Apple Inc. Financial Analysis, Essay Example

As the newly appointed member of the financial team of Apple Inc. the task has been assigned to prepare an analytical review of the company’s financial position. The company provides some of the latest and greatest technology available in the global market. Apple Inc. was made great under the leadership Steve Jobs, who had a vision and a business mind to take continually the company to new levels. Apple Inc.’s technological focus is costly, and can prove challenging to remain innovative and profitable. Tim Cook took the reins in 2011 at the peak of company’s growth and had been responsible for launching some of the most successful technology on the market today. Apple Inc. is the success it is today because it focused not only on the business aspect but because they ensured they were in the financial position to continually pursue the latest and greatest endeavors.

Financial Analysis

When considering the financial analysis, it is important to consider the company’s strategic goals. Apple has employed a generic strategy along with an intensive growth strategy that relates to their strategies in marketing, development, pricing and other areas of business. “As one of the most valuable companies in the world, Apple shows that its generic strategy is a major determinant of advantage against other firms like LG, Samsung, and BlackBerry” (Meyer). Apple’s rigorous strategies for growth supports the company’s ability to maintain its solid position in the global market. The company’s focus on excellence in product design and a high rate of innovation, Apple will continue its success with an even higher selling price. Apple’s effectiveness is a direct result of its intensive growth strategies and generic strategy.

Apple’s 2015 fiscal year was the most successful year thus far. The revenue growth reported around 28%, totaling to around $234 billion. The numbers surpassed the industry in total profit, showing the success of Apple’s performance. The chart below shows the company’s continual growth every year by a substantial amount, with an exception of the drop in the 2013, 2014 fiscal reporting year. “Apple’s record September quarter results drove earnings per share growth of 38% and operating cash flow of $13.5 billion,” said Luca Maestri, Apple’s CFO. “We returned $17 billion to our investors during the quarter through share repurchases and dividends, and we have now completed over $143 billion of our $200 billion capital return program” (Investor.apple.com). However, to make an accurate assessment of the financial position of Apple, it is important to analyze many different ratios.

In analyzing Apple’s financial position, there are many different areas involved in gaining a true picture of the company’s stability. First consider Apple’s earnings per share. “Earnings per Share represents the portion of a company’s profit allocated to each outstanding share of common stock. The net income (reported or estimated) for a period divided by the total number of shares outstanding (TSO) during that period” (NASDAQ.com). Investors are worried about the future levels of return and how the market price reflects the estimation and anticipation of the future returns.  Apple Inc. Price Earnings ratio (P/E) is 12.60.  The Industry average is higher than Apple resulting in a 14.10 earnings ratio. Apple Inc. P/E high five-year high is 17.00 and the five-year low 8.00. The Industry P/E five-year high is 385.40, and the five-year low is 9.50.

When one considers the earning per share ratio, it provides a sign of how high the rates are for the selected company. “ At any time, therefore, the P/E ratio is an indication of how highly the market ‘rates’ a particular company regarding the number of times current earnings it is prepared to pay for a marginal share in its future prosperity” (Business Accounting, 95).  It also provides a sector average that can establish a popularity ranking. Based on the findings Apple’s performance has exceeded the expectations of the forecast, despite their falling below the industry average.

The dividend yield shows the position of the company for the fiscal reporting year. Apple’s dividend yield was 1.80 in comparison to the industry’s 2.40. Equity investors often focus on the company’s income generation. Dividend yields are the portion of the company’s earnings that are distributed to its shareholders. The dividend yields are affected by the fluctuation in both the market price per share and the rate of dividend. The dividend is often improved by a tax credit that is available to shareholders, providing a gross dividend yield.

The quick ratio is a more conservative analysis than current ration because it removes the inventory for the current assets.  Apple’s quick ratio is .90 in comparison with the industry average of .80. The number is important because it assumes that the assets, such as cash and other marketable securities are a source of quick cash if necessary. Apple is higher than the industry average, showing they have more accessibility to cash or cash like resources. Inventory requires time to convert into cash, and if the company needs money quickly, it is not a viable option to consider inventory. The quick ratio shows the money that is readily available, an important factor for stakeholders.

The current ratio is an analysis of Apple’s ability to pay their long-term and short-term obligations. Apple’s current ratio is 1.10, and it is tied to the industry average of 1.10. Current liabilities are limited to short-term debts, ones that are limited to a year. The current ratio does not take into consideration the long-term obligations. It is also to consider the debt-to-equity ratio in the analysis of the company’s financial position. It indicates the portion of the shareholder’s debt and equity that is used to finance the company’s assets. Apple reported a .54 debt-to-equity ratio, the industry average is 0.52. The lower the debt-to-equity ratio, the better. It reflects that the company is not using the shareholder’s financing to fund their ventures.

