Apple Inc. vs Microsoft Corp. Analysis

This assignment requires a comparative analysis of the financial performance of two technology giants, Apple Inc. and Microsoft Corporation. Students are expected to utilize provided data from sources such as Apple's investor relations website, Morningstar, Yahoo Finance, and academic texts on corporate finance. The analysis should encompass key financial metrics like cash flow, stock price trends, and relevant industry context. The assignment aims to assess students' understanding of corporate finance principles and their ability to apply them in a real-world scenario.

Running Head: Financial Management
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Financial Management

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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
Current financial statement...............................................................................................5
Apple’s Income statement............................................................................................8
Apple’s Balance sheet...................................................................................................9
Apple’s Cash flow and Apple’s owner’s equity...........................................................9
Ratio calculations............................................................................................................10
Key statistics...................................................................................................................14
Stock purchase................................................................................................................15
Other information...........................................................................................................16
Recommendation............................................................................................................17
References.......................................................................................................................18

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Introduction:
Financial management is an analysis process to evaluate and analyze the position of
the company. This process helps the analyst to evaluate about the performance of the
company so that it becomes easy for them to make better conclusion about the company. This
report has been prepared to evaluate the performance and financial position of the company,
APPLE INC so that the investment opportunity of the company could be evaluated and it has
been analyzed that how is the manpower position of the company.
Company overview:
Apple Inc. is an American company which is operating its business in information
technology industry. Headquarter of the company is in California. The company designs,
sells and develops the computer software, electronic devices, mobile phones and online
services. Hardware product of the company includes iPhone, iPad, iPod, Mac personal
computer, Apple TV, HomePod speaker, smart watches etc. On the other hand, software of
apple includes macOS, iTunes, iOS operating system, iLife, safari web browser, iWork,
Xcode etc. company also offers various online services such as iTunes stores, Apple music,
Mac app store, iCloud (Home, 2018).
Company was founded in April 1976 by Steve Jobs, Steve Woozier and Ronald
Wayne. Firstly, the main business of the company was developing and sell personal computer
named by Wozaniak’s Apple. The company was incorporated as Apple computer Inc in 1977.
The current position of the company explains about various significant moments, revenue
growth and market position of the company. Apple Inc went public for achieving the instant
financial success in 1980. According to the annual report (2017), total turnover of the

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company is US$ 229.234 billion. Total number of employees of the company is 1,23,000.
The company is serving its products and services worldwide (Baker and Nofsinger, 2010).
The company has enjoyed huge level of loyalty and it has also been repeated that the
company has been awarded as most valuable brand of the company. However, the company
has received significant criticism in context with the labour practices, business practices,
environmental practices which also includes anti competitive behaviours and the sources of
materials.
Apple inc. is the largest information technology company in worldwide in terms of its
revenue and it is second largest mobile manufacturing company. In the year of 2015, apple
Inc has become the first US Company which has been valued more than UD$ 700 billion.
Currently, company is maintaining around 499 retail stores in 22 countries and on the other
hand, it is world’s largest music retailing company. According to the report of 2016, around 1
billion apple products are used around the world actively (Arnold, 2013). It is a joint stock
company which has been registered with the SEC. The main stakeholder of the company is
The Vanguard Group which is holding 6.43% of total stock of the company.
The main competitive company of Apple inc. is Microsoft Corp. Microsoft corp. is an
American company which is operating its business in information technology industry.
Headquarter of the company is in Washington. The company designs, sells and develops the
computer software, electronic devices, mobile phones and online services. The best software
product of the company is Microsoft windows line of Microsoft office suit, operating system,
edge web browser (Home, 2018). The hardware product of the company is Xbox video game,
Microsoft surface tablet etc.
Company was founded in April 1975 by Paul Allen and Bill Gates. Firstly, the main
business of the company was developing and sell personal computer. The current position of

