Financial Analysis of Apple Inc.

Read a comprehensive financial analysis of Apple Inc. including liquidity ratios, profitability ratios, solvency ratios, and efficiency ratios. Understand the factors affecting the demand for Apple Inc. stock and why investors choose Apple Inc. for capital return, valuation, and growth. Get insights into the stock market movement prediction and the impact of internal and external factors on Apple Inc. Also, analyze the current financial health of Apple Inc. and the associated risks.

Financial Analysis

Contents
Introduction.................................................................................................................................................2
Part A..........................................................................................................................................................2
Question 1...............................................................................................................................................2
Question 2...............................................................................................................................................3
Question 3...............................................................................................................................................3
Part b...........................................................................................................................................................6
Question 2...............................................................................................................................................6
Question 3...............................................................................................................................................9
Question 4.............................................................................................................................................10
References.................................................................................................................................................11

Introduction
Apple Inc. is an America multinational company which is headquartered in Cupertino California.
The company basically deals in the development and the selling of the consumer electronics,
software and the online services. It gives the tuff competition to Amazon, Google and Facebook.
The current price of the Apple Inc. is $170.80. Below is the report which discusses mainly about
the rationale behind choosing the stock taking into consideration of all the factors. Further the
financial analysis is also carried out in terms of the financial ratios. The client chosen for this
report is one who is about to retire from his firm.
Part A
Question 1
The factors that are going to affect the buyer’s taste and preferences will affect the demand for
Apple Inc. The preferences may change because of the personal choice or the advertising. At
times the preferences of the customers can change and thereafter the demand can fall. In
alignment of the individual who is about to retire shall invest in the stock of the Apple Inc. due to
following reasons (Martin. 2017).
Since the company is the private limited company and the company is open to the public to
purchase the shares of the organization. Economic factors can affect almost all the elements of
the business may it be financial or non-financial. The impact of the exchange traded funds on the
Apple stock and since the stock is the biggest mover of the market. The services are considered
as the new founder of the forward movement of the Apple. Amongst the latest products the
Apple launched the HomePod which is equivalent to the Amazon Echo and Google home. Hence

these are the factors that affect the positioning of the Apple and thereafter have a greater impact
on the trades of the stock (Forbes, 2018).
Question 2
Apple Inc. is chosen by most of the investors because of the three simple reasons which are
capital return, valuation and growth. The first reason is the capital return and it’s basically
because the Apple pays out a 1.5% dividend yield which is more than any other giant and the
power of generating the balance of the cash is supreme in case of Apple. With the corporate tax
reform in place and a great quarter for the Apple the company is set to return a record amount of
capital in 2018. The current cash position of the company is $163 billion (Wallet Investor, 2018).
There is more in case of Apple Inc. despite the capital return. Due to the strong consumer
business where the average selling price of the consumer increased from $100 per unit to $796,
the stock is relatively cheap. The analysts expect the earnings to grow at the whooping rate this
year and an additional 14.6% next year. Therefore what more the one can accept form the
company like Apple Inc. the factors that affect the price of the stocks are sales of Iphone and
Mac book. The services provided by the Apple Inc. accounts for 18% of the revenue recorded in
the third quarter of the year 2018 and it will definitely provide the benefits to the individual who
is going to retire (Martin. 2017).
Question 3
Weng, B., Ahmed, M. A., & Megahed, F. M. (2017). Stock market one-day ahead movement
prediction using disparate data sources. Expert Systems with Applications, 79, 153-163.
In the opinion of the Weng, Ahmed and Megahed (2017) the stock prices analysis is done on the
basis of the case study. One of the expert in this case study was able to predict the movement of

the stock price of AAPL for the next day with the accuracy of 85% thereby creating a lesson for
the investors on why and how to invest in Apple Inc. According to Weng, Ahmed and Megahed
(2017), the investors can learn the technique online and they are available for free. The stock
market prediction is conducted on the basis of algorithms, artificial intelligence and the
knowledge base of the expert. As preset in the Journal the methods and the approaches are also
determined to predict the stock with data driven approach. The daily opening and closing was
recorded along with the usage of the price earnings ratio to estimate the fundamental health of
the company.
Khan, U. A., Alam, M. N., & Alam, S. (2015). A critical analysis of internal and external
environment of Apple Inc. International Journal of Economics, Commerce and
Management, 3(6), 955-961.
The diversification beyond the computers in the opinion of Khan, Alam and Alam (2015) is the
reason the Apple enjoys the terrific sales and has efficiently managed the cash flow of the
organizations. The company has the strong recognition because of the aggressive policy to
introduce creative and innovative policy. According to Khan, Alam and Alam (2015) the
increase in the investments in the research and the development have elevated the sales. Apple in
a trustworthy brand and therefore the philosophy of the ease of the use is considered. The factors
other than the internal factors are the external factors that affected the choice and the preferences
of the customers. In the view of Khan, Alam and Alam (2015), according to the social analysis of
Apple Inc. the series of the changes in the products to satisfy and fulfill the customer’s
expectations.
Liang, G. (2016). The “Fox–Apple” Partnership in the Global Value Chain: How Did Foreign
Direct Investment and Contract Manufacturing Reshape the Landscape of the Electronics

