A Comparative Financial Analysis: Apple Inc. vs. Samsung Electronics

This report provides a comprehensive financial analysis of Apple Inc. and Samsung Electronics. It begins with an introduction and overview of both companies, followed by a SWOT analysis to identify their strengths, weaknesses, opportunities, and threats. The report then delves into a detailed financial analysis, including horizontal and vertical analysis of their balance sheets and income statements. Trend analysis compares key financial metrics over time, highlighting differences in equity, liabilities, assets, and cash flow. Ratio analysis explores profitability, liquidity, debt management, and activity ratios, comparing Apple's and Samsung's performance. The report also examines key accounting disclosures and the quality of accounting practices. Finally, it offers forecasts for Apple's future performance and concludes with an overall assessment of both companies, drawing insights from the analysis and providing recommendations based on the findings. The analysis is supported by relevant references.

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Date: 31 October ,2017

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Contents
Introduction and Overview ……….………………………………………………..........2
SWOT Analysis………………….……….…………………………………………………….....2
Horizontal Analysis ……………..……………………………………………………..........3
Vertical Analysis……………………….……………………………………………………......3
Trend Analysis …………………….……………………………………………………...........4
Profitability Analysis……………….……………………………………………………........4
Liquidity Analysis ………..……….………………………………………………….…..........4
Debt Management Analysis ……….………………………………………….…..……....5
Activity Analysis……………….……….…………………………………………….….….......5
Conclusion……….……………………………………………………..………….….…............6
Recommendation……….…………………………………………………………..…...........7
Refrences……………..………………………………………………………........................8
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1) Introduction and Overview
Apple is one of the largest multinational companies of the world and is the leader in technological
innovations and has been in the business since several decades. It indulges in providing consumer
related services in the form of electronic gadgets that includes laptops notebooks and mobile phones. It
also provides various other online services. It is the best in the business and has large amount of
benefits that are associated with working for it (Guragai, et al., 2017). It was founded by Steve Jobs in
1976. The company has its own chain of retail stores all over the world where it sells latest apple
products and is actively working to get better in their field of service. The overall revenue of the
company runs into billion, the present CEO of the company is Tim Cook (Visinescu, et al., 2017). The
company enjoys huge consumer preference and high level of brand loyalty that makes the company one
of the most sought after companies of the world (Visinescu, et al., 2017). I this given assignment we will
compare the financials of the company with one of its top competitors Samsung. The various technical
horizontal profitable and other aspects of the company are analyzed along with reference to the key
accounting policies and disclosures.
2) SWOT ANALYSIS
The SWOT analysis of the above given company is stated below-
Strength: The company is the leader in their field of business and were first to make the advent of smart
phones in the world. The company enjoys huge amount of customer preference and brand loyalty. It is
known for its unique features and provides best quality products to the consumer (Trieu, 2017). It has
strong distribution channels, the products are supplied all over the world. It has a strong financial
performance with one of the largest cash flow of the world (Werner, 2017).
Weakness: One of the major weaknesses of the company is overdependence on iPhone sales. It makes
the company very vulnerable to the changes in the smart phone market and can end up affecting its
performance in the future. There are new companies that are providing the same feature as apple at
cheaper rates, thus that is one of the weakness of the company (Kew & Stredwick, 2017).
Opportunities: There has been huge increment in the use of internet and the entire world is moving
towards digitization. This is an added advantage for the company as Apple has fierce presence in the
digital world. The company is also moving towards expanding the mobile payment markets that will
increase the overall revenue of the company.
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Threats: There is huge increase in competition in the recent years and this will end up affecting the
overall revenue shares and profit of the company. There are also risk of data breaching and lawsuits
over patents infringements that might affect the brand value of the company and its brand.
