Apple Inc Financial Analysis
The following document covers the finance health of Apple Inc. Apple, Inc., formerly known, as Apple Computers, Inc., is a multinational organization whose main business is designing, developing and selling innovative electronic devices, computer software and personal computers to customers. The main reason for choosing this company is its innovativeness as evidenced by its product and the popularity it has garnered in the United States and all over the world through its products such as the Mac line of computers, the iphone, iPad and the iPod. Apple Inc. was ranked as the most admirable company in the United States in 2008 by the fortune magazine.
For sometimes now, Apple has been the market leader in advertising, graphic design, digital music, et cetera. Apple peripheral and computer products include Mac Pro laptops, Macbook, iMac pro desktop computers, et cetera. Apple computers use OS X operation software, which exclusively is used in Apple products. Apple also designs and produces software for high profile clients which are usually highly priced.
Risks Faced by Apple Inc
There are several risks that Apple Inc is facing with the most evident risk being the legal battles regarding patents. According to research, Apple Inc is the most sued firm and this places a risk since the company may lose at some point some of its important patents thus depriving it its competitive advantage (Bach, 2007). Apple is involved in legal battle mainly with Samsung although the company is also facing suits from Nokia, HTC and Kodak. There are several deep risks that the company is facing which include antitrust investigation. The company is currently involved in an investigation with the U.S department of justice and the EU commission this means the company has to factor this in its decision making plan (Thierer, 2012).
Another risk is the unethical business practices that apparently Apple is involved in, which is the use of sweatshops to manufacture their products. The Foxconn factory where there has been case of employee mistreatment. This was evident when an employee committed suicide in 2009 after misplacing the prototype of the iphone 4. One more risk is the company dependency on other companies to make the components of its products. An example, Samsung manufactures the ipad processor while the IPS display is manufactured by LG, therefore, any disruption of the manufacturer may also affect the company’s product delivery (Potential Risks to Apple Production Line”, 2012).
Apple Inc Industry
Apple Inc operates in two industries; the consumer electronics industry and the computer industry. Apple Inc is the second largest information technology company after Samsung electronics and the third largest mobile phone manufacturer after Samsung and Nokia ( O’Grady, 2009). Apple has the largest Smartphone market share in the U.S standing at 53% as of December 2012 but comes second on the global market after Samsung. Its mobile platform iOS has coming second to Google android with 34.3% of the market share as of September 2012 in the U.S (Blodget, 2012). In the personal computer sector, the company had a market share of 13.6% in 2012’s last quarter (Slivka, 2012). From the above we can see that the company operates in multiple industries and most of them complement each other. An example is the iPhone phone and its mobile phone platform iOS, which goes hand in hand.
Apple Financial Ratio Analysis
The following are calculations that display Apple Inc financial ratios. The data used in this analysis was obtained from the financial statement for the fiscal year that ended September 2012.
Current assets/current liability
Current (assets-inventory)/current liabilities
The E.P.S of the company is 44.64 (Apple Inc, 2012)
Book value per share
Total owners equity/common stock
Return on invested capital
(Net income-dividend)/total capital
Return on assets
Total income/total assets
Debt to equity ratio
Apple’s current ratio and quick ratios are 1.5 and 1.2 respectively. This meets the industry average which stand at 1.5 for current ratio and 1.2 for quick ratio. This shows that the company liquidity levels are healthy and therefore the company can be able to meet its short liabilities.
The total asset turnover or return on assets for Apple currently stands at 0.9, which is below the industry average of 1. Therefore, the company’s assets are not being utilized effectively in generation of revenue. On the other hand, the company’s inventory turnover stands at 107.8, which is far beyond the industry average, which currently stands at 71.1. This shows that the company has strong sales and hence less excessive inventory. Apple’s return on capital stand at 35.3%, which surpasses the industry’s 31.69% therefore, the company is using its money effectively to generate returns. Finally, the company’s return on asset is 23.7%, which is more than the industry’s average of 20.58%. This shows that Apple is utilizing its company resources efficiently in the generation of revenues (“Apple Inc (AAPL: NASDAQ GS)”, 2013).
The company finances its operation from several sources. Its main sources of finances are; equity with the company having issued 939,208 shares, retained earnings and short term liabilities. It is worth noting that the company has no long-term debt in terms of loans and debentures. The company has no issued preferred share capital. Its main source of financing is retained earnings, which currently stands at $101,289 million.
