Apple Inc.’s Company Financial Analysis
Apple Inc. in an international corporation that operates in many countries with a specialty in computer accessories. The company is renowned for its innovativeness that has led it to establish new products such as the iPod and the iPad. These products have seen the company improve its performance over tine. Its international markets led to the help of the company during the financial crisis. This paper examines the company’s financial performance including the ability of the foreign subsidiaries to sustain the mother company.
This multinational corporation operates in the U.S. the company designs and manufactures computer electronics, computer software and personal computers. Some of the manufactured products of the company include Macintosh computers, iPod, iPhone, and Mac OS X operating system among many other products. The company was established in 1976 in California. The company changed its name from Apple computer Inc. in 2007 to Apple Inc. to reflect the growth and expansion undergone by the company in the electronics industry. The company focused traditionally on personal computers. The company has employees of about 37,000, both permanent and temporary. The employee turnover in the company is about 20%.
Apple Inc. has a very good reputation established over time in conjunction with its philosophy of comprehensive aesthetic design. The good reputation has led to increased loyal customers of the company who are devoted to the brand of the company. In 2008, Apple Inc. was named by fortune magazine as the most admired company in the U.S (Apple, 2010).
Company ratio analysis
|date preliminary data loaded||2006-10-19||2007-10-23||2008-10-22||2009-10-22||2010-10-19|
|Close PE Ratio||33.9||39.1||21.2||20.4||18.7|
|High PE Ratio||38.1||39.4||37.9||20.8||19.5|
|Low PE Ratio||21.1||18.5||18.8||8.6||11.9|
|gross profit margin||30.1||35.3||35.8||41.9||41.0|
|pre-tax profit margin||14.6||20.9||21.2||28.1||28.4|
|post-tax profit margin||10.3||14.6||14.9||19.2||21.5|
|net profit margin||10.3||14.6||14.9||19.2||21.5|
|interest coverage (cont. operations)||0.0||0.0||0.0||0.0||0.0|
|interest as % of invested capital||0.0||0.0||0.0||0.0||0.0|
|effective tax rate||29.4||30.2||29.9||31.8||24.4|
|income per employee||111823||161852||151063||240087||283664|
|Normalized Close PE Ratio||33.9||39.1||21.2||20.4||18.7|
|Normalized High PE Ratio||38.1||39.4||37.9||20.8||19.5|
|Normalized Low PE Ratio||21.1||18.5||18.8||8.6||11.9|
|normalized net profit margin||10.3||14.6||14.9||19.2||21.5|
|normalized income per employee||111823||161852||151063||240087||283664|
|total debt/equity ratio||0.00||0.00||0.00||0.00||0.00|
|long-term debt/total capital||0.00||0.00||0.00||0.00||0.00|
|cash as % of revenue||33.1||39.0||36.6||12.3||17.3|
|receivables as % of revenue||6.5||16.8||14.5||11.8||15.2|
|SG&A as % of Revenue||12.6||12.3||11.6||9.7||8.5|
|R&D as % of Revenue||3.7||3.3||3.4||3.1||2.7|
|revenue per $ cash||3.02||2.57||2.74||8.15||5.79|
|revenue per $ plant (net)||15.08||13.10||13.23||14.52||13.68|
|revenue per $ common equity||1.93||1.65||1.54||1.36||1.36|
|revenue per $ invested capital||1.93||1.65||1.54||1.36||1.36|
|receivables per day sales||23.34||60.42||52.14||42.43||54.77|
|sales per $ receivables||15.43||5.96||6.90||8.48||6.57|
|sales per $ inventory||71.54||69.38||63.81||94.30||62.06|
|number of days cost of goods in inventory||6||7||7||7||7|
|current assets per share||16.96||25.17||39.05||35.07||45.50|
|total assets per share||20.12||29.06||44.55||52.79||82.08|
|intangibles as % of book-value||2.0||2.9||2.3||1.8||2.3|
|inventory as % of revenue||1.4||1.4||1.6||1.1||1.6|
|CAPITAL STRUCTURE RATIOS|
|long-term debt per share||0.00||0.00||0.00||0.00||0.00|
|current liabilities per share||7.57||10.66||15.86||12.79||22.62|
|cash per share||7.47||10.72||13.37||5.85||12.29|