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the company explains about various significant moments, revenue growth and market
position of the company. According to the annual report (2017), total turnover of the
company is US$ 89.95 billion. Total number of employees of the company is 1, 24,000. The
company is serving its products and services worldwide.
Current financial statement:
The financial statement (Income statement, balance sheet, cash flow statement etc) of
the company are as follows:
Figure 1: income statement
(Annual Report, 2016)

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Figure 2: Balance Sheet
(Annual Report, 2016)

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Figure 3: Cash Flow Statement

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Figure 4: Shareholder's Equity
(Annual Report, 2016)
Apple’s Income statement:
The above figures explains about the financial position and performance of Apple Inc.
the figure 1 expresses about the total turnover, revenue, cost of goods sold, net profit,
operating income etc of the company. According to the figure 1, total revenue of the
company was US $ 229234 million in 2017 whereas the total cost of goods US $141048
which explains that the gross profit of the company is US $ 88186 or 38.47% of total revenue
(Morningstar, 2018). Further, it explains that the total operating expenses of the company is
US $ 26842. Hence, the net profit of the company was US $ 48351 in 2017. It expresses that

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the net profit f the company is 21.09% of total revenue. The earnings per share of the
company are 1.55 whereas the outstanding shares of the company are 31297 million.
Apple’s Balance sheet:
Further, the figure 2 expresses about the total current assets, total assets, total
liabilities, current liabilities and equity etc of the company. According to the figure 2, total
current assets of the company were US $ 128645 million in 2017 whereas the total assets of
the company were US $ 375319 which explains that the company has enough resources to
maintain the operations (Gapenski, 2008). Further, it explains that the current liabilities of the
company are US $ 100814. On the other hand, the liability of the company was US $ 241272
in 2017. It expresses that the equity of the company is US $ 134047.
Apple’s Cash flow and Apple’s owner’s equity:
In addition, the figure 3 expresses about total cash inflow and outflow of the
company. According to the figure 3, total operating, investing and financial cash flows of the
company are US $ 63598, US $ -46446 and US $ -17347 respectively. The statement
expresses that the net cash flow of the company is US $ -195 which means the cash outflow
of the company is higher than inflow. Lastly, figure 4 expresses about the changes in the
equity position of the company and explains about the following changes:
Stockholders' equity
Common stock 35867 31251 27416 23313
Additional paid-in capital 19764
Retained earnings 98330 96364 92284 87152 104256
Accumulated other
comprehensive income -150 634 -345 1082 -471

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Total stockholders' equity 134047 128249 119355 111547 123549
Ratio calculations:
Ratio calculations of Apple Inc and its competitive company, Microsoft Corp. Are as
follows:
Financial Ratios of five years: Apple inc vs. Microsoft inc
Financial
Ratios
2017 2016 2015 2014 2013
Liquidity of Short-Term Assets
Current Ratio
Apple inc 1.28 1.35 1.11 1.08 1.68
Microsoft inc 2.48 1.35 1.11 1.08 1.68
Cash Ratio
Apple inc 1.28 1.35 1.11 1.08 1.68
Microsoft inc 2.48 1.35 1.11 1.08 1.68
Quick Ratio
Apple inc 0.15 0.23 0.23 0.18 0.29
Microsoft inc 0.08 0.23 0.23 0.18 0.29
Long-term Debt-paying Ability
Debt Ratio
Apple inc 64.28% 60.13% 58.91% 51.89% 40.31%
Microsoft inc 69.97% 62.83% 54.56% 47.92% 44.57%
Debt-equity Ratio