Industry?. In Uncovering value added in trade: New approaches to analyzing global value
chains (pp. 141-166).
In the view of Liang, the new term have been coined namely Fox-Apple to describe the
alignment between the Foxconn Technology Group. The relationships have almost taken another
level in reshaping the industry over the past decade. The emergence of the Foxx-Apple
partnership has resulted on the improvement of the returns on the stock price and therefore this is
the ultimate reason for the individuals who are going to return. The real investment leads to the
future returns with more growth and capital value. In the opinion of Liang the major investment
made with the foreign direct investment showcases the real value that will maximize and provide
the greater benefits to the investors investing in Apple Inc.
Sardy, M., & Lewin, R. (2016). Towards a global framework for impact investing. Academy of
Economics and Finance Journal, 7, 73-79.
In the light of the statement made by Sardy and Lewin (2016), the products of the Apple are
developed and the Imagine Apple Inc. decides to opt for investments in the area which increases
the battery life, consumes lower costs and less power. Apple is more focuses in reducing the
operational costs and therefore the cost curve of the company is shifted downwards so that it can
be made stronger financially. In the view of the Sardy & Lewin the Apple Inc is recognized at
the global framework and therefore the investors can get an insight of the position of the stock
against the competition. In the opinion of the Sardy and Lewin the impact on the investment is
the real decision making factor in deciding the ability of the company and the efficiency of the
stock at the performance level.

Piao, M., & Kleiner, B. (2015). Excellence in the Electronics Industry: The Comparison of the
Organizational Culture among Apple Inc., Samsung Electronics and Google Inc. Conflict
Resolution & Negotiation Journal, 2015(1).
This paper as presented by Piao and Kleiner determines the success of the electronics industry
and one such element which boosts the sales of the electronics market is Apple Inc. Apple Inc. is
the real mover of the market and therefore in the view of the authors the apple Inc is the most
productive opportunity for the people who are investing in the stock sof the Apple Inc.
Part b
Question 2
Ratio analysis is the technique which is used to measure the financial performance of the
company. It is a technique that is used to determine the position of the company in terms of the
efficiency, profitability, liquidity and solvency (Zolfani, Yazdani & Zavadskas, 2018).
Apple Inc.
Liquidity Ratios 2016 2017 2018
Current Ratio Current Assets 1.35 1.28 1.12
Current
Liabilities
Quick Ratio Quick Assets 1.05 0.91 0.77
Current
Liabilities
Solvency ratios
Debt to Equity Debt 1.51 1.80 2.41
Equity
Debt to Total Assets Debt 0.60 0.64 0.71

Total Assets
Profitability
Times interest coverage ratio EBIT 41.2 26.4 21.9
Interest Expense
Net Profit Net Profit * 100 21.19% 21.09% 22.41%
Net Sales
Asset Turnover Ratio Net Sales 0.67 0.61 0.73
Average total
Assets
Activity Ratios
Days Inventory Outstanding Inventory * 365 3.6 7.7 5.4
Cost of goods
sold
Days Receivable Outstanding
Accounts
receivable * 365 26.7 28.5 31.9
Credit sales
Days Payable Outstanding
Average
Accounts
Payable * 365 103.6 126.9 124.6
Cost of Goods
Sold
Cash Cycle -73.3 -90.7 -87.3
Liquidity: The current ratio of the Apple Inc. is of the fluctuating nature and is falling down in
comparison to the period of the three years. Earlier the ratio of the company was at 1.35 at par
level only and that too declined, by the year 2018 the ratio was at 1.12 which is a great fall. The
fall suggests that the capacity of the company to pay the current liabilities is deteriorating (Forde,
Colombo, Main, Ohtsu & Shigeishi, 2016).

Secondly the quick ratio of the company discloses the position of the Apple in terms of how
quickly the company can realize the cash value and pay the immediate creditors and the trade
payables. The quick ratio was 1.05 in the year 2016 which is why the investors had little hope,
but thereafter the stock declined gradually and reached to 0.77 by the end of the year 2018.
Henceforth the company needs to look into the areas which are possibly responsible for such
situation and immediate rectification in required (Uechi, Akutsu, Stanley, Marcus & Kenett,
2015).
Profitability: The profitability ratio is the favorite ratio of all the investors as the net income is
the measurement that discloses the earnings available to shareholders. The proper margin is
required to be set by the company in order to have anticipation the future income as well.
Currently the net profit margin of Apple Inc. is 22.41% and it increased in comparison to the last
two years. This can be strength for the company but on the contrary the ability pay the finance
cost decreased. Earlier the company was able to pay 41.2 times finance cost but as the operations
moved the capacity decreased to 21.9 times only. The net profit margin alone cannot recover the
position of the company hence it is highly recommended to reduce the interest costs by acquiring
less liabilities of the long term nature (Piao & Kleiner, 2015).
Solvency: A balance of both is required so that there is a minimal risk and major benefits. At
present the debt to equity ratio is the ratio was 1.51 in the year 2016 and thereafter it went to 1.80
and 2.41. This suggests that the company is interested in acquiring the funds from the long term
liabilities rather than the equity whereas the debt must be reduced to improve the payment
capacity. On the other hand the debt to the total assets ratio remains almost in the same range.

