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Overview of Apple Inc.
The report provides an overview of Apple Inc., both in terms of quantitative and qualitative terms. Apple Inc. which is the world’s leading company in the consumer electronic industry and is largely known for its innovative products is largely committed towards its social activities and to improve working environment for its employees in various supply units. To begin with, the company has taken appreciable efforts toward on-the-job education of its employees through SEED program. In addition, workers are also being educated about their rights and are being paid for the overtime work in excess of 60 hours a week standard work shift. The company is also taking due care of health and safety of their employees through EHS academy. More and more workers are participating in the programs of EHS academy. Along with this, a high preference towards environmental safety and is reducing water waste by more than half a billion gallon, and is also gearing up to invest $ 850 million to install solar power plant for its headquarters.
As for competitive environment, ruling the industry doesn’t mean that the company is not facing tough competition. Many new and old market players pose threat to the market share of the company. However, amid consistent innovation, product efficiency and aggressive marketing strategy, the company is able to outperform its rival.
Finally, as for the financial information about the company, at present, the stock of the company is priced at $128.54/share, while the market capitalization is $748.71 Billion. We also analyzed the financial statements of the company and found that over the period of one year, the revenue of the company has increased by 6.95%, while the net margins increased by 6.68%.
In this report, we will discuss the key financial information, transfer pricing, taxation effect, competitive environment, and corporate social responsible activities of Apple Inc. The company, after pioneering the PC manufacturing is now revolutionizing and reshaping the consumer electronic industry, along with changing consumer’s perceptions of both the product and its functions. Thus, we will put various aspect of the company under the microscope to achieve a complete comprehensive overview of the company.
About the company
Founded in 1976 and headquartered in California, Apple Inc. is an American multinational company operating in consumer electronic industry. Previously known for its high performance computers, Apple Inc. presently provides wide range of products and service to the consumer around the world, ranging from smartphones, computer devices, tablets, multimedia devices and multimedia applications. Some of the renowned products of the company includes, IPhone, IPad, IPod, Macbook. Apart from this, the company also sells multimedia services through its online store, ITunes.
Most recently in January, 2014, it became the first company of the world with the total market capitalization of $700 Billion and also the most cash rich, with total cash reserves of $179 Billion.
Corporate Social Responsibility activities
It is a widely accepted fact that the consumers now not only prefer companies that provides the best of the products for them, but also gives due consideration to their social activities. Apple Inc., which outsources its products manufacturing, and assembling from outside suppliers, duly understand and fulfills its responsibility towards its workers, society and environment. The company first released its Corporate Social Responsibility Report in 2007, and since then, it is putting its considerable efforts to improve its CSR activities. Around 1.6 million people are employed by Apple in their global supply chain, and to improve their lives, the company tackles and improves issues relating to their health& safety, education, labor rights and also environmental protection. Below are the few highlights of CSR activities of the company as reported in Corporate Social Responsibility Report, 2015:
Empowering and Educating Workers
Apple Inc. is committed towards expanding the skills and knowledge of their work force and rigorously works towards expanding educational opportunities for their workers. Since the launch of CSR drive in 2008, Apple Inc. has invested millions of dollars to expand their Supplier Employee Education and Development(SEED). At present, there are 48 classrooms under SEED program in 23 supplier facilities while each classroom is equipped with IMac and other apple computer based devices. By now, 861000 workers have taken advantage of SEED program of the company, which now imparts education through IPad-based learning program.
-Highlights from 2014 report:
Expanded the Supplier Employee Education and Development(SEED) Program with participation rate increased to 379000 in 2014 as against 280000 in 2013.
Added 5 more facilities to SEED program during 2014
Health and Safety
Apple Inc. gives paramount importance to the safety of all its employees working at various production centers. The company operates Environment, Health and Safety(EHS) Academy to promote safe and healthy working conditions in the facilities. At present, 892000 workers are participating in the EHS academy. The company has also initiated an extensive mapping program to strengthen chemical management processes across our supply chain.
