Financial Report Analysis: Principles of Business Finance (Apple Inc.)

This report provides a detailed financial analysis of Apple Inc., examining its business principles and investment potential. It begins with an introduction to financial principles, followed by an overview of Apple Inc.'s background, vision, and mission. The report presents the investment rationale for selecting Apple stock, highlighting its growth, innovation, and consumer loyalty. It also delves into the investor profile and recommends an investment strategy suitable for a medium-risk client seeking long-term returns. A financial review is conducted using various ratios, including debt-to-equity, current, and earnings per share, to assess Apple's financial health. The report also discusses strategic decisions, such as the implementation of a "supercomputer" to improve cash flow, and analyzes the company's sensitivity to changes in sales revenue. The report concludes with an assessment of the company's liquidity and profitability, offering insights into Apple's financial standing and future prospects.

Running head: PRINCIPLES OF BUSINESS FINANCE (APPLE INC) 1
Principles of business finance
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Principles of business finance (Financial Report Analysis of Apple Company)
Introduction
In the world of finance, principles act as a guideline for the financial and investment
decision. Thus, finance can be defined as the process of collecting money and ensures proper
utilization of money. Before a company is started there are basic principles of investments
they should consider. To start up a business there is a need for capital to ramp it up to
profitability. Therefore, there are several sources of financing for start-up businesses which
will vary according to the size and type of business. These sources include equity financing,
debt financing, and leasing of business property. Investors should take the risk and return so
as to ensure optimum rates of return. Businesses such as such as the Apple Inc. has invested
on time value of money in that they understand the inflation rate of the economy. Over the
last two years to five years the Apple Inc stock has increased up to 97% and over 273%.
Currently the stock of the Apple has become cheaper while the growth remains at a healthy
state. The Board of directors have authorised an increase in the organization’s program of
more than 50% to return capital to stakeholders.
Organization Background
The Apple Inc. was founded by Steve Wozniak, Steve jobs, and Ronald Wayne in the
year 1976 in a California for the development and selling of personal computers. In1977 it
was incorporated as Apple Company. The company for the last 30 years it has manufactured
computers and in 2001 Apple Company introduced an IPod music player as new product to
the market. The Apple Company has thrived due to its innovative ability to come up with
products such as the iPhone. Over the recent years, Apple Inc. has developed it through the
corporate governance to form sustainable process that helps customers. The Apple Company
is an innovative company and insights Consultancy Company that empathically connecting

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brands with the humans they serve. Whose vision is produce better goods, brands and
services to customers while improving on their social relationship with them? While its
mission is seeking to do three great things to people such as to release the potential in people,
to Inspire and cultivate big ideas, and do good in the world.
Investment Rationale
As stated in the introduction I selected Apple Inc. stock as an advice to the client
investment due to some significant factors. These factors that support my decision include the
organization’s stock prices, the organization’s commitment to innovation, organization’s
success, and consumer loyalty. Apple Company has grown to be one of the successful
businesses since the launch of the first IPod in 2017 in the world. According to Forbes the
company has been placed as the largest technology organization, also the 12th largest publicly
traded company, and the most valuable brand with an estimation value of $600 billion. It has
grown with a larger market cap than Microsoft and Goggle Companies combined. In 2010 the
annual revenue of Apple Inc. grew from $65 billion to $127 billion in 2011 and in 2012 was
$156 billion, (Morden, 2016).
In terms of stock prices it rose from $1 to $110 between 2001 and 2014. The earnings
ratio of price during this time was ahead of its market share, which was due to brand loyalty
and product innovation. But recently the stock prices took a considerable drop down of 14%
despite the tremendous success of Apple Inc. from their higher stock prices of $134 in 2005,
(Form 10-k, Annual Report of Apple Inc). Therefore this decrease makes Apple Company a
value play investment for the client. This is because the value of the stock is worth far more
value than the price, thus, making the current investors to startle while providing a buying
opportunity for the client. Apple Company in addition to innovation it is known well for its
present product line, for instance , iPod began as iPod mini, later on it evolved to iPod touch,

