Sep 13, 2022 in Analysis Essays

Finance Analysis of Apple Inc

The paper contains financial analysis of Apple Inc., which is the leading company in technological industry, as well as describes its investment projects and financial metrics connected with capital and budgeting. The primary aim of this research is to reveal the major sources and preferences of the cost of Apple’s capital and characterize its investment decisions with the application of capital budgeting techniques. Initially, the overall performance of the company in the market is presented. Then, the key tendencies from its financial documentation are highlighted. With regard to the financial indicators, the paper analyzes Apple’s debt, credit rating, and major value drivers and their impact on company’s cost of capital. Calculations constitute the core of analytical part of the essay and represent WACC and EVA of Apple Inc. as well as its current investment projects. Having sufficient data, the recommendation on the choice of the best investment project and the main stages of its implementation by the company are provided.

Apple Inc. is a technological company aimed to design, produce, and distribute hardware and software devices as well as services, mobile applications, and different types of electronic content. The company sells its goods and services by the means of own retail and online stores, thus reaching its customers through the specific “i-centered approach”. Apple’s main groups of clients are individual consumers, representatives of small and medium business entities, educational institutions, as well as governmental bodies. In its performance over 2018 year, the company has demonstrated a net sales growth of 16% that equals to 36.4 billion dollars (Apple Inc., 2018, p. 41). The 10-K annual report of Apple Inc. explains such increase primarily by growth in the sales of iPhones, services, and other groups of products (Apple Inc., 2018, p. 36). Such a growth is observed in all operating geographic regions of the company. In comparison with its performance in 2017, the company has avoided loss in net sales due to the weaknesses in foreign exchange currencies. In particular, last year, in China, there was 8% decline in Apple’s net sales owing to the diminishing position of yuan towards dollar (Apple Inc., 2018, p. 25). Jim Edwards (2017) indicates China to be the second biggest market for the company . Thus, the loss of market share to 14% caused strengthening of its main competitors, such as Vivo and Huawei (Edwards, 2017). However, 2018 year was the period of dollar devaluation due to the US political uncertainties and tensions in international trade (Dilger, 2018). It has helped the company recover its sales and boost the incomes overseas.

Financial Documents of Apple Inc.

The financial conditions of company’s performance can be better understood with the analysis of its financial statements. The 10-K annual report of Apple Inc. includes the statements of operations, comprehensive income, balance sheets, shareholders’ equity, and cashflows (Apple Inc., 2018, p. 3). The documents with company’s operational activity reflect a rocketing growth in sales and increased operating expenses, primarily due to the research and development expenditures. The boost of share price (from 9 to 12 dollars per share) can be observed as a result of successful share repurchase program implemented by the company (Apple Inc., 2018, p. 24). It shows that the company is doing well.

The consolidated statement of comprehensive income demonstrates a stable positive growth in Apple’s revenue over 2017-2018. In particular, during this period, the net comprehensive income of the company grew by 18%, which is 10% more than during 2016-2017 (Apple Inc., 2018). However, in 2018, new comprehensive income was significantly diminished by losses in the fair value of marketable securities that equaled to 300 million dollars (Apple Inc., 2018, p. 39). From the balance sheets, in equity table, one may notice the logical decrease of the value of marketable securities and much less increment in property. The data with liabilities indicates that Apple Inc. has paid on its debt accounts as well as decreased the amount of term debt and other non-current liabilities.

On the sheets with shareholders’ equity information, one may observe the repurchase of 371,000 thousand of shares in 2018 by the company that ended with the lessening of shareholders’ equity by 26,900 million dollars (Apple Inc., 2018, p. 41). Finally, the statement of cashflows demonstrates 32 billion dollars of tax benefits obtained by the company from debt payment, small value of deferred revenue, and three times higher expenses on the purchases of non-marketable securities, which are almost 2 billion dollars (Apple Inc., 2018, p. 42). Overall, form the analysis of the financial statements of Apple Inc., it can be concluded that the company is in the period of stable growth of revenue, which is partially affected by the external currency fluctuations and its equity policy.

Analysis of the Cost of Capital

Prior to the development of a project in capital budgeting for the company, it is necessary to explore its cost of capital. As mentioned in the analysis of Apple’s financial statements, the company is financed through both debt and capital.