-Highlights from 2014 report
870 EHS projects launched in 2014
Enrolled 156 more suppliers into EHS projects
First class of EHS Academy graduated in 2014
Labor and Human Rights
Apple Inc. gives due consideration to the labor and human rights of all its employees and make sure that each supplier demonstrate highest commitment towards protection of worker’s right. Many a times, some of the suppliers of the company were accused of not paying workers for their overtime hours and also not protecting their labor and human rights. The company has taken the issue very seriously and conducts regular supplier audit to unearth the issue. Since 2008, the company has paid $900000 as overtime pay who were earlier not paid by the company’s suppliers. In addition, every supplier is asked to have a ceiling of 60 hour work week. Along with this, the company has turned very strict on under age employment, and any such workforce is sent to school with full tuition fee and salary. The company also displayed its concern for human rights by using more conflict-free minerals in their products.
-Highlights from 2014 report
92% compliance of 60-hour work week in supply facilities.
A significant reduction in under-age workforce, that accounts to only 0.001% of the total workforce of the company. During 2014, only 16 underage workers were discovered at six facilities and were sent to school with full tuition fee paid by the company. The company is very strict over underage employment at its supplier’s facilities.
Recouped $3.6 Million in excessive recruitment fee for foreign contract workers.
Increased the number of verified smelters in the supply chain.
Apple Inc. recently disclosed its future plan of investing $850 million to source solar energy for its California headquarters. The company will become the first organization in the world to take such a noble step over the use of renewable energy. In addition, Apple Inc. is also saving half a billion gallons of water through its Clean Water Program. In addition, on-site managers are also educated on air pollution and other environment related subject through their 18-month and 19-month course in EHS academy. Thus, company is making consistent efforts to make sure the suppliers around the globe use environment responsible manufacturing process. On world’s earth day, April 22nd, Apple Inc. released ‘’Better Film’’ on their website with the tag line-
-Highlights from 2014 report
Covered 50% of the total water withdrawal for 200 top suppliers under the Clean Water Program.
Increased number of participants in EHS academy.
Resolved environmental violations at 50 flagged supplier sites
Competitive Environment and Apple’s response to it
Needless to say that consumer electronic industry is a highly competitive industry and Apple Inc., which is sitting at the ace position in the industry, is not left untouched by the growing competition. The company although maintains a significant brand loyalty for providing best in class experience to the consumers, but while new entrants like Xiaomi Mobiles, China are taking market share from Apple’s Asian market, the old famous rival, Samsung Inc. launches new products with new features every now and then to cut-throat company’s existing position. In addition, there are also other companies that are not allowing Apple to make a mark in the target areas. For instance, in India, the company is not able to gain an appreciable market share as companies such as Micromax, Karbonn, etc., are luring the customers with their affordable smartphone range that cost merely 20%-30% of what it cost to buy a latest IPhone device. Similarly, the tablet market is being competed by low cost substitutes from Lenovo and Asus.
Thus, in order to survive in such a stringent competitive environment, Apple Inc. relies on its innovative product manufacturing techniques and competitive strategies. Market analysts believe that Apple Inc. cash on its brand loyalty to a great extent and this gives an upper hand to the company in comparison to its rivals in the industry.
In addition, the ever improving customer responsiveness, efficiency and innovation leads to overall product efficiency which further assist in lowering the manufacturing costs, thus providing competitive edge to the company. The world knows that while rivals launches new product model every couple of months, but Apple keeps its customer waiting for a year but the wait is always a worth. Recently, during September, 2014, company launched much awaited large screen IPhone 6 series, and yet again the product was appreciated globally, and 74.5 million handsets were sold in less than 3 months, providing the company with a blockbuster profit of $18 billion/quarter.