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to iPod Shuffle, then to iPod Classic, to iPod Nano, to iPhone and eventually to IPad. The
stock of Apple Inc, overall it has been unfailing mean while there is development in
innovating products such as Apple Pay for the current and future investment, which will be
an additional growth to the Apple Company.
The organisation has grown to establish a robust logo and market function, however,
Apple Inc. faces high danger of net fraud. Efficient enterprise version has been assisting
Apple Inc. to amplify its customer base in addition to revenue. The web marketplace offers
unlimited style of goods and excellent of products, which conventional marketplace might
not be capable of providing. Furthermore, Apple Inc. maintains 0 inventories unlike
amazon.com and other competitor, which makes it possible for it to overlook stock costs. The
size of Apple Inc. marketplaces is considered one of the most important within the world.
Over 3 million objects are bought day by day across 50,000 classes on iTunes Stores.
However, the Apple Company debt is approximately 13% proportion of the global
ecommerce. Apple Inc. advertising and classifieds brought in remarkable deal of income.
12% of total internet revenue is resulting from advertising sales, (Carter, R., et al., 2016). In
2009, Interbrand design discussion board ranked the company eleventh in the category of
“the maximum treasured US re-tail brands”. Besides Apple the other outlets with simplest on-
line presence at the listing have been Dell.
Investor Profile and Investment Strategy
As a financial analyst I have to first determine the clients profile and match it with the
organization that will meet its goals before choosing the organization for the client. But you
need to understand the investor in order to take the next step. This is because some investors
prefer buying of stock and hold them over a period of time for it to increase in value while
others prefer buying and selling them quickly for profit. In relation to the careful analysis of

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Apple Company and the type of client interested in investing in Apple Inc, the client’s profile
should be one that is balanced with the medium risk, (Gitman, L.J., et al, 2015).
Therefore, in this case the profile fits the client; this is because the client has
significant capital. The client is also interested in a long-term returns rather than quick gains
and is willing to undergo mild market fluctuations. The client also does not care about time
but instead he is interested in logical investment that will help over time in increasing its
value, (Dong, J. and Zhang, Y., 2016, pg 95-96). I will use the strategy of buying a
significant amount of stock for the client that will ensure both value and growth and putting
them together for a long time to develop capital. Therefore with this kind of strategy Apple
Company becomes the ideal place for investing by buying growth stocks and develops capital
for the future.
Financial Review
To support the recommendation to invest on Apple Company for the client I had to
analyze and review the financial documents and the financial health of the Apple Company
for the past 3 years. A ratio was used to assist in analyzing the organization’s financial
document in order to determine the financial health of the Apple Company. Ratios are used in
learning the organization’s current financial health and it’s potential. In relation to the clients
profile of investment the following ratios were used to conduct the analysis such as debt to
equity, basic earning power, current, earning per share, and quick ratio, (Khan, Alam, &
Alam, 2015).
The Apple Company needs a higher cash flow in order to meet the emerging current
liabilities. Therefore, the financial ratio of the two companies the net income of the two
companies for instance, is decreasing and it’s expected to continue to decrease therefore, in
that case it will most probably increase more if they merge, since they would benefit from the