In terms of its market debt policy, the corporation issues promissory noted for the short periods that are denominated as “Commercial Papers” in its accountancy. The income from these notes is used for the operations of dividend and share repurchases. On September 29th, 2018, Apple Inc. had 12 billion dollars of such papers with the average debt rate of 2.18% (Apple Inc., 2018, p. 33-34). The maturity period of “Commercial Papers” was less than nine months. As it is indicated in 10-K Report of Apple Inc., the total value of its term debt equals to 104.2 billion dollars, and in 2018, the company decreased the portion of such debt by 4%, thus rising its interest expenses (Apple Inc., 2018, p. 59). Greatest part of the future debt repayments falls on the 2020 year, but in general, it is distributed for 2019-2023 equally and ranges between 8,750-10,200 million dollars (Apple Inc., 2018, p. 60). The debt is denominated in the US, Australian, British, Japanese, Euro, Swiss, and Canadian currencies.

The valuation of company’s debt instruments is based on the official market prices and is usually associated with high credit ratings. In particular, both S&P and Moody’s ratings grade Apple Inc. as the company with stable credibility that has AA+ and Aa1 marks appropriately (“Apple | Credit Ratings | eMarketer Retail”, 2018). Such a high level of credit solvency makes an indelible part in the success of company’s debt issuances and helps it overcome market fluctuations.

With regard to Apple’s multisided activity, its main value drivers can be classified into the following categories:

  • Cutting edge technology – Apple Inc. has gained huge market share due to its technological innovations and permanent advancement of products’ functionality. As mentioned in the analysis of operating statement of the company, in 2018, it increased investment in R&D in order to retain high positions among its competitors. Ramification: successful technological advancements lead to sales growth and, consequently, increase in investors’ and lenders’ trust to the company.
  • Market demand – measured in seasonal terms, company owns its value to the high demand of its customers. As indicated in Apple’s annual report, demand is typically higher in the first quarter of the year during holidays.

Ramification: when the company has high return on its sales, it can create additional shareholder value for its investors and increase the ratio of equity capital.

  • Intensive share repurchase program – on May 1st, 2018, the board of Apple Inc. authorized a share repurchase program that equaled to 100 billion dollars (Apple Inc., 2018, p. 22).

Ramification: the repurchase program has helped boost the company’s share price and increase Earnings Per Share (EPS) ratio.

Analysis of Capital Budgeting

Investment Projects

The ongoing investment projects of Apple Inc. mainly aim at the strengthening of its competitiveness in technology market, promotion of its products via resellers, and expansion of its brand awareness with the help of exclusively designed stores. The first category of investment projects of Apple Inc. relates to spending money on R&D. Only with the development of new and more sophisticated hardware and software, it can sustain among the competitors that attract consumers by cheap production costs and emulation of Apple’s devices (Apple Inc., 2018, p. 30). During 2016-2018, the expenditures of the company on R&D constituted 5% of the net sales, which evidences of high importance of such a kind of investment for the company.

The next part of Apple’s investment funds goes to the projects that advance its reseller stores. In such a way, the company improves the placement of its goods and services and their distribution. However, the performance of resellers cannot be fully controlled by Apple Inc.; thus, any sign of uncertainty in their solvency may lead to the refusal of these resellers to distribute Apple’s products (Apple Inc., 2018, p. 16). To diversify its investment portfolio, Apple is expansively investing in its retail stores, some of which are designed to promote brand awareness. Due to the unique design, the company spends on such stores notably more money than on the usual retail units (Apple Inc., 2018, p. 16). Such subgroup of investment portfolio of Apple Inc. also belongs to the risky category, as the stores’ performance is permanently affected by macro factors and external volatilities.

Capital Structure

The structure of capital of Apple Inc. can be characterized by the prevalence of debt and its growing size in the last two years. Specifically, in 2018, from the overall 365,725 million dollars of capital of the company, 71% belongs to the liabilities and, accordingly, 29% – to the shareholders’ equity (Apple Inc., 2018, p. 43). In comparison with 2017 year, the amount of debt has grown by 7%, while the volume of equity lessened by 2%. In both 2017 and 2018, the greater part of liabilities was the non-current liabilities with mainly term debt. With regard to the equity during 2017-2018, its major group was retained earnings (Apple Inc., 2018, p. 43). It shows strong future growth potential of the company.

WACC and EVA of Apple Inc.

From the tendency of WACC of the company over time, it is possible to determine the cost of raising funds and current risk level in the financial market. From the following tables and calculations of cost of capital of Apple Inc. from its 10-K report, it can be concluded that over 2017-2018, the cost of Apple’s financing has increased by 0,6%, which demonstrates higher interest rates set by the government and rising level of uncertainty among investors.

