Apple Inc Company Analysis
Introduction
Apple was started by two budding entrepreneurs and technology enthusiasts: Steve Jobs and Steve Wozniak, in 1975. Steve Wozniak, an engineer was developing a small computer as a hobby but Steve Jobs saw the opportunity to create a great company. The company was started with a capital of $1,350 obtained from the proceeds from the sale of Job’s Volkswagen microbus and Wozniak’s Hewlett-Packard calculator. Apple Inc. is a highly successful company that has created a name in the designing, manufacturing and marketing of media devices, music players with portable features, personal computers, as well as numerous services, peripherals, software, third party digital content as well as networking solutions. Apple Inc also produces and sells numerous several products such as iPad, iPhone, Mac, iPod, professional and consumer software applications, OS X operating system, iOS, iCloud, Apple TV and several accessories for providing support services. Apple has continued to grow and expand by undertaking numerous strategic decisions pertaining to its cutting edge products and services. Apple has continued to dominate the communication, software and personal computing world owing to the great leadership capabilities of its founder and late CEO, Steve Jobs. Apple Inc has undertaken numerous acquisitions that have further steered the company forward into excellence.
Apple’s rise into success has been enhanced through the production of high quality products with an aim of improving the lifestyle of the consumers. For instance, the series of iPhone versions produced by the company over the years have sought to integrate numerous aspects of technological advancements and consumer needs. The various releases of the iPhone by Apple have completely revolutionized the world of mobile phone use with intensified inclusion of numerous services and products to suite changing consumer needs. For instance, in September, 2012, Apple released iPhone 5 with various accessories compatible with the phone available throughout the company’s online store. The iPad has also demonstrated multiple functions such as browsing, email support, reading, photo and video support, game player, listening to, music, and numerous other features. The iPad uses Apple’s multi touch technology that enables customers to connect with the company’s other diverse applications available online.
Hitherto, Apple has been making enormous profits owing to its unique products and desire to fulfill the needs of its technologically savvy target customers. The company has increasingly released very favorable financial results year in year out. Indeed, Steve Jobs managed to build an empire whose size has even surpassed Exxon. Going by the massive profits currently being made by Apple Inc, it is undoubtedly true that the company is the global leader in technology products and software provision. It has become practically impossible for competitors to match the success of Apple let alone muster the strategic focus that guides Apple. An analysis of Apple’s financial statements using various financial ratios and comparison with the industry clearly indicates the success enjoyed by Apple Inc.
Analysis of Apple Inc’s financial ratios

Ratio/ Year 2013 2012 2011
Leverage ratios

  1. Interest burden
  2. Financial Leverage
0.74
1.68
0.75
1.49
0.76
1.52
Asset utilization ratios

  1. Asset turnover
  2. Inventory turnover
  • Fixed asset turnover
  1. Days sales outstanding
  2. Days Inventory
0.89
83.45
10.67
25.66
4.37
1.07
112.12
10.67
19.01
3.26
1.13
70.53
17.26
18.34
5.18
Liquidity ratios

  1. Current ratio
  2. Quick ratio
  • Cash ratio
168%
164%
93%
150%
148%
76%
161%
158%
93%
Profitability ratios

  1. Gross Margin
  2. Operating Margin
  • Profit margin
  1. ROE
38%
29%
22%
30%
44%
35%
27%
35%
40%
31%
24%
34%
Market ratios

  1. P/E
  2. Earnings Yield
14.2
7.91%
15.1
6.33%
16.2
6.01%

 

  1. Leverage ratios
  1. Interest burden

Interest burden = EBT/EBIT
The interest burden for the company ranges from 0.74 to 0.76. The company spends about 25% of its earnings on servicing interest expense; which is not a large burden.

  1. Asset utilization ratios
  1. Asset turnover

Asset turnover = revenue / assets
The three years under consideration indicate that the company has high profit margins. However, there has been a decline asset turnover over the recent past indicating a progressive decline since 2011.

  1. Fixed asset turnover

Fixed asset turnover = Net Sales/ [net property, plant and equipment]
This year and last year have a similar figure of fixed asset turnover. However, the year 2011 posted a high fixed asset turnover.

  • Inventory turnover

Inventory turnover = sales / inventory
Compared to the year 2012, the company posted a lower inventory turnover. However, the year 2011 had the lowest inventory turnover for the three years under consideration.

  1. Liquidity ratios
  1. Current ratio

Current ratio = total current assets/ total current liabilities
The current ratio for the three years is above 150%. This means that the company is in a position to effectively meet its current liabilities.

  1. Quick ratio

Quick ratio = (cash and cash equivalents + marketable securities + accounts receivables)/ current liabilities.
The company is in a position to service its current liabilities from the available cash and cash equivalents, marketable securities and accounts receivables. It is therefore highly liquid.

  • Cash ratio

Cash ratio = (total cash and cash equivalents)/ current liabilities
The company cannot be able to use the available cash and cash equivalents to pay for its current liabilities. However, the year 2013 has seen an improvement in cash ratio compared to year 2012.

  1. Profitability ratios
  1. Gross Margin

The year 2013 recorded the lowest gross margin compared to the past two years. This can be attributed to increased competition from other providers of Smartphone such as Android OS.

  1. Operating Margin

The company’s operating margin recorded a decline in the year 2013 compared to the previous two years due to increased competition.

  • Profit margin

The year 2013 saw a decline in the company’s profit margin. Of the three years, the year 2013 had the highest profit margin attributable to the sales from iPhone 5. However, the year 2013 saw intensified competition from other providers of Smartphone such as Samsung Galaxy family.

  1. Market Ratios
  1. P/E

P/E Ratio = Market Value per share/ Earnings per share (EPS).
The company has a very high P/E ratio. This means that the company is highly profitable and it maximizes shareholder value.

  1. Earnings yield

Earnings Yield =EPS/ Market price
The company has a high earnings yield meaning that every dollar invested in the company has a return rate of over 6%.
Common Size Financial Statement Analysis

Item/Year 2013 (%) 2012(%) 2011(%)
Net SalesCost of sales
Gross margin
R&D
Selling, general and administrative
Operating expenses
Operating income
Interest and dividend income
Other income(expense)
EBIT
Net income
100.0-62.38
37.62
-2.62
-6.34
-8.96
28.67
0.95
0.68
29.35
21.67
100.0-56.13
43.87
-2.16
-6.42
-8.58
35.30
0.70
0.33
35.63
26.67
100.0-59.52
40.48
-2.24
-7.02
-9.26
31.22
0.48
0.38
31.60
23.95

 
 
 
 
 

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