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strengths of both companies but if one of them is decreasing, then who knows what will
happen when they merge, it's risky. The company is also undergoing a liquidity problems in
the sence that the ratio is 0.5 lower than the current ratio, (Moorthy, M. K., et al, 2011).
The quick ratio is used for measuring the organization’s liquidity. This ratio is used to
show the profit margin, current ratio, management ratio, and the debt ratio. The organizations
should focus for the future also on the cash flow, balance sheet, and income statements in
order to increase the 1% growth rate. Performing a sensitivity analysis of different variables
showed us that the company is most sensitive to changes in sales revenue. This was taken
into account when choosing a new project for the company to invest in, (Eiteman, D.K., et
al., 2016).
In order to improve cash flows, its recommend the implementation of the two
companies “supercomputer. The quick ratio is determined by subtracting the inventories from
the current assets and it is then divided by current liabilities. 1.05 has been the quick ratio in
2015 in Apple Inc. in relation to the figures such as current liabilities of $65,285,000,
inventory $2,042,000, and current assets $70,953,000, (Weygandt, J. J., et al., 2015).The
strategic decisions to inject $5 million for capital growth purposes become appropriate in
increasing the profitability of the enterprise. The corporation recorded $fifty six, 195, which
emerges due to the capital of the company to make better revenues. The share of the
operating prices additionally seems to be decrease compared to the sales and accordingly,
supplying a higher quantity of the net income, (Bennett, M. A., et al, 2017)
The measurement of the organization’s liquidity is determined by the current ratio.
This ratio exhibits the proportion of current assets of an organization in terms of its current
liabilities. This is calculated by dividing the present assets by current liabilities. The current
ratio has increased by 1.09 which means that current assets is put every dollar in current
liabilities had of 1.09. The earnings per share ratio are used in determining the profitability

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and success of the organization. This ratio measures net income each stockholder earned
which is calculated by dividing the net income to stockholders by shares.
Through using the method of value based management and the corporate valuation
model helps companies to monitor and assess how their decisions affects stockholders, which
in turn helps in guiding their financial decisions of management. By forecasting financial
statements and analyzing the potential cash flows from following various investment
strategies, companies can calculate the net present value (NPV) of a project and create a
strategic plan in order to maximize firm value. Through analyzing various companies’ top
competitors such as Microsoft, Oracle, and SAP the company is able to identify an attractive
project to undertake and analyzed several different variables in relation to the company’s top
competitors, (Strauss, and Frost, 2016).
The debt to equity ratio is used to determine the financial advantage of the
organization. It shows the relative proportion of the shareholders equity and the debt use to
finance the organization assets. The ratio was 1.17 when it was calculated in relation to the
total liabilities and the shareholders’ equity. Therefore in the last 2 years the high debt to
equity ratio shows that the organization is taking on additional debt to finance the increased
operation, (Alexandre, G.L., 2016). The usage of an aggregate of qualitative and quantitative
records can enhance an evaluation through making sure that the constraints of one form of
records are balanced by using the strengths of some other. This may ensure that know-how is
advanced by means of integrating distinctive ways of knowing. Maximum opinions will
gather each quantitative facts (numbers) and qualitative data (text, pix), however it's miles
crucial to devise in advance how those might be combined.
Also to determine the worth of investment of a company the basic power ratio is used.
This ratio is used to influence the leverage and taxes through dividing earnings before interest
and taxes by total sales. Increase in the continuous use of earning power ratio over the past

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three years shows that the company is continuing to generate and grow income with the use
of their innovative products. It is therefore clear that the Apple Company in relation to the
financial documents analysis shows an outstanding stability, tremendous potential for growth
and development, and a financial health. Therefore, the recommendation for the client to
invest in Apple Company is supported by the conducted analysis.
The balance sheet is used to show an organization’s major assets such as equipments,
financial leverage (debt) and land. Thus through it a financial analyst can be used to
determine whether the merged companies will be in a position to meet its financial
obligations through using the available resources. Also a financial analyst can use income
statements to determine the organization’s financial stability, (Lyasnikov, N.V., et al, 2017,
p.111). The information is used in knowing the revenue generated and the expenses incurred
by the organization. This will help to know if the merging is of any financial benefit to the
companies. Also cash flow statements can be used to determine if there will be enough cash
to meet the organization’s obligations after merging.