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Apple inc 86.30% 67.86% 54.01% 31.64% 13.73%
Microsoft inc 119.06% 74.57% 44.07% 25.22% 19.76%
Times Interest Earned
Apple inc 26.41 41.23 97.18 136.73 360.29
Microsoft inc 10.05 41.23 97.18 136.73 360.29
Profitability
Profit Margin (Net Income/Sales)
Apple inc 21.09% 21.19% 22.85% 21.61% 21.67%
Microsoft inc 23.57% 21.19% 22.85% 21.61% 21.67%
ROA (Net Income/Assets)
Apple inc 36.07% 35.62% 44.74% 35.42% 29.98%
Microsoft inc 29.29% 63.46% 66.67% 44.01% 46.92%
ROE (Net Income/Shareholder Equity)
Apple inc 21.09% 21.19% 22.85% 21.61% 21.67%
Microsoft inc 23.57% 21.19% 22.85% 21.61% 21.67%
Asset Utilization/Management Efficiency
Total Asset Turnover
Apple inc 1.64 1.49 1.24 1.27 1.21
Microsoft inc 2.68 0.90 0.75 0.94 0.83
Inventory Turnover Measures
Apple inc 0.62 0.61 0.60 0.61 0.62
Microsoft inc 0.38 0.61 0.60 0.61 0.62
Accounts Receivable Turnover

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Apple inc 12.82 13.69 13.87 10.47 13.04
Microsoft inc 4.54 13.69 13.87 10.47 13.04
Market Measures
Price/Earnings Ratio
Apple inc 112.33
Microsoft inc 57.79 (Davies and
Crawford,
2011)
Earnings Per Common Share
Apple inc $
1.54
$ 1.39 $
1.55
$
1.08
$
0.95
Microsoft inc $
2.74
$ 1.39 $
1.55
$
1.08
$
0.95
Dividend Payout Ratio
Apple inc 5.50 8.34 15.77 28.97 77.68
Microsoft inc 5.10 7.56 13.48 23.12 54.82
(Annual Report, 2013, 2014 and 2017)
The above table expresses about the financial position of the company at various
levels. Firstly, liquidity ratios of the company have been evaluated and compared it with the
competitive company, Microsoft Corp. to evaluate the position of the company. The current
ratio of the company expresses that the current ratio of the company is 1.28 whereas the
benchmark company has current ratio of 2.48 which explains that the cash position of Apple
is way better as it is utilizing the resources at its fullest (Damodaran, 2011). On the other
hand, cash ratio and quick ratio has been evaluated and it has been found that the Apple Inc is

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managing and operating its operations and short term debt obligation of the company is quite
better.
Further, the long term debt ability position of the company has been evaluated t
identify the debt position and capital structure position of the company. The debt ratio
calculations express that the debt level of Apple Inc is 64.28% which is lower than Microsoft
Corp. the difference is not slightly much (Morningstar, 2018). Further, debt equity ratio of the
company expresses that the debt level of the company is quite significant with the equity
level whereas the benchmark comapny explains that the debt level is quite higher than the
equity level of the company. More, the time interest earned ratio expressed that the position
of apple Inc is way better (Bromwich and Bhimani, 2005).
Further, the profitability ratios of the company have been evaluated and it has been
found that the profit margin of Benchmark Company is quite higher though the changes are
quite lower. The return on assets level of the company expresses that the profitability level of
apple is way better in terms of resources and management. Lastly, the return on equity
expresses that the apple’s position is bit lower than the benchmark company (Horngren,
2009).
In addition, asset utilization level of the company has been evaluated and it has been
found that the total assets turnover level of the company is 1.64 times whereas the level of
Benchmark Company is 2.68 times; it explains that the resources of apple are quite lower.
Further, the inventory and accounts receivable turnover explains that the company is required
to reduce the turnover times to manage the cost and operations of the company (Morningstar,
2018).
Lastly, the market measures have been evaluated and it has been found that the price
earnings ratio of apple is way better. On the other hand, EPS of the company is lower than the