Apple has been expanding massively internationally. The company currently has foot in U.S, Europe and Asia. The Asian companies provide the components needed by apple in the manufacture of its products. For example, the company’s outsources to Chinese partner Foxconn, Samsung, Toshiba and LG. The final assembly of the components is undertaken at the company’s plant in Ireland. The company’s sells are distributed throughout the world, although the United States remains its largest geographical market. The U.S accounts for 39% of the company’s sales ,followed by Europe which accounts for 26% of the sales, followed by Asia pacific accounting for 21% of the sales, Japan accounting for 5% and 13% retail net sales (Alqhatani, 2012).
Apple’s Inc. operations internationally may be advantageous but sometime they can be a source of problems as well. The first risk the company will face is the ever-fluctuating foreign currency. This can adversely affect the profit margins. Another risk is tough international trade regulations, which may include antidumping penalties and tariffs. Another risk is the company’s reliance on third parties, which at times may affect the quality, quantity and the cost of the final products. Disruption in the third party supply chain will definitely affect Apple operations (Apple Inc, 2013).
Over the years, Apple has developed a chain of suppliers who supply the company with its required components. The company builds strong relationship with its suppliers, as one of its goals is to obtain quality products and services with the required timeframes and cost from the suppliers. Therefore, to do that, the company has to ensure the bond between itself and the supplier is strong. Any supplier would definitely be willing to maintain a relationship with Apple as the company offer a good challenge to one’s business due to its high set standards and also due to the fact that it offers opportunities to it suppliers. The company has a supplier diversity program where every supplier is free to register filling an online form. The supplier information is entered into the company’s database thus providing the suppliers with an opportunity and equal chance in the procurement process (Apple Inc, 2012).
Apple has faced a lot of criticism on its employee relation both in the United States and internationally particularly China. In China, there have been reported cases of suicides by employees particularly in Foxconn in 2009. There has also been Incidences explosion in Foxconn plants particularly the ones specializing in iPad assemble. In the year 2010, another Apple plant reported 100 cases of n-hexane poisoning forcing the workers to strike (Hruska, 2012). The same case applies to the United States apple stores. Apple employees working and the apple store receive a salary of about $25000 annually, which is considered average in the industry. The salaries compared with the revenue each employee brings to the company are not comparable. Each Apple employee brings in revenue of about $473,000 annually compared to a salary of $25000. The revenue per employee is much higher than the industry average of $206000. From the above, one would not be willing to work for the company (Knapp, 2012).
It is advisable to take the stock compensation package given that the company’s stock is always on the rise. Apple’s stock price rose from $350 to $700 on September of 2012 which is a significant gain, in fact double the original 2011 price. If an investor bought $1000 worth of stock with company at the beginning of this course that being was around the beginning of November. The share price at the time of purchase was $594.54. There has continued to decline steadily from a high of $603 at that time to the current price of $439.88. I managed to earn a dividend of $2.65 per share on the seventh of November 2012. From the investment the investor made a loss of $152.01 per share including the dividend. Despite, the company recent stock performance in the long is expected to remain rather strong. This is due to the fact that Apple is still a market leader in several sub industries for example the Smartphone market. Another factor that is expected to drive the stock performance is the company’s expected continued growth. Apple is expected to grow more quickly than an average company does. Therefore, the company long term performance is bleak as Apple still dominates in certain market categories and the company has continued to deliver huge profits (Travlos, 2012).
Apple stock price chart for the last 5 years
Based on the projected forecast an individual would want to have apple stock for my 401(K) account. This is largely due to the expected company growth in the long term, and thereby providing a drive for the stock price to rise. That will present massive capital gains in future and also dividends with the company currently having a 2.4% dividend yield.
Apple has not undertaken a stock buyback although it announced that it was going to implement a share buyback starting September 2012 and it will run over the next three year (Ziegler, 2012). The company plans to $10 worth of share and $2.65 dividend for quarter four. The buyback is expected to increase the earnings per share but there is no expected rise in the stock price. In fact the share price dropped from a high of $700 around September to the current price of about $439.88 due to the reduced book value of the shares (Hutchinson, 2012).
Apple Inc. is one of the most successful companies around the world. This paper have highlighted some of the key operational parts of the company, and which have gone ahead to underline the company’s dominance and stability both as a producer of innovative solution and also a marketer that has ensured the value for the company’s products remain. The company has also exhibited high liquidity. On the share market, Apple has also been stable and worth the attention of any prospective investor. According to this paper, it is safe to invest at Apple Inc.
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