Apple Inc. Financial Analysis

This report analyzes Apple Inc.'s financial performance using various ratios, including profitability, liquidity, and efficiency ratios. It also conducts a SWOT analysis to identify the company's strengths, weaknesses, opportunities, and threats. The report concludes with advice for investors, suggesting whether or not to invest in Apple based on its financial health and strategic position.

Accountancy and
Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
a. Profile of the company and industry.......................................................................................1
b. Calculation of ratios................................................................................................................2
c. Interpretation of ratios.............................................................................................................4
d. Strategic analysis of the company...........................................................................................6
e. Advice to the investors............................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................11

INTRODUCTION
Accountancy is a process of recording, differentiating and controlling financial data in
different books of an organisation. It helps the management of a company to get the exact
information of company's performance and financial status. Finance is a form of monetary
resources, which is used to mobilise the funds in assets or liabilities of a business enterprise. It
can be defined as management of wealth in which many activities are performed by accountants
such as investing, lending, budgeting, borrowing and forecasting. The organisation which is
chosen for this project report is Apple Inc, it is an American international technology company.
Its headquarter is in, Cupertino, California (Johnson and et. al., 2012).
This project report consist overview of chosen company, calculation of different ratios
with their interpretation, SWOT analysis of the organisation and in last advice to the investors to
invest or not to invest in that company.
MAIN BODY
a. Profile of the company and industry
Apple Inc is a multinational company, which is mainly based in Cupertino, California. It
deals in consumer electronics, computer software and different online services. It produces
different products such as smart phones, personal computers, tablets, portable media player,
smartwatch, digital media player etc. It also deals in different software that are IOS, iTunes,
Safari which is a web browser etc. It was founded and developed by Steve Jobs, Steve Wozniak
and Ronald Wayne in 1976 (Sutherland, 2012). In starting it had a huge success with personal
computers but because of high prices the market of apple personal computers the demand get
decreased. Due to this problem Steve Wozinak stepped away from Apple and Steve Jobs
resigned and started his own new company named, Next by bringing apple employees with him.
When the demand of personal computers increased, the sales of Apple was totally
decreased because competitors are providing computers on lower prices. When apple was facing
this issue the CEO of Apple decided to buy Next to bring Steve Jobs back (Kang, 2013). Jobs
regained leadership in a short time within company and became new CEO of Apple. Then he has
opened new retail stores, by acquiring different software companies. It results in huge success
and increased the profitability. Now apple is world wide famous and demand of its different
products always remain on peak. The organisation enjoys brand loyalty of different companies. It
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has ranked worlds most valuable brand. It has faced different phases such as the peak in the
market and totally declined demand, but it has proved that it is the most demanding product in
world by establishing it self again, after facing so many challenges (Wonglimpiyarat, 2012).
Economy of California is the largest economy in United States, as it is boosting
continuously. It has ranked as the fifth largest economic system of world. The most governing
factors in California are agriculture, technology, trade, media and tourism. It is mainly concerned
with coastal cities and inner areas are related to agriculture. Contribution of Los Angeles and San
Francisco helped the economy of US to grow faster, as one is related to tourism and another is
related to technology. The economic system of US is highly developed and it is a kind of mixed
economy. It the largest economy of world by GDP and second largest economy by purchasing
power parity. It has a highly varied, world primal commercial enterprise sector. It is a high
technology innovator with second rank is world. The currency of US is Dollar. It is the most
used currency for international transactions and also the most reserved currency in the world.
The economy of the country is growing with the help of different natural resources within US,
developed infrastructure and higher level of productivity. Apple has a large contribution in the
economy of US as it has a higher demand in market. The contribution of the company will be
more than $350 Billion to US economy, in next five years. In 2018 the estimated contribution of
Apple is $55 billion (Contribution of Apple toward US economy, 2018). It has contributed 0.5%
in GDP of US.
b. Calculation of ratios
Profitability ratios: These ratios are calculated to analyse the ability of company to earn
income as compare to its expenses.
 Gross profit ratio: It is used to measure marginal profit and revenues of a company.
Higher ratio shows the good profits which is good for the organisation.
Formula: Gross profit / sales *100
 Net profit ratio: It is used to measure profitability of whole organisation by considering
indirect and direct costs of different products. Higher ratio shows the positive returns in
the company.
