Apple inc	0.62	0.61	0.60	0.61	0.62
Microsoft inc	0.38	0.61	0.60	0.61	0.62
Accounts Receivable Turnover
Apple inc	12.82	13.69	13.87	10.47	13.04
Microsoft inc	4.54	13.69	13.87	10.47	13.04
Market Measures
Price/Earnings Ratio
Apple inc	112.33
Microsoft inc	57.79	(Davies and Crawford, 2011)
Earnings Per Common Share
Apple inc	$         1.54	$      1.39	$      1.55	$       1.08	$       0.95
Microsoft inc	$         2.74	$      1.39	$      1.55	$       1.08	$       0.95
Dividend Payout Ratio
Apple inc	5.50	8.34	15.77	28.97	77.68
Microsoft inc	5.10	7.56	13.48	23.12	54.82

(Annual Report, 2013, 2014 and 2017)

The above table expresses about the financial position of the company at various levels. Firstly, liquidity ratios of the company have been evaluated and compared it with the competitive company, Microsoft Corp. to evaluate the position of the company. The current ratio of the company expresses that the current ratio of the company is 1.28 whereas the benchmark company has current ratio of 2.48 which explains that the cash position of Apple is way better as it is utilizing the resources at its fullest (Damodaran, 2011). On the other hand, cash ratio and quick ratio has been evaluated and it has been found that the Apple Inc is managing and operating its operations and short term debt obligation of the company is quite better.

Further, the long term debt ability position of the company has been evaluated t identify the debt position and capital structure position of the company. The debt ratio calculations express that the debt level of Apple Inc is 64.28% which is lower than Microsoft Corp. the difference is not slightly much (Morningstar, 2018). Further, debt equity ratio of the company expresses that the debt level of the company is quite significant with the equity level whereas the benchmark comapny explains that the debt level is quite higher than the equity level of the company. More, the time interest earned ratio expressed that the position of apple Inc is way better (Bromwich and Bhimani, 2005).  

Further, the profitability ratios of the company have been evaluated and it has been found that the profit margin of Benchmark Company is quite higher though the changes are quite lower. The return on assets level of the company expresses that the profitability level of apple is way better in terms of resources and management. Lastly, the return on equity expresses that the apple’s position is bit lower than the benchmark company (Horngren,  2009).

Competitive Landscape

In addition, asset utilization level of the company has been evaluated and it has been found that the total assets turnover level of the company is 1.64 times whereas the level of Benchmark Company is 2.68 times; it explains that the resources of apple are quite lower. Further, the inventory and accounts receivable turnover explains that the company is required to reduce the turnover times to manage the cost and operations of the company (Morningstar, 2018).

Lastly, the market measures have been evaluated and it has been found that the price earnings ratio of apple is way better. On the other hand, EPS of the company is lower than the Microsoft Corp and dividend payout ratio of both the coma pies are quite similar. It explains that both the companies are performing almost same in the market.

After calculating and analyzing numerous ratios of the company, other statistics have also been evaluated to reach over a better conclusion. Financial ratios are not enough for Ana analyst to evaluate the financial position of a company; various other statistics could also be used to make a better conclusion. Firstly, beta has been evaluated and it has been found that the beta of the company is 1.30 (Yahoo Finance, 2018). A beta coefficient of 1 expresses that the performance of the stock is quite similar with the market rate. Beta explains about the systematic risk of the company. Beta has some ups and downs according to the stock price and the market changes. The beta of apple Inc is way higher than the 1.0 coefficient which expresses that the changes into the stock price of the company is quite higher than the changes in the market (Yahoo Finance, 2018). It expresses that the high risk is involved with the stock price of Apple Inc.

Further, the market value of the company is US $ 877.753 billion which expresses that the market capital of the company is quite higher. The diluted EPS of the company is $ 9.70 on Feb 16, 2018. It expresses that the performance of the company is quite better.

Figure 5: Stock performance

(Yahoo Finance, 2018)

Further, the other information of the company has also been evaluated to identify the performance and the financial position of the company. The stock price of the company has been analyzed firstly and it has been found that the stock price volatility of the company is quite higher.

Financial Statement Analysis

Figure 6: Stock price

Stock purchase:

The above evaluation on the financial performance and the stock price of the company evaluates that the share price of the company has been changed a lot in last 5 years. The beta of the company is 0.21 in last 5 years which explains that the stock price of AAPL does not drive the stock prices of NSDQ. The following graph explains about the changes into the stock prices:

Figure 7: Changes into the stock prices

(Yahoo Finance, 2018)

The above graph explains that the changes into the market and AAPL stock prices are quite similar. It explains that the stock prices of AAPL drives the stock price of NSDQ. It explains that if the investor would buy the stock price of the company than the related risk of the stock would be lesser. More, it explains that the forecast of the company is quite reasonable as the appropriate sources have been used to manage and analyze the stock performance of the company.

Further, other variables of the company have also been evaluated to reach over a conclusion about the investment in the company and the performance of the company. Capital structure of the company has been evaluated firstly and it has been found that the weight of debt and equity of the company is 0.46 and 0.54 (Morningstar, 2018). It explains that the equity level of the company is higher to maintain the risk level and cost level of the company. Further, it has been evaluated that the company has invested into various new projects which would offer high rate of return to the company (Hillier, Grinblatt and Titman, 2011). The government regulations and litigations are quite lower on the company. It explains that the performance of the company is quite higher.

As studied above, it has been found that the stock would be a good buy for the purpose of investment in information technology sector. The position and the performance of the company is quite sound and explains about a good position of the corporation in near future. The debt equity position of the comapny is quite better and the credit rating of the company is AA according to the Morningstar (2018). The media and articles also depict about a good position and performance of the company. Company has been established in 1974 and from that time, it is performing well in the market.

To conclude, corporation is suggested to invest both human power as well as capital to enhance and manage the performance and the position of the company. It explains that the company’s performance is quite better in the industry as well as in the market. The investment would offer huge return to the investors.

References:

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Annual Report, 2015. Apple Inc. (Online). Available from https://investor.apple.com/secfiling.cfm?filingid=1193125-15-356351 [Accessed 16 Feb 2018].

Annual Report, 2016. Apple Inc. (Online). Available from https://investor.apple.com/secfiling.cfm?filingid=1628280-16-20309 [Accessed 16 Feb 2018].

Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.

Baker, H.K. and Nofsinger, J.R. 2010. Behavioral Finance: Investors, Corporations, and Markets. John Wiley & Sons.

Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima publishing.

Damodaran, A, 2011, Applied corporate finance,3rd edition, John Wiley & sons, USA

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial management. Health Administration Press.

Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy. McGraw Hill.

Home. 2018. Apple Inc. (Online). Available from https://www.apple.com/ [Accessed 16 Feb 2018].

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Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

Morningstar, 2018. Apple Inc. (Online). Available from: https://financials.morningstar.com/cash-flow/cf.html?t=AAPL&region=arg&culture=en-US [Accessed 16 Feb 2018].

Morningstar. 2018. Microsoft Corporation. (Online). Available from https://financials.morningstar.com/cash-flow/cf.html?t=MSFT&region=usa&culture=en-US [Accessed 16 Feb 2018].

Yahoo Finance, 2018. Apple Inc. (Online). Available from https://in.finance.yahoo.com/quote/AAPL/history?period1=1360953000&period2=1518719400&interval=1mo&filter=history&frequency=1mo [Accessed 16 Feb 2018].

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