|LT-Debt to Equity Ratio||0.00||0.00||0.00||0.00||0.00|
|LT-Debt as % of Invested Capital||0.0||0.0||0.0||0.0||0.0|
|LT-Debt as % of Total Debt||0.0||0.0||0.0||0.0||0.0|
|total debt as % total assets||42.0||42.7||46.9||33.4||36.4|
|working captial as % of equity||80.5||87.1||97.9||63.4||43.8|
|revenue per share||22.58||27.52||36.56||47.68||71.21|
|book value per share||11.67||16.66||23.67||35.16||52.18|
|tangible book value per share||11.44||16.18||23.12||34.54||50.99|
|price/tangible book ratio||6.73||9.49||4.92||5.37||5.56|
|working capital as % of price||12.2||9.5||20.4||12.0||8.1|
|working capital per share||9.40||14.51||23.19||22.28||22.88|
|cash flow per share||2.59||4.37||5.97||9.97||16.42|
|free cash flow per share||1.83||5.14||9.20||9.94||17.29|
|Return on Stock Equity (ROE)||19.9||24.1||23.0||26.0||29.3|
|Return on Capital Invested (ROCI)||19.9||24.1||23.0||26.0||29.3|
|Return on Assets (ROA)||11.6||13.8||12.2||17.3||18.6|
|price/cash flow ratio||29.7||35.1||19.0||18.6||17.3|
|price/free cash flow ratio||42.1||29.9||12.4||18.6||16.4|
|sales per employee||1085905||1111389||1014969||1250875||1320344|
Apple, Inc. Financial Trend analysis
The annual analysis of the performance of Apple, Inc shows that the company has been improving its performance over time. Working capital per share increased significantly over the past five years from 9.4 in the third quarter of 2006 to 22.88 in the third quarter of 2010 though in the subsequent quarter, it stagnated slightly. The sales per employee increased from $1,085,905 in the third quarter in 2006 to $1,320,344 in the third quarter in 2010. The growth of the sales per employee led to the increase in the return on investments that also grew gradually from 19.9 in the third quarter of 2006 to 29.3 in a similar quarter in 2010 (Advn, 2010). Despite this increase, the price/cash flow ratio and the price/free cash flow ratios reduced. The ratios on capital structure showed a significant increase with the most significant increases coming from book value per share that increased gradually from 22.58 in the third quarter of 2006 to 71.21 in the third quarter of 2010.
The inventory turnover in the liquidity ratios has been declining gradually over the past dive years from 62 to 51.1. In the same category, the total assets per share have bee increasing also gradually from 20.12 to 82.08. Additionally, the current assets per share also gradually increased over the five-year period from 16.96 to 45.50. On activity ratios, the revenue per cash ratio increased from 3.02 in the third quarter of 2006 to 5.79 in a similar quarter in 2010. Revenue per $ invested capital declined slightly from 1.93 in the third quarter in 2006 to 1.53 in a similar quarter in 2010 (Apple, 2010).
On efficiency ratios, the leverage ratio remained stagnant at 1.7 while the asset turnover declined slightly from 1.3 in the third quarter of 2006 to 1.1 in a similar quarter in 2010. However, the receivables as a percentage of revenue increased from 6.5 in the third quarter in 2006 to 15.2 in a similar quarter in 2010. On solvency ratios, the quick ratio increased from 1.8 in the third quarter in 2006 to 2.5 in a similar quarter in 2009 but declined to a similar ration as it was in 2006. The current ratio too remained fairly constant at 2.2 with minimum fluctuations (Apple, 2010).
The profitability ratios did show significant increase with the gross profit margin increasing from 30.1 in the third quarter in 2006 to 41.0 in a similar period in 2010. The net profit margin also increased from 10.3 in the third quarter of 2006 to 21.5 in a similar quarter in 2010. The increase in the income per every employee from $111,823 in the third quarter in 2006 to $283,664 meant that the company incurred more costs while hindering a further increase in the profit of the firm.