The gross profit margin is a financial gauge that tells the strength of the firm’s financial health. It is a representation of the portion of the money that is remaining after including the cost of goods sold. Apple’s gross margin is 44.90, and the industry average is 43.50. Also looking at the gross margin five-year average of Apple is 43.70 and the industry five-year average 39.10. The higher the gross profit margin, the better the position of the company. Apple Inc. has had a higher gross profit margin, current year, and five years, than the industry average.  Finally, the net profit margin. The net profit margin is the amount of revenue remaining, after all, expenses have been paid. Apple’s net profit margin is 22.80, and the industry average is 17.31. It reflects that the company has more money after expenses than the industry average. It reflects positively on the company to have a high net profit margin and shows they are in control of their financial position.

Market Perception

The market perception is important for understanding the financial position of the company as viewed by external stakeholders. How the customers view the firm is an important key to their success. Apple Inc.’s products like iPhone, iPad, Mac, and iWatch are products that have gained global recognition. Not only is Apple Inc.’s name well-known, but there is also a waiting list for their newly launched products. The customer’s perception of the company is positive, and it is shown below in the financial data of their stocks. Apple Inc. provides superior quality and value, earning them a higher market share.

The market perception of Apple Inc. shows the stability of the company’s financial position. “The graph assumes $100 was invested in each of the Company’s common stock, the S&P 500 Index, the S&P Information Technology Index, and the Dow Jones U.S. Technology Supersector Index as of the market close on September 24, 2010. Note that historical stock price performance is not necessarily indicative of future stock price performance” (Investor.apple.com).

The chart shows the continual growth of the stock price over the past five years. The company’s change in leadership from Steve Jobs to Tim Cook and the continued evolution of technology has not affected the company’s total stock price. The stock price performance is Apple Inc. Stock Comparison $113.296, 2.874, 2.47% (NASDAQ.com). The market perception shows the customers have responded positively to Apple Inc.’s products and services. Based on Apple’s positive perception, customers know that there is the strong value in the products and services that are on the market.

The earning per share (EPS) also tells a lot about the financial stability and position of the company. Apple Inc.’s earnings per share are $9.20. The earning per share tells how much of the profit is trickling down to their investors. The higher the EPS, the higher the opportunity to attract investors to the business. They know that they are guaranteed a strong likelihood of the return on their investment, almost a guarantee for their money. Apple Inc.’s annual dividend is $2.08. The lower the dividend, the better, because when stock prices drop, the dividends increase significantly. The dividend yield is 1.79. The dividend yield represents a percentage of the share price.

Based on the market perception of Apple Inc. the company offers a sound investment option for potential stakeholders. The company is based on technological advancements, and it is costly to do research and secure the facilities necessary for production. Apple Inc. may need to consider new investors as they continue to grow. The market perception provides a solid leverage for the company to attract new interest in their new endeavors as they expand. The success Apple has had in the past with their investments has been positive, positioning them favorably to gain new investors if the need arises in the future.

Apple Inc. is the success it is today because it focused not only on the business aspect but because they ensured they were in the financial position to continually pursue the latest and greatest endeavors. The analytical review of the company’s financial position shows that Apple Inc. is a strong competitor in their industry. Apple Inc.’s focus on global expansion and technological improvements are supported by their current financial position. The recommendation for the Board is to have the business continue to move forward with technological advancements as planned. The company may be below the industry average in some areas; they still are reflecting a positive financial growth. Apple is favorable to investors in they are in need of additional capital. Apple Inc.’s financial strengths show their careful planning, sound business structure, and the promise of greater things to come in the future.

Works Cited

Business Accounting. University of Bradford, 2015. Print.

Investor.apple.com. ‘Apple Inc. – Annual Report’. N.p., 2015. Web. 11 Dec. 2015.

Meyer, Pauline. ‘Apple’S Generic Strategy & Intensive Growth Strategies – Panmore Institute’. Panmore Institute. N.p., 2015. Web. 11 Dec. 2015.

NASDAQ.com. ‘Apple Inc. (AAPL) Earnings Per Share’. N.p., 2015. Web. 11 Dec. 2015.

NASDAQ.com. ‘Stock Comparison: Compare Apple Inc. (AAPL) To Other Stocks’. N.p., 2015. Web. 11 Dec. 2015.