The Company’s Business Environment, Essay Example

An important criterion in determining investment decision is an analysis of the company’s financial health. This can be determined through an evaluation of the company’s financial statements. The three major financial statements which should be analyzed to determine a company’s financial standing are its income statement, the balance sheet and the cash flow statement. The balance sheet gives an overview of the company’s assets versus the company’s liabilities.  If the assets are greater than the liabilities it indicates that the company is not heavily in debt and can easily meet its liabilities. This is in important indicator for investors because a high liabilities to assets structure in the balance sheet indicates that the company is highly leveraged and could run into risks of debit default if it runs into financial turmoil. The cash flow statement is also an important indicator of the company’s ability to stay solvent. Where the company has a large amount of cash reserves available in the form it indicates that it is highly liquid and can easily meet its debt obligations in case of emergency or financial difficulties. These cash reserves can be in the form of cash or easy to liquidate assets. It does not include fixed assets or other investments which are not easy to liquidate. The company’s income statement provides a picture of  how well the company manages the cost of its operations. If costs are high investors can get indication that the company’s management needs to exercise more cost effective ways of conducting operations. Also lower costs indicate higher returns for investors in terms of more profits and is therefore a key indicator in investment decisions. If the income statement indicates a falling trend in costs it is a good prognosis for the investor because it means that the management of the company is able to translate cost reductions into greater profits for its investors.

An analysis of Apple’s income statements from 2006 to 2010 indicates that the company’s profits have risen from 19 million in 2006 to 65 million in 2010. The cost of revenue on the other hand has increased from 13 million to 39 million over 4 years. (Money Central, 2011).Though cost has increased over the years the relationship between cost and revenue has changed. In 2006 the company earned 19 million but deducted costs of 13 million resulted in a net revenue of 6 billion. In 2010 the company earned 65 million but paid costs of only 40 million resulting in a net profit of 25 million. (Money Central, 2011) Hence we see that in 2010 costs deducted accounted for a lower percentage as compared to 2006. This indicates that over the past four years management has adopted some serious cost cutting measures which have resulted in increased profits for the company and its investors. I would see this as a positive trend and would recommend that management continue with the various cost cutting endeavors in the future to post greater profits. I also noticed that the cost of research and development has gone up in the past four years to 1.7 million indicating that the company is now developing a range of more innovative products to cater to changing consumer trends and preferences. This again is a positive indication for prospective investors.

An analysis of the balance sheet indicates that the company’s assets have increased from 17 million in 2006 to 75 million in 2010. The liabilities on the other hand have increased from 7 million to 27 million. (Money Central, 2011) This indicates that the company currently maintains a healthy balance sheet with the assets outweighing its liabilities. The company is not heavily leveraged and this indicates that it can meet solvency requirements in case of a financial crises. What is interesting to note is the gap between the assets and liabilities has increased after the global recession in 2008 indicating that the company has adopted a more conservative policy when it comes to debt management and has made efforts to increase its asset base in a period of economic turmoil. I feel that these policies have been prudent and necessary in maintaining a healthy balance sheet which will serve to attract investors.

An analysis of the company’s cash flow statement for the year 2010  indicates that the company has a reserve of cash based liquid assets  that can be used for funding in case of financial crises. For the year 2010 the cash generated from operating activities was 18 million and the cash generated from investing activities was 13 million leaving a cash reserve of 5 million dollars (Money Central, 2011). What I found interesting was how this cash reserve has increased over the years to accommodate provisions against the tough economic conditions that the company is operating in.

Based on the above analysis it is quite evident that Apple enjoys a very good overall financial health. It has been making phenomenal profits with margins more than doubling in the past four years, its balance sheet shows a structure where the assets outnumber the liabilities indicating that the company is not heavily under financial leverage and can meet its obligations when the time comes.