Formula: Net profit / sales*100
Profitability ratios 2016 2017
Sales 215639 229234
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Gross profit 84263 88186
Net profit 45687 48351
Gross profit ratio 39.08 38.47
net profit ratio 21.19 21.09
Liquidity ratios: It is calculated to measure the liquid strength of a company, and to
determine the ability of debtor to pay off current liability of an organisation without raising
external capital.
 Current ratio: It is used to measure the relationship between current assets and current
liabilities of a business enterprise. The main purpose of this ratio is to measure financial
status of a company. The ideal current ratio is 2:1.
Formula: Current assets / current liabilities
 Quick ratio: It is mainly used to measure liquidity within an organisation. It shows the
relation between quick assets and current liabilities. The ideal quick ratio is 1:1.
Formula: Quick assets / current liabilities
Liquidity ratios 2016 2017
Current assets 106869 128645
Quick assets 104737 123790
Current liabilities 79006 100814
Current ratio 1.35 1.28
Quick ratio 1.33 1.23
Efficiency ratios: These ratios are also called activity ratios and are calculated to
measure that how well a company is using its available resources.
 Stock turnover ratio: It is calculated to determine that how effectively stock is managed
by the organisation while comparing cost of goods sold with closing stock.
Formula: Cost of goods sold / closing stock
 Asset turnover ratio: It is mainly calculated by different organisations to measure ability
of the company to create revenues from its assets. It shows the relation between sales and
total assets.
Formula: Net sales/ Total assets
Efficiency ratios 2016 2017
Cost of goods sold 131376 141048
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closing stock 2132 4855
Sales 215639 229234
Total assets 321686 375319
Stock turnover ratio 61.62 29.05
Assets turnover ratio 0.67 0.61
Gearing ratios: These ratios are a type of financial ratios, which compares equity of a
company to different financial metrics.
 Debt to equity ratio: This ratio is used to identify relation of debt and equity of an
organisation. It shows that what are the internal sources to pay off the borrowings of a
company.
Formula: Debt / Equity
 Asset to equity ratio: This ratio is calculated to identify the relationship between assets
and equity of a company. It shows that how much part of assets are owned by
shareholders.
Formula: Total assets / total equity
Gearing ratios 2016 2017
Debts 114431 140458
Total equity 128249 134047
Total assets 321686 375319
Debt to equity ratio 0.89 1.05
Assets to equity ratio 2.51 2.80
Investor performance ratios: These ratios are calculated to identify the result of different
investments of a company, such as investment in assets and equity.
 Return on equity: It is calculated to identify the total receipts that are generated from
equities or shareholder's fund of a company.
Formula: Net profit / total equity
 Return on assets: This ratio is calculated to measure operating efficiency of a company
without respect to financial constitution.
Formula: Net profit / total assets
Investor performance
ratio 2016 2017
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Net profit 45687 48351
Total equity 128249 134047
Total assets 321686 375319
Return on equity 0.36 0.36
Return on assets 0.14 0.13
c. Interpretation of ratios
Financial analysis of Apple Inc.: Financial analysis of a company shows the actual
performance and market position of a company (Vogel, 2014). Gross profits of for year 2017
Apple Inc. have increased up to $88186 from $84263 because the revenues of the company has
also enhanced as compare to year 2016. In 2017 the revenues are $229234 and in 2017 the
revenues were $215639. As revenues for year 2017 are exaggerated than gross profits are also
enhanced for the came year. Operating income of the company has also increased for 2017 as
compare to year 2016. in 2016 operating income was $30024 and in 2017 it is $61344. As
operating income and gross profits for year 2017 has inflated, hence it has also affected net
profits for year 2017. net profits in 2016 were $45687 and it has exaggerated up to $48351 in
2017. This change has increased profits for year 2017.
In balance sheet total current assets of the company have enhanced in 2017 as compare to
2016. It has changed from $106869 to $128645. it has also affected total assets of Apple Inc. and
these are also inflated for 2017. It has affected total assets and total assets varied from $321686
to $375319 in year 2017. Total current liabilities for the company has also increased as compare
to previous year. It was $128249 in 2016 and for 2017 it is $134047. It has changed total
liabilities of Apple Inc. which was $321686 in 2016 and increased up to $375319.
Analysis of ratios:
 Profitability ratios: Two profitability ratios are used to evaluate actual profitability of
Apple Inc. First is gross profit ratio, which was 39.08% in 2016 but it has decreased up to
38.47% in year 2017. Net profit ratio has also decreased in year 2017 which was 21.19%
in 2016 and now it is 21.09% for 2017. As the profits and revenues have increased but
the cost of sales has also increased which have affected the overall profitability of the
organisation.