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Microsoft Corp and dividend payout ratio of both the coma pies are quite similar. It explains
that both the companies are performing almost same in the market.
Key statistics:
After calculating and analyzing numerous ratios of the company, other statistics have
also been evaluated to reach over a better conclusion. Financial ratios are not enough for Ana
analyst to evaluate the financial position of a company; various other statistics could also be
used to make a better conclusion. Firstly, beta has been evaluated and it has been found that
the beta of the company is 1.30 (Yahoo Finance, 2018). A beta coefficient of 1 expresses that
the performance of the stock is quite similar with the market rate. Beta explains about the
systematic risk of the company. Beta has some ups and downs according to the stock price
and the market changes. The beta of apple Inc is way higher than the 1.0 coefficient which
expresses that the changes into the stock price of the company is quite higher than the
changes in the market (Yahoo Finance, 2018). It expresses that the high risk is involved with
the stock price of Apple Inc.
Further, the market value of the company is US $ 877.753 billion which expresses
that the market capital of the company is quite higher. The diluted EPS of the company is $
9.70 on Feb 16, 2018. It expresses that the performance of the company is quite better.

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Figure 5: Stock performance
(Yahoo Finance, 2018)
Further, the other information of the company has also been evaluated to identify the
performance and the financial position of the company. The stock price of the company has
been analyzed firstly and it has been found that the stock price volatility of the company is
quite higher.
Figure 6: Stock price
Stock purchase:
The above evaluation on the financial performance and the stock price of the
company evaluates that the share price of the company has been changed a lot in last 5 years.

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The beta of the company is 0.21 in last 5 years which explains that the stock price of AAPL
does not drive the stock prices of NSDQ. The following graph explains about the changes
into the stock prices:
Figure 7: Changes into the stock prices
(Yahoo Finance, 2018)
The above graph explains that the changes into the market and AAPL stock prices are
quite similar. It explains that the stock prices of AAPL drives the stock price of NSDQ. It
explains that if the investor would buy the stock price of the company than the related risk of
the stock would be lesser. More, it explains that the forecast of the company is quite
reasonable as the appropriate sources have been used to manage and analyze the stock
performance of the company.
Other information:
Further, other variables of the company have also been evaluated to reach over a
conclusion about the investment in the company and the performance of the company.
Capital structure of the company has been evaluated firstly and it has been found that the

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weight of debt and equity of the company is 0.46 and 0.54 (Morningstar, 2018). It explains
that the equity level of the company is higher to maintain the risk level and cost level of the
company. Further, it has been evaluated that the company has invested into various new
projects which would offer high rate of return to the company (Hillier, Grinblatt and Titman,
2011). The government regulations and litigations are quite lower on the company. It
explains that the performance of the company is quite higher.
Recommendation:
As studied above, it has been found that the stock would be a good buy for the
purpose of investment in information technology sector. The position and the performance of
the company is quite sound and explains about a good position of the corporation in near
future. The debt equity position of the comapny is quite better and the credit rating of the
company is AA according to the Morningstar (2018). The media and articles also depict
about a good position and performance of the company. Company has been established in
1974 and from that time, it is performing well in the market.
To conclude, corporation is suggested to invest both human power as well as capital
to enhance and manage the performance and the position of the company. It explains that the
company’s performance is quite better in the industry as well as in the market. The
investment would offer huge return to the investors.

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References:
Annual Report, 2013. Apple Inc. (Online). Available from
http://investor.apple.com/secfiling.cfm?filingid=1193125-13-416534 [Accessed 16 Feb
2018].
Annual Report, 2015. Apple Inc. (Online). Available from
http://investor.apple.com/secfiling.cfm?filingid=1193125-15-356351 [Accessed 16 Feb
2018].
Annual Report, 2016. Apple Inc. (Online). Available from
http://investor.apple.com/secfiling.cfm?filingid=1628280-16-20309 [Accessed 16 Feb 2018].
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Baker, H.K. and Nofsinger, J.R. 2010. Behavioral Finance: Investors, Corporations, and
Markets. John Wiley & Sons.
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima
publishing.
Damodaran, A, 2011, Applied corporate finance,3rd edition, John Wiley & sons, USA
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy.
McGraw Hill.
Home. 2018. Apple Inc. (Online). Available from https://www.apple.com/ [Accessed 16 Feb
2018].