Financial Analysis
3) Horizontal Analysis
Horizontal analysis means the year on year comparison of the financials of the company and analysing
the deviations. On the basis of the figures provided it has been done. In these two years, in case of
Apple we see that the short term investments have improved considerably to the tune of 127 percent,
rest all the other things are almost same besides a considerable decrease in deferred income tax. The
current assets have therefore increased by 20% over the last year. We also see that the property plant
and equipments have also increased by more than 24 percent. The intangible assets have decreased by
17 percent and further the company has invested in long term assets by more than 57 percent. On the
liabilities side, we see that long term debt have increased by 41 percent so it can be said that it has been
used for the purchase of property plant and equipment (Visinescu, et al., 2017). On the equity end, the
company has issued some of the common stock during the year, net increase being 14%. All other
figures are significantly same and there are no major changes in terms of balance sheet.
On analysing the cash flow statement, we see that net income has decreased by 14.43%, deferred
income tax have increased by 257%, accounts receivable have increased by 79.21%. Accounts payable
have also decreased drastically by 66.83% implying positive signs for the company and other working
capital have decreased by 145%. Investments in PPE have increased by 13% and in intangibles by 237%.
All this was financed by increase in financing cash flow by 15.62%.
On analysis of P&L account, we see that the major reason for decrease is net income is decrease in sales
by 7.73%, increase in R&D expenditure by 24.52%, interest expense by 98.74%. All this has also resulted
in decrease in Basis EPS by 10%.
4) Vertical Analysis
Vertical analysis is the ratio of all the items of the balance sheet and income statement as a proportion
of the total assets, total liabilities and revenue respectively. On the balance sheet side, it can be seen
that total current assets are 33 percent of the total asset and the non current asset consume 66 percent
of the total assets which is more or less ideal. The current assets majorly consist of short term
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investments and cash whereas the noncurrent assets consist of property plant and equipment and
investments. Besides this, the company also has major assets in the form of equity and othe investments
to the tune of 53% (Raiborn, et al., 2016). In case of liability section, the equity consists of 40 percent
and the liabilities consist of 60 percent, out of which 23.45% is long term debt and 24.56% is current
liabilities.
In income statement too one year data is analyzed, the total net profit of the company being 21 percent
of the sales which is good as per the trends of the industry. We also see that the direct costs are 61% of
sales and gross profit is 39 percent from which the net operating expenses (11%) and taxes (7.27%) are
deducted to reach the net profit for the given company.
5) Trend Analysis
In case of trend analysis, the company is compared with its competitor Samsung. In case of Apple the
total equity is more or less same, in comparison to Samsung, which shows an upward trend in case of
equity. In case of Samsung, the total liabilities are more or less same, but in case of Apple, the liabilities
have increased. All in all, we can say that the proportion of debt in Apple have increased over the years
whereas in Samsung, most of the amount in invested in equity rather than debt. The total assets have
increased in case of both the companies, but in apple the rate of increase is much more than in Samsung
as can be seen from the graph (Kew & Stredwick, 2017). The operating cash flow in case of Samsung,
increases and then falls and then moves up. In case of Apple, the operating cash flow is showing an
upward trend, same goes for operating profit in case of both the companies. Further, in case of financing
cash flow, it can be seen it is decreasing in Samsung and increasing in case of Apple. For the investing
cash flow, the same has increased, decreased and increased in case of Apple whereas it has decreased
and then increased in case of Samsung. The operating cash flow and net profits have always increased
for Apple steeply whereas for Samsung, the rise has been slow and steady.
6) Ratio Analysis- Profitability Analysis
In case of Apple we see that the return on Assets are on a higher side and are more than Samsung, this
shows that the company is performing better in terms of revenue. The annual EPS of Apple is $8-$9, and
in case of Samsung it is $0.10-$0.12. Though in case of Apple, it has decreased in comparison to the past
year but still it is more than Samsung. This shows that Apple must improve its operation to maintain the
same amount of higher profit level.
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7) Liquidity Analysis
It can be seen that the current ratio of Apple has decreased over the last four years and is around 1.5.
Whereas in case of Samsung the ratio is around 2.5, this shows that the company requires more assets
to meet its liabilities (Dichev, 2017). Thus it can be said that the overall liquidity position of Apple is
better than Samsung. We also see that the quick ratio of the company is more than 1, which is a very
good sign for the company and it’s financial. In case of Samsung, it is also 2.5 thus the company needs to
check the same. The net working capital of Samsung is more than Apple, which Apple is having a better
liquidity position in comparison to Apple.