 Liquidity ratios: liquidity ratios are used to determine liquid strength of the
organisation. Current ratio for year 2016 was 1.35 which was decreased up to 1.28 in year
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2017. Quick ratio in 2016 was 1.33 which has decreased in year 2017. in this year quick
ratio was 1.23. It can be identified from annual reports of the company that current and
quick assets of Apple Inc. have increased but current liabilities are also increased in year
2017. Which has affected liquidity of the company and it was decreased in 2017.
 Efficiency ratios: These ratios are mainly related to the use of available resources of the
company (Sheikhi, Ranjbar and Oraee, 2012). Two efficiency ratios are used to identify
efficiency of Apple first is Stock turnover ratio, and second is assets turnover ratio. First
ratio which is stock turnover ratio has decreased too much in year 2017 as compare to
2016. it has decreased from 61.62 to 29.05. it is because the sales has increased and it has
affected closing stock of the company. Assets turnover ratio of Apple Inc. has decreased
from 0.67 to 0.61 in year 2017. Which is because, the overall efficiency of year 2016 is
good as compare to 2017.
 Gearing ratios: These ratios are mainly calculated to compare owners equity to
borrowings of the organisation to determine the share of both of them. It has analysed
with the help of two different ratios first is debt to equity ratio, it has increased in 2017 as
compare to previous year. In 2016 it was 0.89 and it has increased up to 1.05 in next year.
It is not good for the company because it shows that debts of the company has increased
as compare to previous year. Another ratio which was used is assets to equity ratio, it has
increased up to 2.80 in year 2017 from 2.51 in 2016. It shows a positive point of the
company because the more part of assets is acquired by the shareholder in 2017 as
compare to 2016.
 Investor performance ratios: Two ratios are used to measure investor performance of
the company. First is return on equity and another is return on assets. In first ratio the
return was same it has not changed in both the years. But return on assets has decreased
as compare to previous year. It has declined up to 0.13 form 0.14. in year 2017. it is
because the percentage increased of net profit is comparatively lower than percentage
changed in total assets that affected the total return on assets.
From the above interpretation it has been observed that profits, revenues, assets of Apple
Inc. has increased in 2017 as compare to 2016 (Chen and Ann, 2016). As all the profits has
increased in 2017 but the profitability has not increased as compare to overall profitability of
2016. The performance of the company is comparatively decreased in 2017.
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d. Strategic analysis of the company
SWOT analysis: It is done by the management of an organisation to determine growth
opportunities, positive and negative factors for that company. It helps the managers in strategic
decision making by providing adequate information of current market conditions (Yuan, 2013).
Managers of Apple conduct SWOT analysis for the organisation to determine the factors that
may help to grow or may affect profitability. It is used to observe possible threats for the
company. It analyses all the strengths, weaknesses, opportunities and threats for an organisation
(Sarsby, 2016). It may help the management of a company to form policies according to the
situation that may occur in future. Following are the elements for SWOT of Apple Inc.:
Strengths: It is a set of elements that represents positive points of a company or its
products. It help an organisation to remain competitive in the market and acquire more and more
market share by providing best quality products and services. Apple has so many strengths, that
help it to be on the post of most demanding product in world. Major strength of the company is
that it has a strong brand image in the market that help to attract more and more customers
toward the organisation. Profit margins of the company are also very high which is continuously
increasing its profitability as compare to other brands. The products offered by Apple are very
innovative and technology based which help it to make an effect impact on the society and
acquire more market by introducing quality and innovative products. It the most valuable and
powerful products in the world that help it to be on the top rank in its industry. The managers use
best marketing techniques to promote the products it is also a strength as it help to increase the
sales in an effective manner (Abraham, 2013).
Weaknesses: These are the negative points that may affect the market image,
profitability and productivity of a product. It refers to those factors that may lead the organisation
toward lose. Apple Inc. has a few weaknesses also one of them is high selling price. The prices
of Apple products are really very high and it is not affordable by various segments of the market.
The main target market is high end market segment, in which upper class customer are targeted
to buy the products because middle class and lower class people are not able to spend that much
money on expensive mobile, iPads, mac book etc. Another weakness of Apple is that the
network of distribution is limited hence it may affect the sales in future. It is analysed that it
should broaden its network, set appropriate prices for its products to target all level of customers
in different segments.