With the consideration of calculated WACC, the Economic Value Added of Apple Inc. over 2017-2018 shows lessening of economic profit of the company on 200% due to the net operating profit, primarily due to the decrease in equity equivalents.

Overall, from the analysis of capital budgeting of Apple Inc., it can be highlighted that the corporation directed its money resources and short-term strategy towards product promotion and vast campaign of equity repurchase, thus having reserved sufficient funds for ensuring its financial stability.

Conclusion

Excellent results of the financial performance of Apple Inc. demonstrate its strong potential in any of the chosen investment projects. However, with regard to the higher risks associated with resellers and exclusive stores for brand promotion, the best solution for the company would be to focus on investment in R&D and, as a key performance indicator, achieve constant growth in net sales by 10% during 2019-2020. With such a growth rate, Apple Inc. might ensure its solvency during the changes in investors’ expectations and guarantee stable dividend payouts.

Recommendation

The determined investment plan should bear a proper implementation strategy. First of all, the company should conduct a survey to reveal the most selling products during 2018. Minimizing the range to 3 or 4 units, the management of Apple Inc. needs to focus on renovation of their software as well as creation of new devices. Then, the company should redistribute total investment in R&D between software renovation and development of new devices as well as set the relevant deadlines and KPIs for the manufacturers.

What Do Our Customers Say About Us?

avatar

Your service rocks! Whenever I am ordering from you, it is worth the money I pay. I recommend your service to all of my friends who struggle with academic paperwork.

Kirsty
avatar

The paper I purchased from your company was amazing. I got an A and the professor was satisfied with my research. Thank you, guys, for having saved me.

Archie
avatar

I am truly grateful to your service for being available 24/7. I forgot about my paper deadline, so I needed the essay quickly overnight. I managed to place an order late in the evening and I was able to download my paper in the morning. I passed my presentation with flying colors.

Freddie
avatar

Since I found my part-time job, I do not have enough time for my studying, so you guys are saving me. Writers at your company save professors from reading all types of nonsense)) Thanks a lot – I am your loyal customer.

Mohammed
avatar

I am so happy that I found your company and was assigned to this professional writer. I was praised by my professor for the perfect assignment – and I am truly happy about it.

Joanne
avatar

Thank you for having provided me with a supreme-quality paper. It was a bit longer than I expected, but I shortened it according to my needs. I will use your services again.

Philip
avatar

Really good writers and the best memo! They are honest about their services and do not plagiarize papers which is good for my college assignments.

Kelly
avatar

The essay they sent me was amazing and I appreciated timely delivery. It was such a relief.

Leon
avatar

To be honest, the 15% discount got my attention. However, I had a problem with payment processing as your system was glitching. Support agents were confused and at one point, I had 2 different people solving an issue. It took about an hour to resolve it. I am glad that essay writing went smoothly and the annotated bibliography was worth it.

Juliet
avatar

I am a college student and decided to pay for an essay when I saw affordable prices with a discount. Was worried about plagiarism but it went well and was written without mistakes. I think I will use this website again.

Anna Garrett
avatar

I ordered one memo and received a decent paper. I wish I knew about this website before.

Kenneth
avatar

The annotated bibliography I received was good. I indicated a certain structure and the writer has followed my recommendations. Great service.

Quentin
avatar

It could have been better. I needed a more informative paper but this case study has repetitions to cover word count only.

Griffin
avatar

I love it. I was so stressed before and am satisfied with how my essay has turned out.

Winfred
avatar

Great! I ordered an essay for the first time and received an amazing paper. I like that this website has lots of top writers to choose from.

Beverley
avatar

I reduced stars because my preferred writer was not available. Otherwise, it is fine.

Randall Smith
avatar

Guys, you are life savers. Great service, and quality essays. I will use it for my future papers for sure.

Melvin
avatar

My writer #173 did an awesome job! Exceeded expectations this time for sure. I highly recommend this writer for nursing essays because she knows her stuff.

Bernice Kelly
avatar

Very detailed annotated bibliography. I learned a lot from just reading this text and I know I can rely on a person who writes for me.

Clementine
avatar

Extremely satisfied! My case study was delivered within the timeline given and followed all the instructions. Thank you!

Antony
megaphone Affiliate Program!

Refer your friend to our service and receive 10% from every order they place

Start earning money now
Discount applied successfully