Apart from the efficiency in the product and product manufacturing, the company also responds to its rivals through aggressive marketing and that too as per the need of the geographic regions. For Instance, in Americas and Europe, the company follows nice marketing, while in China and India, it has partnered with local distributors to gain the competitive edge. Most recently, Apple Inc. has also entered the Brazilian Market through direct selling, this market was yet ignored by most smartphone manufacturers.
Key Financial Information
After discussing the CSR activities and competitive environment of the company, we will now discuss some of the key financial information of the company and how the financials of the company has changed over the period of one year. Thus, for analyzing the financial information of the company we will be use horizontal income statement and horizontal balance sheet of the company. Both of the financial statements were sources from the latest SEC-10 K filing of the company , preceded by basic financial fundamentals of the company:
Horizontal Income Statement
Referring to the horizontal income statement of the company, we can witness that over the period of 1 year, the revenue of the company has increased by 6.95% and controlled increase in the costs allowed the gross profit margin to increase by 9.69%. It was interesting and expected from a company like Apple to allocate major portion of the operating expenses to research and development charges that surged by 34.99% while Selling, General and Administrative expenses soared high by an acceptable 10.74%, while total operating expenses increased by 17.83%, and operating profit by 7.15%.Another major expense reported in the income statement was the interest expense that surged by a significant 182.3%.
However, with a consistent growth in revenue figures, Apple Inc. managed to increase its net profit by 6.68% while EPS increased by 13.46%
Horizontal Balance Sheet
Beginning with the current asset position of the company, we find that over the period of one year, the cash position of the company has decreased significantly of which liquid cash has reduced by -2.91%, while the short-term investments has tumbled by -57.27%. However, remaining current assets such as receivables, inventory and other, have showed an improvement of 33.26%, 19.37% and 35.67%, respectively, while the total current assets declined by -6.49%, because of significant decline of 38.15% in total cash position. As for non-current assets, we witnessed an impressive improvement in the overall asset position, with goodwill increasing by 192.71% in just one year. This multiple shows the belief of various stake-holder in the optimistic future run of the company. Other non-current assets such as plant& equipment and long-term investment increased by 22.55%, while the total non-current asset position increased by 22.13%. Overall asset position holding by 12% from 2013 to 2014.
As for the current liabilities position, the amount increased by 45.33% with major increase sourced from accounts payable that surged by 35% while the deferred revenues increased by 15.47%. Next, the non-current liabilities also surged by 42.85%. Overall liabilities position of the company went up by 44.15% while the stockholder position of the company declined by -9.71%
Instance of transfer pricing
As for Apple Inc., the instance of transfer pricing arises because of issue of stock based compensation(equity awards) to the employees of the company based in foreign subsidiaries. However, company has relatively adjusted the effect of transfer pricing as the tax benefit is claimed from the stock issue in the financial reporting. Below is the summary of tax benefits from equity awards, including transfer pricing adjustments made by the company:
Apart from the issue of equity awards, the company do not have any transaction with any of its operating segment based outside United States.
Below is the income tax provision and effective tax rate of Apple Inc. for past 3 years:
This report attempted to lay out an overview about Apple Inc. and after an extensive discussion over multiple aspects of the company; we believe that the company is working aggressively to improve its CSR activities by employing best on the job practices for its employees. As for competitive environment, undoubtedly the consumer industry is highly competitive, but courtesy its product efficiency, innovation and marketing strategies, Apple Inc.is able to sustain its top position and is easily able to combat the rival competition. Finally, as for the financial standing, over the period an year, the company has achieved an appreciable growth in revenue and net income figures, and we expect the trend to continue with blockbuster success of IPhone 6 series and IPad air.
(2015). Apple Inc Supplier Responsibiliy Report 2015. Apple In.
Apple Inc. (2014). Annual Report 2014. Apple Inc.
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
SEC 10-K Filing: Apple Inc. (n.d.). Retrieved March 5, 2015, from Apple Inc: http://investor.apple.com/secfiling.cfm?filingID=1193125-14-383437&CIK=320193