8) Debt Management Analysis
On the basis of the figures it can be said that the time interest earned has decreased over the year, so
though it is good it has fallen (Kok, et al., 2017). The total debt to equity ratio of Samsung is more than
Apple, it means that the company can make effective use of the trading of equity in future as it is using
more debt now. This is how both the company is performing.
9) Activity Analysis
On the basis of the figures provided it can be seen that the total receivable turnover of Samsung is less
than Apple which is good, as the receivables are converted into assets at a faster rate. Same goes for
inventory turnover and total assets turnover where apple is having higher turnover ratio then Samsung,
thus it can be said Samsung is in a better position (Boccia & Leonardi, 2016). Only in case of Fixed Assets
Turnover the ratio is less in case of Apple then Samsung, thus Apple is in a better position . Thus we can
say that Apple must take necessary steps to regulate the overall level of inventory and take important
decisions in that regard (Belton, 2017).
10) Key Accounting Disclosures and Quality of Accounting
The books of the company have been prepared as per the accounting standard and policies of the US
GAAP. The books have been audited by Ernst and Young and they have given a clear report for the same.
It is stated that the accounts have been prepared accurately and there are no issues in the same, the
quality of accounting is excellent and important disclosures regarding all the important provisions have
been provided in the notes to the financial statements (Alexander, 2016). The directors have also stated
in their statement about the relevance of the books of accounts in conformity of the accounting policies
and necessary disclosures.
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11) Important Forecast for Apple
On the basis of the annual reports and the other relevant figure of the company it can be said that the
revenue of the company will improve in the years to come, given its strong market position and
excellent brand quality. However there may be some amount of reduction in the overall market
capitalization of the company as the level of competition is increasing in this sector. The cash flow of the
company can be expected to be same or can reduce given the strong position of the dollar and other
factors like inflation and recession also affects it (Arnott, et al., 2017). Overall the profit will improve as
can be seen through the year and on the basis of the past data of the company. The future prospects of
the company seem to be bright given the increasing use of technology and the world moving towards
digitization (Guragai, et al., 2017).
12) Conclusion
On the basis of the overall analysis it can be said that the company has certain qualities that makes it the
biggest technological company in the world, its presence in the information technology sector cannot be
ignored. It can be concluded that Apple will continue to hold its strong position, though there may be
certain competition, however the quality of services that the company provides is unbeatable. Samsung
is also a top rated company and have very good prospects but is still growing in comparison to Apple. It
can be said after studying the financials that Apple must take important steps to improve its liquidity
position and also its activity position that will make the company better in comparison to its competitors
(Linden & Freeman, 2017). Overall the books of the company are prepared on a fair basis and have
shown the true and accurate view of the company financial position. There are no loopholes in the same
and the company should continue the same in the years to come and should try to retain its top
position. It should also spend more money in research and development so that there is more
improvement and innovation and it is able to deliver more variety to its consumer. This will improve the
prominence of the company in the field of technology; the company does enjoy the advantage of being
the first in its field and should try to maintain the same (Dichev, 2017).
13) Recommendations
Given the overall analysis of the company and its financials it can be said that the company is performing
excellent well and will be able to do more well if it is able to make some small changes in its overall
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approach and management. It should try to bring in more innovation in its product so that more and
more people are attracted. It should maintain its overall branding and should see to it that they are able
to perform better than their competitors, this is important for the overall success of the company
(Dichev, 2017). It can be said after studying the financials that Apple must take important steps to
improve its liquidity position and also its activity position that will make the company better in
comparison to its competitors. Overall the books of the company are prepared on a fair basis and have
shown the true and accurate view of the company financial position. There is no loophole in the same
and the company should continue the same in the years to come and should try to retain its top
position. These are the few ways in which the company can improve its financial prospects. The
company is best in the business and there is no doubt in the same. The strong financial position of the
company should not be questioned and the company should try to only improve or at least retain the
same so that in coming years when the competition will become more fierce the company can excel
(Bromwich & Scapens, 2016).
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