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Risk Analysis
Usually in every investment there is always a risk to undertake which I should be
diligent to reveal the risk associated and provide recommendation of mitigating the risk
involved. According to the financial review the level of risk involved from the client’s
perspective is medium, (Lockamy III, A., 2017, pp. 177-188).
The client has concerns in regards to the product lines in the essence of them to begin
to lose momentum as it did with the iPod, or if the new products developed will not be
successful. Due to the Smartphone market crashing Apple Company can lose a lot of money
which is a dilemma if they will be able to sustain innovation. This is because Apple Company
sustains its profits through updating its current product lines. The client is in a state whether
the company will be able to stay ahead of the market or it will begin to lose sales. But
currently due to the high demand of the top products such as IPad, Mac, and iPhone the
consumers are pouring money in the company.
The risk is termed as medium risk by the client because they conducted ratio analysis
on the financial documents shows that there is continuing in good financial health and
producing innovative products, (Yusoff, M. and Husnina, N., 2018). Also due to the Apple
Inc brand products are highly considered by the customers and it is with great confidence that
the new innovative ventures will materialize and make the client successful. However, it is
my job to provide the client with the strategies of mitigating the risk whether the client is ok
or not with the medium risk. First of all, the risk can be mitigated by using the strategy of
diversification. A portfolio can be used to mix a wide variety of investments in order to
mitigate the risk. The client can also invest in other stocks that don’t correlate with the
company in order to prevent having all capital in one place. Also keeping up of short-term

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cash reserves in its portfolio is an advice I can add to the client in order to meet the
emergency funding needs.
Methodologies
In today’s market, the method of data collection is a very essential part of business
success in that it provides businesses with quality information required to make further study,
analysis and research. The term data collection can be defined as the process of collecting and
measuring information from relevant sources to be able to answer questions concerning a
research problem, test the hypothesis, and evaluate the outcomes. This technique can be
classified into two categories: qualitative and quantitative, (Burns, & Bush, 2012). This
method helps researchers come up with definite and solid decisions in relation to research
problem. To be able to understand marketing reactions and problems a marketing researcher
is required to be well-abreast with the two data collection techniques.
Stock Analysis
Over the last two years to five years the Apple Inc stock has increased up to 97% and
over 273%. Currently the stock of the Apple has become cheaper while the growth remains
at a healthy state, (Joshi, et al, 2016). The Board of directors have authorised an increase in
the organization’s program of more than 50% to return capital to stakeholders.
Recommendation
As a financial manager I will fully recommend the client to invest in Apple Company
stock which is an excellent choice especially in a long-term investment. The revenue of
Apple has generally increased to 33% which is a fast growth rate. The current leader Tim
Cook of Apple Inc. has shown great improvements in taking the company to the next level.

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Through him the Apple became the most valued in the history of time by the market cap.
Apple Inc. has the best brand which had an estimation of 67% in 2015.
Its consumer-centric focus is presenting the organization with the strategy to cope
with the need to widen its market base. With purchasers in mind, the company made it value-
powerful, easy, and handy for clients to buy products online thru strategic alliances and
technological innovation. Second, the approach is an in shape to Apple role inside the on line
retail industry. The business enterprise is beset with opposition from a saturated retail
marketplace, in which it competitors with more established retail companies consisting of
Wal-Mart or target. as the first-mover within the e-trade enterprise, Apple Inc. was capable of
get a head start and perfected on-line purchasing to make it no longer handiest handy, but
additionally dependable and at ease.
Conclusion
In conclusion, from the above it is evident that according to the client’s type of profile
the Apple Company has presented itself as the ideal investment due to some reasons such as:
The ability to sustain the Apple Inc. worth over a long time while reinvesting itself as a way
of continuing to sustain. According to Forbes the company has been placed as the largest
technology organization, also the 12th largest publicly traded company, and the most valuable
brand with an estimation value of $600 billion. It has grown with a larger market cap than
Microsoft and Goggle Companies combined. In 2010 the annual revenue of Apple Inc. grew
from $65 billion to $127 billion in 2011 and in 2012 was $156 billion. This makes it a value
stock choice for the client. Also Apple Company has the ability to generate more cash flow
compared to its competitors.

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