Efficiency of the Apple Inc. can be observed through days receivable were outstanding and days
payable were outstanding. The company is taking a longer time in paying back to the creditors.
The company is paying to the creditors in 124.6 days whereas the collection from the receivables
is in few days such as 31.9 days. In comparison to the previous years the inventory days have
improved and the payable and the receivables need improvement (Zolfani, Yazdani &
Zavadskas, 2018).
So, overall analysis depicts that the health of the company is satisfactorily and can be improved
if the necessary measures and steps are taken with the assistance of the top level management.
Question 3
By the start of the year 2019 the stock of Apple Inc. fell down as much as 10% and the same can
also be observed from the tweet of Tim Cook. Earlier the expectations of the company were $89
billion whereas in reality the company stopped at $84 billion only in terms of the revenue. This is
the biggest risk involved with the stock. The negative momentum in the stock is kind of the red
alert for the investors and it’s a far cry for the investors (Forbes, 2018).
The risk level is high in case of the liquidity solvency and the efficiency ratios as can be analysed
from the financial review. In order to minimise the risk the company shall focus in
diversification and shall not depend upon the sales of the one product. Secondly the company
shall avoid the leverage and margin. Though the trading with the borrowed money sounds
tempting yet the company shall avoid the unnecessary leverage and burden. Lastly the company
shall involve itself in the investment f the blue chips as the market of the blue chips coordinates
with the strengths of the Apple Inc (Forbes, 2015).

Question 4
Apple can be created as an investment opportunity as the Apple is still giving the capital returns
and the revenue increased from the previous year. It is recommended to the investors to hold the
stock as it is going to give the future value of the fund. The recommendation is that if the
company improves the position in terms of the figures it can deliver great opportunities to the
investors. Though the risk is associated yet the investors shall not make any decision on the basis
of the few events (Kenwell. 2018).

References
Forbes, (2015). Why 3 Value Experts Say Apple Stock Is Still A Good Long-Term Investment.
Retrieved from https://www.forbes.com/sites/moneyshow/2018/03/23/why-3-value-experts-say-
apple-inc-aapl-stock-is-still-a-good-long-term-investment/#43b8e4861b17
Forbes, (2018). Explaining The Recent Apple Selloff, And Why The Stock Looks Undervalued.
Retrieved from https://www.forbes.com/sites/greatspeculations/2018/11/23/explaining-the-
recent-apple-selloff-and-why-the-stock-looks-undervalued/#1a58ab889df3
Forde, M. C., Colombo, S., Main, I. G., Ohtsu, M., & Shigeishi, M. (2016). Predicting the
Ultimate Load Capacity of Concrete Bridge Beams from the" Relaxation Ratio" Analysis of AE
Signals. Progress in Acoustic Emission, 18, 359-364.
Kenwell. B, (2018). Why Apple Is Still the Best Stock to Own for Your Retirement. Retrieved
from https://www.thestreet.com/story/14539309/1/apple-still-best-stock-for-retirement.html
Khan, U. A., Alam, M. N., & Alam, S. (2015). A critical analysis of internal and external
environment of Apple Inc. International Journal of Economics, Commerce and
Management, 3(6), 955-961.
Liang, G. (2016). The “Fox–Apple” Partnership in the Global Value Chain: How Did Foreign
Direct Investment and Contract Manufacturing Reshape the Landscape of the Electronics
Industry?. In Uncovering value added in trade: New approaches to analyzing global value
chains (pp. 141-166).

Martin. V, (2017). 4 Things Every Apple Inc. (AAPL) Stock Owner Should Worry About.
Retrieved from https://investorplace.com/2017/03/4-things-apple-inc-aapl-stock-owner-should-
worry-about/
Piao, M., & Kleiner, B. (2015). Excellence in the Electronics Industry: The Comparison of the
Organizational Culture among Apple Inc., Samsung Electronics and Google Inc. Conflict
Resolution & Negotiation Journal, 2015(1).
Sardy, M., & Lewin, R. (2016). Towards a global framework for impact investing. Academy of
Economics and Finance Journal, 7, 73-79.
Uechi, L., Akutsu, T., Stanley, H. E., Marcus, A. J., & Kenett, D. Y. (2015). Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
488-509.
Wallet Investor, (2018). Apple Stock Forecast, "AAPL" Share Price Prediction Charts Is "Apple
Inc" a Good Investment? Current price today Retrieved from https://walletinvestor.com/stock-
forecast/aapl-stock-prediction
Weng, B., Ahmed, M. A., & Megahed, F. M. (2017). Stock market one-day ahead movement
prediction using disparate data sources. Expert Systems with Applications, 79, 153-163.
Zolfani, S. H., Yazdani, M., & Zavadskas, E. K. (2018). An extended stepwise weight
assessment ratio analysis (SWARA) method for improving criteria prioritization process. Soft
Computing, 22(22), 7399-7405.