Importance of International Financial Management for Apple Inc.

This report discusses the importance of international financial management for Apple Inc. and the challenges it faces in different international financial markets. It also critically evaluates the dividend distribution policy, efficient market hypothesis theory, and methods of appraising projects of Apple Inc.

INTERNATIONAL
FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Importance of international financial management to Apple......................................................3
Challenge faces by Apple Plc in different international financial markets.................................4
Critical evaluation of dividend distribution policy of Apple......................................................4
Critical evaluation of Efficient Market Hypothesis Theory........................................................5
Critical analysis and evaluation of Apple Plc method of appraising projects.............................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
The present report is based on the discussion pertaining to importance of international
financial management along with the challenges that companies such as Apple experiences while
operating in different international financial markets. Also, critical evaluation of dividend
distribution policy, efficient market hypothesis theory and methods of appraising projects will be
done in the context of Apple Inc. It is a US based MNC operating in technology industry dealing
in consumer electronics, online services and computer software.
MAIN BODY
Importance of international financial management to Apple
 IFM is helpful in understanding, analysing and ascertaining the prevailing economic
conditions within different nations of the world due to which sufficient knowledge can be
gathered about the perspectives and dynamics of different economies (Tskhadadze and
Chernorizova, 2018).
 It helps in making sound decisions pertaining to investment and financing across the
globe, so that more value could be added to the investment along with avoiding losses.
 It helps in procuring finance from international financial markets in different currencies
to enable exchange rate management, so that firms and investors can avoid losses that
could take place due to frequently changing exchange rate.
 With the help of studying international financial management, firms across the world get
a knowledge of where to expand their operations.

Challenge faces by Apple Plc in different international financial markets
The various challenges of the IFM which affects the Apple company are as follows:
 The continuous changes in the international currencies affects Apple own capita as low
value currency leads to fast rate decrease in capital.
 Another challenge faces by the Apple in international financial market is decrease in the
investment from the China after the US-China trade war. The impact of which the
company's capital structure are highly affected.
 Terrorism is also one of the challenge in international finance and that affects the funds
and investment procedure of Apple Plc (Zhang, Hu and Ji, 2020).
Critical evaluation of dividend distribution policy of Apple
Dividend distribution policy refers to the establishment of principles in order to ascertain
what amount a company should distribute among its shareholders in the form of dividend. Also,
with this policy a company can maintain balance between how much amount should be
distributed as dividend and how much could be retained with the company to fulfil its future
needs (Ocampo, 2018). There are mainly four types of policy which companies generally uses
while distributing its earnings among shareholders in the form dividend that is, stable dividend
policy, regular dividend policy, irregular dividend policy and no dividend policy. All these
policies have some positive aspects and some negative aspects. For example, regular dividend
allows for earning regular earnings and such kind of investor are generally risk averse or retired.
With this policy no growth in returns can be expected as the company pays dividend in both
events that is, abnormal profits and losses. Under stable dividend policy, a fixed rate of dividend
is paid and the market price of shares could be stablised. However, investors see such companies
as risky because the amount available for distributing dividend fluctuates with the quantum of
profit made (Kaiser and Kirton, 2019). In case of irregular dividend policy, there is no obligation
from the company's side towards paying dividend. Such type of policy is being used by concerns
experiencing irregular cash flows and liquidity issues. Such type of companies are considered as
a risky avenue for parking their wealth and thus preferred by risk lovers only. No dividend policy
could be used by established companies such as Apple on whom investors have already
established trust. By not declaring dividend, Apple is able to increase their value of investment
which in turn results in their growth. As a result of growth, appreciation in share price takes

place. Such companies like Apple are preferred by those investors who are not keen towards
getting regular income.
Apple's dividend distribution policy
Apple has resumed its policy of paying dividend in 2012 after completing 17 years break. Due to
this hold of 17 years, Apple has successfully accumulated cash equivalent to $25 billion by the
end of 2011, which in turn grown to $38 billion by the end of 2020 (Saha, Morris and Kang,
2019). With the help of this accumulation, Apple seems to be successful in raising its earnings
and revenue which in turn makes it possible for the company to increase its annual dividend. In
2020, Apple has paid out 25% of earnings in the form of dividend which seems to be in
alignment with what was declared in 2018 and 2019. Therefore, it can be said from last three
years, Apple's dividend pay out ratio is steady in nature and the company is following stable
dividend policy. The reason behind adopting this policy is to stabilize the market value of
company's shares.
Yearly dividend declared by Apple Inc. from last five years
Since last five years, Apple Inc. is following a policy of stable dividend where it has been seen
that the company has maintained a fixed dividend payout ratio of 25% of earnings generated per
share. The data pertaining to five - year dividend distribution of Apple Inc. are as follows (AAPL
Dividend History. 2021).
Years 2017 2018 2019 2020 2021
Dividend per
share
$2.28 %2.52 $2.92 $2.05 $0.88
Stable dividend policy is generally preferred by management and shareholders both as
against the fluctuating one as it is considered to have positive impact on the market price of the
Apple's share. However, once this policy has been adopted and if dropped after some time, it
leads to affecting investor's attitude and financial positioning of the company.
Critical evaluation of Efficient Market Hypothesis Theory
According to the theory of Efficient Market Hypothesis, when new information about the
company arrived in the market, an instant reflection can be seen in the stock price of the
company where both fundamental and technical analysis ceases to generate any excess returns

