Economic Analysis of Apple Inc: Strategy, Performance & Future Shocks

This assignment provides an in-depth economic analysis of Apple Inc. from 2006 to 2018, examining its performance relative to competitors, market exposures, cost vulnerabilities, and overall business strategy. The analysis includes a financial review using key ratios like gearing and profitability, a SWOT analysis to identify strengths, weaknesses, opportunities, and threats, and an assessment of macroeconomic factors such as GDP growth, employment, and exchange rates. The study evaluates Apple's strategic effectiveness, particularly during the 2008-2009 economic crisis, and assesses its preparedness for future economic shocks, highlighting the company's reliance on research and development and its ability to adapt to technological changes.

Running head: ECONOMICS
Apple Incorporation
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The aim of the assignment is to analyze the key factors of the Apple Incorporation and the
various impending growth strategies implied by the company. The evaluation of the company
will help us analyze the key factors in the industry under which the company operates and the
opportunities available for the company. The financial analysis included identification of the key
vulnerability of the company financials, the key performance indicators of the company and the
application of the same in the prospect of the company. The key macro-economic factors like
the global growth rate of GDP, employment rate, inflation rate and the volatility in the currency
and fluctuation are some of the key macro-economic factors identified. The future prospect of
the company as analyzed is observed to be growing in nature as the revenue and the product
portfolio for the company increases. The key reason for the growth and the development of the
firm in all perspective is due to the amount invested in the research and development expenses
by the company and catering of well-equipped products with the changing market scenario and
the technological changes.

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Table of Contents
Introduction.................................................................................................................................. 3
Discussion................................................................................................................................... 4
Vulnerability and Costs............................................................................................................ 4
Type 1- Vulnerability (Financial Analysis).............................................................................5
Type 2- Vulnerability(Financial Analysis)..............................................................................5
Industry Analysis......................................................................................................................8
Market Exposure..................................................................................................................8
SWOT Analysis.................................................................................................................... 9
Macro-Economic Exposure....................................................................................................10
Gross Domestic Product:.......................................................................................................10
Government Intervention:......................................................................................................16
Exchange Rates:................................................................................................................... 17
Future Prospects................................................................................................................... 17
External Environment Analysis...........................................................................................17
Projected Performance of the Company............................................................................18
Conclusion:................................................................................................................................ 20
Reference.................................................................................................................................. 21
Appendix.................................................................................................................................... 25

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Introduction
Apple Incorporation an American Conglomerate Company based in Californiahas been
catering the technology industry since the year 1976 when it was founded. The multinational
company offers various kinds of hardware products from Smartphone like IPhone, tablet type
computer IPad, Personal Computer and laptop like Mac, the media player like IPod and various
other digital and multimedia products, which the company provides. The key factor for the
immense growth of the various kinds of products of the company wasthe good management
performance by the management of the company and the company’s ability to spend an
investible amount of money in the research and development expenses. The quick growth of the
company was primarily because of the products it used to cater and service the customers and
high tech products, which the other players were not able to provide(Hausman, McPherson and
Satz 2016). The professional software application are some of the key asset of the company,
which support the various products offered by the company. The Company uses different
modes of selling its product globally via retails stores, online retail chain and direct sales
force(Einav and Levin 2014). The California Multinational Company is listed in the New York
Stock Exchange with the Ticker Symbol AAPL-NSDQ. The company revenue is primarily
dependent on the macroeconomic and business factors, which marks the future prospect of the
company. The Company revenue primarily comes from the domestic region that is the US and
around 60% of the total revenue comes from outside US. The Industry Analysis and the strategy
used by the company will give us key idea about the company strategy in maintaining the
market share in the industry. The SWOT analysis help us identify the key strengths and
weakness of the company and the different opportunity available for the company as a
multinational technology company. The financial analysis of the company was performed using
the different ratios evaluated for the company and the interpretation of the same. The gearing

