Financial Analysis: Apple Inc Essay Samples
About the company
Headquartered in California, United States, Apple Inc. is an American multinational organization that operates in the consumer electronic industry, and design, develop and sells consumer electronic devices. The company was founded in April, 1976 as Apple Computer Inc., and was later incorporated in 1977 as Apple Inc. It is globally renowned for its innovative product line that includes smartphones, media players, laptops and tablets. The company was founded in April, 1976 as Apple Computer Inc., and was later incorporated in 1977 as Apple Inc. Some of the popular products of the company are, IPhone IPad, Macbook and IPod.
Apart from being consistently rated as the most innovative company in the world, it is also the most valuable company in the whole world with market capitalization of more than $700 billion. Recently, while announcing the quarter results for September-December, 2014, the company declared blockbuster profit of $18 Billion in one quarter and record sales of 74.5 million IPhone 6 handsets around the globe.
In this report, with the objective of unearthing the real financial position of the company, we will be using quantitative methods relating to ratio analysis and stock price analysis for the past three years. Important to note, each method has its own advantages but will help us peep into multiple financial dimensions of the company. For instance, in the ratio analysis section, we will be discussing ratios relating to liquidity, solvency, profitability and efficiency. This will help us to find out as what the strength areas are and what anemic areas of the company are once the financial items are put under the microscope of ratio analysis. As for stock price analysis, the stock price graphs will assist in finding out the trends in the stock price of the company.
Resources for data collection
For the purpose of conducting the ratio analysis, all we need is the financial numbers of the company, and since it is a public company, the data will be sourced from Yahoo Finance. The stock prices of the company will also be sourced from the similar website.
Stock price analysis
Below is the graph indicating the stock price of the company from 2012-2014:
Referring to the graph above, we can witness that the year 2012-2013 was not very encouraging for the stock prices of the company, as after touching the peak price of $90.03 per share on 1s August,2012 prices plunged down to $54.58 per share on 3rd June, 2013. However, soon after the release of new IPad models in 2013, and with the high expectations of the market from IPhone 6 series, the stock prices witnessed steady increased and at present, the stock is trading at $123.59/share.
Thus, we can assert that the stock has provided sustainable returns to the investors and with huge success of IPhone 6 series, and with tech savvy and loyal customers awaiting the Apple Watch to be released this month, we believe that investors will continue to earn appreciable returns from the stock of Apple Inc.
The trend discussion of these ratios will inform us about the ability of the company to honor their short-term obligations as and when they become due. Below discussed is the trend in the liquidity ratios of the company for past three years:
i)Current Ratio: Current Assets/ Current liabilities
ii) Acid Ratio: Cash+ Receivables/ Current Liabilities
Referring to the table above, we can witness that while during 2013, the liquidity of the company underwent an increasing trend, the results were different in 2014 as the liquidity ratio went on a downside trend. As for the current ratio, the multiple increased from 1.50 to 1.68 in 2013, but later fell to 1.08 in 2014, amid significant increase in the current liabilities base by 45.32% while the current asset increased by 6.48% only.
We even tested the liquidity using the stringent measure of acid ratio and found similar trend as the ratio decreased from 1.40 to 0.82 in 2014.
The most crucial set of ratios, i.e. the profitability ratios indicate the profit margins being earned by the company from its business activities. Every stake holder of the company is highly concerned with the outcome of the profit numbers of the company. Below discussed are the profitability ratios of the company for past three years:
i)Net profit margin: Net profit/ Revenue
ii)Return on Equity: Net Income/ Total Equity
As noted from the calculations above, we can witness that since 2012, the profit margins of the company is consistently decreasing and by 2014, it stood at 21.67% compared to 26.67% in 2012. Interestingly, the revenue figures of the company has been increasing year-by-year, however, increasing costs and expenses proportion were capable enough to erode the profit margins.
Even the shareholders of the company will be concerned after witnessing the trend in the ROE multiple of the company. During 2012, the ROE of the company was 42.84% which after decreasing significantly to 30.64%, increased marginally to 33.61%. Important to note, the ROE multiple indicates the profit margins being earned by the company on the invested amount of shareholders. Hence, every organization looks to maximize this financial multiple in a sustainable manner(through low leverage and high profit margins and asset turnover)
Also known as Gearing ratios, these ratios provides information over the composition of the capital structure of the company and what is level of financial risk embedded in it. Below discussed are the solvency ratios of the company for past three years:
i)Debt-Equity Ratio: Total Debt/ Total Equity
ii)Interest Coverage Ratio: Operating Income/ Interest Expense
Referring to the balance sheet of the company and the above calculated solvency ratios, we found that Apple Inc. raised debt financing only during 2013, and since then the amount of debt in the capital structure of the company has been surging. During 2013, the debt-equity ratio was 0.14 which increased to 0.26 in 2014. We were concerned with the increasing debt position as the interest coverage ratio on the other hand declined from 369.79 to 140.28, indicating that the company is losing its ability to honor its debt obligations.
Also known as Asset Management Ratios, these ratios indicate how efficient is the company’s management in using the asset base of the company for generating revenue figures. Below discussed are the efficiency ratios of the company for past three years:
i)Asset Turnover: Revenue/ Total Asset Base
ii) Inventory Turnover Ratio: COGS/ Average Inventory
Referring to the calculations above, we can witness that over the years, the asset turnover of the company has been decreasing consistently pointing concerns towards the efficiency of the management of the company. Another indication towards the efficiency of the management is the declining inventory turnover of the company. During 2012, the inventory turnover of the company was 112.12 which reduced to 57.94 in 2014, indicating that now it takes more time for the company to sell its inventory and thus, capital is tied up in the inventory for a longer period of time.
At the end of this research paper, where we used the traditional analytical tools of financial ratios and stock price trend analysis, we found that over the period of three years, i.e. from 2012 to 2014, the profitability and solvency position of the company has been on the negative side and same is situation with the efficiency and liquidty position of the company.However, considering the current situation of the company where it is heading high on the success of IPhone 6 and IPad Air, we strongly believe that investors need not worry at all relating to the financial standing of the company .
(2014). Annual Report 2014. Apple Inc.
Historical Prices: Apple Inc. (n.d.). Retrieved March 14, 2015, from Yahoo Finance: https://in.finance.yahoo.com/q/hp?s=AAPL&a=09&b=1&c=2011&d=08&e=31&f=2014&g=m
Satirano, A. (n.d.). Here’s How Apple’s $18 Billion iPhone-Fueled Profit Stacks Up. Retrieved March 5, 2015, from Bloomberg: http://www.bloomberg.com/news/articles/2015-01-27/here-s-how-apple-s-18-billion-iphone-fueled-profit-stacks-up