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Opportunities: It refers to the possible trends that should be adopted by the companies to
increase sales and profits in future and to grow faster in market. It can be identified by gathering
information of changes in technology and government policies that are implemented for different
industries. There are various opportunities for Apple Inc. in market that can be grabbed to reach
at more higher level of growth. Main opportunity for the company is, development of new
product line, it will help to target customers from different segments and the market share will
also be increased with the help of this type of development. Another opportunity is to expand its
distribution network which may help to reach different regions to increase profitability of the
organisation. Higher sales volumes based on rising demand with the help of more aggressive
marketing strategies. It will help to reach more and more customers with the help of digital
media.
Threats: It refers to those factors that may affect the business in future. It includes
competitors in the market, constant changes in technology etc. It can decrease the sales and
change the perspective of the customers for those products that are provided by a company
(Grant, 2016). All the companies are dealing with different threats, Apple is also have some
threats. The competition is continuously increasing and there is a threat for the company which is
that the competitors may affect the market share by providing substitute products on low prices.
There are many companies who are producing same products as Apple which may affect the
sales of the company.
e. Advice to the investors
From the financial and strategic analysis it has been observed that investors should invest
in the company. It will be very beneficial for them in long term to receive more and more return.
Investors are mainly concerned with the rate of return they get, as financial performance of the
company, profitability are good (Abebe and Anthony Alvarado, 2013). Hence it may help them
to get good return on their money invested in the business. There are various positive points that
are identified with the help of SWOT analysis, that are market image of the company, brand
loyalty of customers etc. Following are the reasons for investors, why they should invest in the
company:
Major reason for the investment is that the company is achieving profits in every year, it
has also identified that company's performance in year 2017 has little bit decreased as compare
to year 2016, but the profits and revenues has increased and investors may get good return by
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investing in Apple Inc. Liquidity of the company is very good and it has more resources to
increase it. Efficiency ratios show good efficiency of the company, it has more involvement of
share holders in its assets that help to decrease the share of external parties in its total assets.
There are various benefits for investors to invest in Apple Inc., it has a good market
image, brand loyalty, high level of profitability that will help it to always be in the demand and if
the demand of Apple products will increase it will help to increase sales and profits. Increased
profits will result in higher return for the investors, hence it is a good option for the investors to
invest in Apple for getting high returns on their investments.
CONCLUSION
From the above project report it has been summarised that, accountancy is a technique
which is used to record financial data in accounting books and finance is a type of monetary
resources which is required to run a business smoothly. Financial ratios and SWOT analysis are
used in strategic analysis and financial analysis of the company. It help the investors to
determine actual performance and position of the organisation in which they are willing to
invest. They may get the idea of current status of that company with the help of financial and
strategic analysis.
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REFERENCES
Books and Journals:
Abebe, M. and Anthony Alvarado, D., 2013. Founder-CEO status and firm performance: an
exploratory study of alternative perspectives. Journal of Strategy and Management.
6(4). pp.343-357.
Abraham, S., 2013. Will business model innovation replace strategic analysis?. Strategy &
Leadership. 41(2). pp.31-38.
Chen, C. M. and Ann, B. Y., 2016. Efficiencies vs. importance-performance analysis for the
leading smartphone brands of Apple, Samsung and HTC. Total Quality Management &
Business Excellence. 27(3-4). pp.227-249.
Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Johnson, K. and et. al., 2012. The Innovative Success that is Apple, Inc.
Kang, H., 2013. To Be A True Industry Leader: Apple Inc. and Microsoft Corporation in
Consumer Electronics Industry. Leadership & Organizational Management Journal.
2013(3).
Sarsby, A., 2016. SWOT Analysis. Lulu. Com.
Sheikhi, A., Ranjbar, A. M. and Oraee, H., 2012. Financial analysis and optimal size and
operation for a multicarrier energy system. Energy and buildings. 48. pp.71-78.
Sutherland, A., 2012. The story of Apple. The Rosen Publishing Group.
Vogel, H. L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Wonglimpiyarat, J., 2012. Technology strategies and standard competition—Comparative
innovation cases of Apple and Microsoft. The Journal of High Technology Management
Research. 23(2). pp.90-102.
Yuan, H., 2013. A SWOT analysis of successful construction waste management. Journal of
Cleaner Production. 39. pp.1-8.
Online
Contribution of Apple toward US economy. 2018. [Online]. Available through:
<https://www.apple.com/in/newsroom/2018/01/apple-accelerates-us-investment-and-
job-creation/>
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APPENDIX
Financial Statements of Apple Inc.
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