Though Apple competitors too have enjoyed healthy profits and have financial statements which indicate conservative management of assets and liabilities their financial statements do not show steady declining costs like Apple’s income statement. This statement clearly indicates the financial expertise management that the company has displayed in the field of cost management over the past four years. Reducing overall costs indicate the effectiveness of the company’s financial management system  and sets it apart from its competitors . It is also  the secret behind the management’s ability to sustain rising profits over the years

In comparison to its competitors Apple’s ability to offer an integrative platform  has helped it achieve competitive advantage. Perhaps its greatest technology capability has been the integration of all its products to work in conjunction with each other on a similar platform. The iPod, the iPhone and the iPad have been produced to work as a team to offer the consumer a superior product experience.  None of Apple’s competitors like RIM the producer of the  blackberry offer products which have a similar integrative capability. It is this integrative capability which offers the company an edge over other competitors. An apple customer with an iPod would prefer to buy an iPhone over the blackberry because its mutual platform would enable them to listen to their favorite tunes on their phone.

Globalization

Defined as the integration of political economic and social culture the concept of globalization removes boundaries and brings nations together to share resources for further economic progress and development. (Hirst, and Grahame, 1996).  In the age of globalization apple has been able to find a market for its products in different countries across the globe. The iPod, the iPhone and the IPad are now sold in many countries across the world. However to sell globally the company has to consider certain important elements such as cultural adaption and an in-depth understanding the local consumer market. Without taking into account these critical factors any international business venture will not be successful  Let us look into account these factors in detail:

1. Differences in Language and culture. To give its product wider acceptability and understanding Apple will also have to promote its product in both English and the native language of that country All kinds of promotional campaigns which appear in print, television, and outdoor media will have to be bilingual. (Griffin, and Pustay, 2006).
2. Hiring personal with experience in the local market that is familiar with local trends and market conditions. This will enable the company to gain knowledge about the local conditions which it can use to negotiate in a new and foreign marketplace. (Below, Morrisey & Acomb, 1990)
3. Training the sales and technical support teams: The Company would have train new recruits on the technical aspects of selling Apple products in a new market. They would require people who probably have previous experience in selling technical products to the local market and have a prior base of clients that they can start by selling to. Similarly the company would have to train a bilingual support team to address customers queries
4. Repatriation of Funds. Apple has to consider local laws and regulations before repatriating funds home. If there are certain restriction imposed by the foreign country’s law companies cannot repatriate all the income it generate. This places a limitation on the funds that the company can repatriate home.
5. Understanding the Consumer Segment

Apple must make an effort to understand its target market. The company should undertake market surveys to gauge how customers feel about their products. Consumer’s preferences and needs must be taken into account to alter the product or strategy used to promote the company’s products

Bench Marking Analysis

Apple’s main competitors in the consumer technology industry is RIM the manufacturers of Blackberry as well as other consumer technology giants such as Nokia and Sony to name a few. Let us consider where Apple lies in comparison to its competitors in a benchmark analysis

Best Practices

The current emphasis in the consumer electronic industry is on generating new and innovative products to meet customers  changing lifestyles  and new trends. Most consumer electronics are being innovated regularly with new versions featuring updated modifications coming out in the market frequently. In comparison to its competitors, Apple does not bring out new versions every three to four months. Its updated versions are based on enhancing customer experience and give them value for their money rather than just

Operational processes

In the consumer technology industry competition is severe; companies seek to establish competitive advantage by offering products at a lower price. Apple products are priced at the higher end of the market. Unlike its competitors which reduce prices by cutting into profit margins Apple believes in passing down price savings to its customers by reducing cost of operations. In recent years the company has employed huge cost cutting measures which have translated into price savings for customers

Products and Services

Customer trends in recent years favor sleek technology which is easily portable. Consumers are also increasingly using computing and communication technology to not only work but also for entertainment purposes. Apple like its competitors is working on developing products which cater to these new trends. However Apple products differ from their competitors in the aspect that they offer an integrated technical platform for consumers. These products will only work in conjunction with each other and not other products. Therefore to access a wider and richer consumer experience it is recommended that the consumer buy their entire range of products from apple.