(Moss, 2019). However, there are many arguments made to challenge the applicability of EMH
where at first stage it has been said there prevails momentum investing which is a combination of
fundamental and technical analysis and claims that there exists some kind of price patterns in the
stock of the company over the time. Another argument challenging the EMH is behavioural
finance, where it has been stated that investors are largely guided by their psychology rather than
rationality or efficiency. The last argument made against EMH is that many valuation ratios are
helpful in forecasting underperformance or outperformance of a company in the near future.
The theory can be discussed in the context of Apple where it can be said that the
company's share price has not reflect any upside movement in April 2021 when the company has
announced various new models that it going to introduce in the market such as AirTags, Apple
TV 4K and new iMac. The reason behind stability in the stock prices was that valuation ratios of
the company was not reflecting any growth in the returns generated by the company in the
upcoming future. Therefore, it can be said EMH not holds true in each circumstances when new
information arrived in the market which can be evidence from Apple's case where its share price
doesn't get affected or reflect market information. Furthermore, it has been determined that the
stock market where the Apple Inc. has been listed has strong form of efficiency which is not
allowing for making any excessive profits from the information available to both insiders and
outsiders of the organization.
Apple is listed on NASDAQ and the data related to its share price for the last five years are as
follows on the basis of share value recorded in the last week of December every year (Apple Inc.
(AAPL). 2021).
Years 2016 2017 2018 2019 2020
Share price
per share
$28.96 $42.31 $39.06 $72.45 $132.69
From the above chart, it can be seen that there is a great increase in company's share price from
2016 to 2020. However, as per the views of company's management this increase in share price
is not the outcome of any market information related to the company's proposals and projects in
the upcoming period but it is the result of increase in company's valuation and higher returns it is
generating for the customers against their expectations. Therefore, with the increase in earnings
in the long run, there is a higher value of company and accordingly, its share price are increasing.

Critical analysis and evaluation of Apple Plc method of appraising projects.
The methods of appraising projects for investment used by the Apple Plc is basically Net
Present Value Method. It is because this method is a part of discounted cash flow technique
which incorporates time value of money concepts. This is one of the superior methods with the
help of which Apple company can identify whether such project will provide them higher return
or not. For example, Apple Plc with the help of NPV method has achieved return on average
invested assets of 38.59% in the year 2020. This method also consider the cost of capital of the
company's sources of funds. It means that with the help of this method Apple company can
generate more returns from its funds which must be higher than the cost of acquisition. For
appraising the projects on the basis of their profitability and suitability, the NPV method is one
of the best method out of all alternatives because it heavily considers the future estimates and
inherent uncertainty in decision-making process (Carney, 2019). As per this method, if the NPV
of the project is positive or higher of all then company can opt for that project.
However, this method is unable to provide accurate results at the time when quality of the
inputs is worst. Beside this, Apple company also faces the difficulty in comparing the different
sizes of the projects in order to select one. It is because this method works only when the same
size of the projects need for appraising. Along with that, this method also omits the hidden cost
of investment projects such as opportunity and organizational cost. Thus, it is advisable to the
Apple company that in situation where the size of the projects are large then they can also adopt
Internal Rate of Return Method (IRR) (Chrysafis and Papadopoulos, 2021). It is because this
method is perfectly suitable in the case of large and different size projects. As per this method,
the higher IRR rate of the project is best.
CONCLUSION
The report has concluded the dividend distribution policy of the Apple company and
along with that it has also critically analysed the efficient market hypothesis theory in the context
of Apple company. Lastly, the report has concluded that Apple company uses NPV method of
appraising projects and is also recommended adopting IRR method as well.

REFERENCES
Books and Journals
Tskhadadze, N. V. and Chernorizova, N. V., 2018, April. International Financial Markets in the
Conditions of Transformation of Financial System. In International Conference Project
“The future of the Global Financial System: Downfall of Harmony” (pp. 757-764).
Springer, Cham.
Ocampo, J. A., 2018. International asymmetries and the design of the International Financial
System 1 (pp. 45-74). Routledge.
Kaiser, K. and Kirton, J. J., 2019. Shaping a new international financial system: Challenges of
governance in a globalizing world. Routledge.
Saha, A., Morris, R. D. and Kang, H., 2019. Disclosure overload? An empirical analysis of
International Financial Reporting Standards disclosure requirements. Abacus, 55(1),
pp.205-236.
Moss, M. L., 2019. Telecommunications and international financial centers. In Mediation,
Information, and Communication (pp. 239-252). Routledge.
Zhang, D., Hu, M. and Ji, Q., 2020. Financial markets under the global pandemic of COVID-
19. Finance Research Letters. 36. p.101528.
Carney, M., 2019, August. The growing challenges for monetary policy in the current
international monetary and financial system. In Remarks at the Jackson Hole
Symposium (Vol. 23).
Chrysafis, K. A. and Papadopoulos, B. K., 2021. Decision making for project appraisal in
uncertain environments: A fuzzy-possibilistic approach of the expanded NPV
method. Symmetry. 13(1). p.27.
Online
AAPL Dividend History. 2021. [Online] Available through <https://www.nasdaq.com/market-
activity/stocks/aapl/dividend-history>
Apple Inc. (AAPL). 2021. [Online] Available through
<https://finance.yahoo.com/quote/AAPL/history>