1. Introduction

The current report provides a financial analysis of the Apple Inc for the year 2012, 2011 and 2010. The annual reports for these years were studied and data was used to calculated different financial ratios and evaluate the share performance.

1. Company Overview; Apple Inc:

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Apple Inc, the world leader in technology products is a California based corporation that was formed in 1977. The company manufactures designs and sells personal computers, media devices, mobile phones, operating systems, related software, networking solutions and several other services. The company has world famous products like iPhone, Apple TV, iTunes, iPod, iPad and iMac. The company also provides digital contents and software solutions for all its products. Apple operates in both national and international markets (Apple Annual Report, 2012). Apple Inc faces highest competition from large technology based companies like Google, Microsoft, Samsung and Sony.

1. Revenue Bifurcation:

The company derives highest sales from sales of iPhone and related products which include the software solutions and accessories. The sales for Mac products have decreased over the years while the sales from iPhone and iPad has increased.

Net Sales by Product:

2012

2011

2010

Desktops

3.86%

5.95%

9.51%

Portables

10.98%

14.17%

17.29%

Total Mac net sales

14.84%

20.12%

26.80%

iPod

3.59%

6.89%

12.69%

Other music related products and services

5.45%

5.83%

7.59%

iPhone and related products and services

51.42%

43.47%

38.60%

iPad and related products and services

20.72%

18.81%

7.60%

Peripherals and other hardware

1.77%

2.15%

2.78%

Software, service and other sales

2.21%

2.73%

3.94%

Total net sales

100.%

100%

100%

% of Revenue

Net Sales by Operating Segment:

2012

2011

2010

Americas net sales

36.75%

35.40%

37.56%

Europe net sales

23.21%

25.66%

28.66%

Japan net sales

6.75%

5.02%

6.10%

Asia-Pacific net sales

21.26%

20.87%

12.66%

Retail net sales

12.03%

13.05%

15.02%

Total net sales

100.00%

100.00%

100.00%

In the past, the America followed by Europe was the biggest markets for sales of Apple products. However, with the increased competition and after global financial crisis, the sales in these markets decreased. The Greek financial crisis and the change in consumer spending power accordingly is also considered one of the reasons for decrease in sales in Europe. In year 2010, 2011, 2012 the Japan and Asian Pacific countries had high economic growth and the sales of the company also improved in these regions. The sales in Japan greatly improved in year 2012 (Apple Annual Report, 2012).

1. Financial Ratio Analysis:

To evaluate the financial performance of the company as well as to forecast future performance, the financial ratios and trend analysis was used.

1. Profitability Ratio:

The profitability ratio shows how well a company is putting to use its resources to generate sales and increase investor value (Gitman and McDaniel, 2009). Here profitability ratio of gross profit margin and net profit margin has been used.

Gross Profit Margin

2012

2011

2010

Gross Profit (000$)

55,241,000

33,790,000

18,385,000

Revenue (000$)

156508000.00

108249000.00

65225000.00

Gross Profit Margin

0.35

0.312

0.281

Net Profit Margin

Net Income/ Sales

2012

2011

2010

Net Income (000$)

41,733,000

25,922,000

14,013,000

Revenues(000$)

156508000.00

108249000.00

65225000.00

Net Profit Margin

0.266

0.239

0.214

Both the ratio shows improvement over the years. The main driver has been the increase in revenues itself. In recent year, the company’s iPad profucts performed exceptionally well. The net profit has increased by around 94% in recent years. Furthermore the sales of the iPhone 5 set the all time record for sales. The sales of iPad and iPhone are expected to drive the revenue and earnings per share (Apple, 2013)

The trend analysis also shows that in year 2012 the realised and unrealised gains on investments increased by 872.64% while non operating income increased by 660%. These mainly composed of the interest and investment income. The sales and general expenses s well as the operating expenses decreased for the company. In year 2012, the unrealised gain and loss on investments consistened of the deferred loss and gain of $240 million and $290 million respectively that were related to use of cash flow hedges. The company hedges the foreign currency revenues and cash flows related to purchase of inventory (Apple Annual Report, 2012).

Research and development is one of the main operating expenses for the company but it is also considered an edge of the company. Apple Inc needs high investment in research and innovation to keep up with the fast technological advances. The investment in research and development is an expense but historical trend shows that it is positively related to the profitability of the firm. In year 2010, the expense related to research was 1.8 billion dollars, and $2.4 billion and $3.4 billion for 2011 and 2012 respectively (Apple Annual Report, 2012).

Lastly the interest coverage ratio was 50.7, 665.1 and 59.11 for year 2012, 2011 and 2010 respectively. The company has very less debt in its capital structure and the ratio shows its ability to easily meet its debt obligations. Overall the profitability of the company is improving year on year.

1. Efficiency Ratio:

The efficiency ratio takes into account the efficient management of the assets and the capital of the company (Madura, 2007). The return on capital employed and return on total assets has increased for the company over the years. The main reason was the increase in operating income. The company made significant investment in assets in 2012 however the increase in net income was almost double. This shows high efficiency of the management and in terms of employment of capital.