The average stock price of Apple Inc. has been increasing steadily over the past five years. The average price of the stock of the company was about $50 in 2005. In the year 2006-2006, the price rose steadily to about $80. Since then, it increased gradually to an average of 200 in 2007. However, the global economic crisis affected the price of the company leading it to decline to about $80 in 2008. Since the economic stimulus, measures were put in place and the economic began to grow again, the company’s stock price increased steadily since 2008 where the price was $80 to over $300 in the third quarter of 2010. These are just indicators of good performance indicators of the company (Masi, 2009).
Standard & Poor’s Stock Market Index
This capitalization index was established in 1957. It measures the prices of the large 500 companies trading in the stock exchange in the U.S. the index specializes in the companies that are based in the U.S. companies that internationalize and are able to shift their bases from the U.S are usually replaced by U.S companies. The index measures large capital stocks in the U.S. most companies and even financial institutions track the index.
The above index indicates that the level of investment and the prices for the companies trading in stocks. The S&P index was stable but decreased in 2009 following the financial crisis. Howver, the beginning oif 2010 saw the index begin tio sise again as the company stock prices began to improve. Graphing the S&P index against the Apple last five Years stock prices yields the graph below. Given the grapgh below, the company is in a better position to perform better and this is explained byu the continuously rising price of the company. addiutionally, the company reinvests a lot if dividents in the company leading to its good performance.
According to Freedman & Vohr (1998, p. 10), the international market for computers was increasing than the American market. Therefore, Apple sought to cover up for the U.S market by seeking international markets. This led the company to internationalize in other countries so that it could supplement the U.S dwindling sales. The company internationalized in Europe by bringing on board the most experienced computer personnel to help in the manufacture of the company computers in Europe. The European distribution is just as good as the American distribution with the production of company products aimed at satisfying the consumers. In the course of internationalizing in Europe, the company cut back its distributors in order to lure more corporate dealers that were accustomed to dealing with IBM. The approach that was used was a multi-local approach that ensures that the company sells the products it sells locally in the U.S market to other international markets. Marsal (2009) notes that the company acted as a local company in the foreign market yet operating in the network of the local mother U.S based company. With such a strategy, the whole world becomes a shopping cart for the company products (Huzefa, Deepti & Harmanjeet, 2009).
The operations of Apple in Europe are successful because, despite the company operating as a local company of Europe, it is covered by the mother company of the U.S. the company has the large European market consisting of the 27 EU members. Due to the expanse of the market, the Apple European section contributes much to the performance of the mother company in the U.S. For instance, in the 2009 financial performance of the mother company Apple Inc. the European section of Apple contributed $2.77 billion in revenues towards the performance as compared to the U.S branch that contributed $4.6 billion in revenues (Marsal, 2009).
Support to Mother Company
In the event of a global crisis in the U.S, the foreign operations of the company are able to support the mother company in the U.S.; the international ventures of Apple were established to support the mother company. The foreign operations were started when the sales of the products in the U.S were dwindling. Given the above statistics of the foreign operations of Apple Inc, the domestic company in the U.S can be supported by its foreign operations from other countries. For instance, the European section of the company contributes $2.77 billion in revenues towards the mother company when the local company in the U.S is producing $4.6 billion for the first quarter in 2009. The Apple Japan contributed about $481 million in revenues while Apple Asia contributed $674 in revenues in the same period. The ability of the company to diversify its production and innovating new products such as iPhone and iPad have contributed significantly to the revenue realized (Marsal, 2009). Additionally, Mclean (2009) notes that the international subsidiary branches of the company rescued the company during the 2008 financial crisis when the U.S sales were very low. This is because; the retail performance in the U.S was hit by the crisis hence dwindling. However, the international retail market was still strong and led to the much realized revenue of the company.
Advn, (2010). Apple company financial information. Web.
Apple, (2010). Apple Reports Second Quarter Results. Web.
Freedman, R. & Vohr, J. (1998). Apple Computer, Inc. New York University. Web.
Marsal, K. (2009). Notes of interest for Apple’s Q1 2009 financial results call. Web.
Masi, B. (2009). Strategic analysis of Apple Inc. Web.
Mclean, P. (2009). International sales recuse Apple from U.S Retail Slump. Web.
Simple Stock investment, (2010). S&P 500: Total and Inflation-Adjusted Historical Returns. Web.