Return on capital Employed

EBIT/Debt+Equity

2012

2011

2010

Operating Income

55,241,000

33,790,000

18,385,000

Debt

57,854,000

39,756,000

27,392,000

Equity

118,210,000

76,615,000

47,791,000

0.31

0.29

0.24

Return on total assets

2012

2011

2010

Net Income

41,733,000

25,922,000

14,013,000

Total Assets

176,064,000

116,371,000

75,183,000

0.23

0.22

0.186

1. Liquidity Ratio:

Both the current ration and quick ratio have decreased for the company over the years. However they are still more than 1 and thus indicate a good position. The current assets for the company even if has increased year on year but the liabilities have also increased. The inventory did not show significant increase over the year. Analysts are of the view that technology advances in recent years have enabled the company to manage their liquidity without holding excess cash (Albrecht, 2008).

Furthermore, Apple paid cash dividends in year 2012 which decreased the current assets

Current Ratio

2012

2011

2010

Current Assets

57653000

44988000

41678000

Current Liabilities

38542000

27970000

20722000

Current ratio

1.495

1.60

2.011

Quick Ratio

2012

2011

2010

Current Assets

57653000

44988000

41678000

Current Liabilities

38542000

27970000

20722000

Inventory

791000

776000

1051000

Quick Ratio

1.4759

1.580

1.960

1. Working Capital Management

The working capital management shows that the company is efficient in collection of its debt and payment of its credit. The debtor days are less as compared to the creditor days. This shows that company is again efficient. Apple has trade contracts and focuses on long terms relation with its retailers and suppliers. These factor s have contributed to its effeciciny.

Debtor Days

A.R/credit sales/365

2012

2011

2010

A.R

18,692,000

11,717,000

9,924,000

Credit Sales

156508000.00

108249000.00

65225000.00

43.59253201

39.50803241

55.53484094

Creditor days

A.P/credit purchases/365

2012

2011

2010

A.P

25,258,000

17,610,000

13,620,000

Credit Purchases

87,846,000

64,431,000

39,541,000

104.9469526

99.7602086

125.7251966

1. Gearing

The degree to which a company relies on its debt is measured through the gearing ratio. Apple ‘s gearing ratio is decreasing over the years due to decrease in debt. The company has very less debt in its structure and most of which are operating and capital leases. The debt ratio shows that the company can easily meet its long terms liabilities (Kurtz and Boone, 2011).

Debt Ratio

Total Liabilities/total assets

2012

2011

2010

Total Liabilities

57,854,000

39,756,000

27,392,000

Total Assets

176,064,000

116,371,000

75,183,000

0.328

0.341

0.364

1. Share Performance Analysis:

LOGO

Source: Apple Annual Report, 2012.

The above graph shows the performance of the share of the company over the last few years. In year 2008, the Apple was losing its market to strong competitors especially Samsung and was the revenues were decreasing from its main markets of America and Europe. However in later years, the company’s performance improved. The graph also shows sector specific S&P index for the computer hardware market which shows growth over the year 2009 to 2012. Here too Apple outperformed the market.

The earning per share of the company increased in 2011 but decreased in 2012 by 59% to 44.64$. The company also issued more shares in each of these years however the new issues in 2012 were less as compared to share issues in 2011 and 2010. The company did not pay any dividends in last 10 years however in year 2012, the company had excess cash in year 2011 (Michaels, 2012). The increasing excess cash was used in 2012 to pay a dividend of 2.6$ per share to the shareholders (Apple Annual Report, 2012).

The grapgh above shows that the company outperformed the stock indices of Nasdaq and Now Jones. It also performed very well as compared to its competitors Microsoft, Dell and Hewlett Packard. Three of these competitors perfumed below the average market level.

1. Conclusion:

The analysis of the financial information of Apple Inc shows that company’s performance is improving year on year. The analysts are of the view that Apple had the most remarkable growth even in tough economic times. The ratio shows that capital structure of the company is very well suited to its needs. The company has been making the right investments and employing its assets efficiently.

References

Albrecht, W.S. (2008). Accounting, concepts & applications. Mason, Ohio : Thomson/South-Western.

Apple Annual Report, (2012). Form 10-K Apple Inc. Annual Report. [Online] Available at: http://investor.apple.com/secfiling.cfm?filingID=1193125-12-444068 [Accessed 16th January, 2013].

Apple. (2013). Apple Reports Second Quarter Results, Record March Quarter Sales of iPhones, iPads and Macs. [Online] Apple Press Release. Available at: http://www.apple.com/pr/library/2012/04/24Apple-Reports-Second-Quarter-Results.html

Gitman, L.J. and McDaniel, C.D. (2009). The future of business : the essentials. Mason, OH : South-Western Cenage Learning.

Kurtz, D.L and Boone, L.E. (2011). Contemporary business. Hoboken, NJ : Wiley.

Li, B. (2008), An Investment Analysis of Apple Inc., [Online] Available at: http://www.associatedcontent.com/article/1170502/an_investment_analysis_of_apple_inc_pg5.html?cat=3 [Accessed 16th January, 2013].

Madura, J. (2007). Introduction to business. Mason, OH : Thompson/South-Western.

Michaels, P. (2012). 2011 in review: Apple’s financial performance. [Online] Mac World. Available at: http://www.macworld.com/article/1164575/2011_in_review_apples_financial_performance.html

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