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ratios and the profitability ratios areas some of the key ratio, which help us know about the
financial stability and the return created by the company for the stakeholders of the company.
Discussion
Vulnerability and Costs
An overview of the operating section of the Apple Incorporation shows that the operating
profit of the company is increasing in trend period analyzed. The key financial factor, which
shows the vulnerability of the company’s financial position, is the profitability of the company.
The operating cost of the company is generally very high which makes the product cost for the
company high (Farnsworth et al. 2017). The ratio analysis and the ley performance indicators
for the company was identified and analyzed in order to review the company performance in the
trend period (Nolan, Mitchell and Doyle-Baker 2014).
Table 1: Ratio Analysis of Apple Inc.
(Source: Apple. 2018)
Particulars 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Gearing Ratio 0.874826 0.725171 0.588129 0.44681 0.259864 0.137273 0 0 0 0 0 0 0
Current Ratio 1.123843 1.276063 1.352669 1.108771 1.080113 1.678639 1.495849 1.608438 2.011292 1.88077 2.46168 2.365948 3.331573
Net Profit Margin 22.41% 21.09% 21.19% 22.85% 21.61% 21.67% 26.67% 23.95% 21.48% 19.19% 14.88% 14.56% 10.30%
Return on Capital Employed 55.56% 36.07% 35.62% 44.74% 35.42% 29.98% 35.30% 33.83% 29.32% 29.59% 22.99% 24.06% 19.92%
Asset Turnover Ratio 72.62% 61.08% 67.03% 80.46% 78.85% 82.57% 88.89% 93.02% 86.75% 79.67% 82.08% 94.71% 112.26%
Gross Profit Margin 38.34% 38.47% 39.08% 40.06% 38.59% 37.62% 43.87% 40.48% 39.38% 40.14% 34.31% 33.97% 28.98%
Inventory Turnover Ratio 67.13726 47.21607 101.144 99.49553 86.59166 96.88776 197.8609 139.4961 62.05994 94.2967 63.80943 69.3815 71.53704
Earning Per Share 12.01 9.27 8.35 9.28 6.49 5.72 44.64 28.05 15.41 9.22 5.48 4.04 2.36
Ratio Analysis of Apple Incorporation

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Type 1- Vulnerability (Financial Analysis).
The Gearing ratio shows the level of debt in a company or the borrowings done by the
company with respect to the equity position in the company. The financial analysis of the
company helped us determine the level of debt with the company was exposed to and the
material changes which can affect the financials of the company (Mullin et al. 2017). Business
risk and financial risk are the two common sources of risk for the company, which can destroy
the prospect of the company. The trend period taken for the analysis of the gearing ratio for the
company was for the period 2006-2018 to analyze the material changes in the level of debt in
the company and the respective interest rate paid by the company (Mohammad and Laza
Wireles 2015).
The capital requirement of the company has been high as the company invests primarily a huge
amount of its capital in software’s and key other research and development areas for increasing
the product portfolio base. The application of the borrowed amount and the utilization of the
same is very important in determining the net return and wealth created for the stakeholders of
the company(Dissanayake and Amarasuriya 2015).
Type 2- Vulnerability(Financial Analysis)
The financial analysis was conducted based on evaluation of certain key ratio for the
company such as the Liquidity Ratio, Profitability Margin, Profit/Loss or Net Income and the
changes in the turnover or revenue for the company in the trend period (2006-2018) was
analyzed. The total return generated on the total asset of the company was also generated in
order to analyze and evaluate the utilization of the key assets of the company(Akana et al.
2017). The Analysis for the Sales for the company was done by analyzing the performance of
the company with respect to the sales force in the trend period analyzed from the year 2006-
2018. The data shows that the sales for the company has been growing in the trend period
analyzed however, there were some cyclical turns in the trend period (Hashimoto et al. 2016).

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The price for the product is quite comparably high when the same is compared to the
competitors of the Apple Incorporation who offers similar kind of products. The reason for the
increase in the Chine products and the smartphones globally has beendue to better pricing and
product strategy followed by the companies. The Chinese Smartphones also provided products,
which were quite similar to the other premium phone with better features and graphics enabled.
The only key features and the differentiating factor between the product of the Chinese
smartphones and Apple product was the software and operating system under which the
product used to offer. Product Compatibility with the technological advancement desired by the
consumers such as better graphics, connectivity(MOUSAVI and KENAREHFARD, 2015), and
sensor enabled and automatic backup are some of the common features now demanded by the
consumers for the product they demand.
September 29, September 30, September 24, September 26, September 27, September 28, September 29, September 24, September 24, September 24, September 27, September 27, September 27,
2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Net sales 265,595$ 229,234$ 215,639$ 233,715$ 182,795$ 170,910$ 156,508$ 108,249$ 65,225$ 42,905$ 32,479$ 24,006$ 19,315$
Cost of sales 163,756 141,048 131,376 140,089 112,258 106,606 87,846 64,431 39,541 25,683 21,334 15,852 13,717
Gross margin 101,839 88,186 84,263 93,626 70,537 64,304 68,662 43,818 25,684 17,222 11,145 8,154 5,598
Growth of Sales 15.86% 6.30% -7.73% 27.86% 6.95% 9.20% 44.58% 65.96% 52.02% 32.10% 35.30% 24.29% 0.00%
Growth of Gross Margin 15.48% 4.66% -10.00% 32.73% 9.69% -6.35% 56.70% 70.60% 49.13% 54.53% 36.68% 45.66% 0.00%
Particulars
Figure 1: Growth of Gross Margin

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2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Figure 2: Growth of sales
Industry Analysis
Market Exposure
The Industry analysis of the company needs to conducted as the company offers various
hardware’s products and in different categories where analysis of the same is a key
factor(Nagleand Müller 2017). The growing business of the company need to be properly
analyzed and evaluated on the ground of certain business conditions which will show the
prospect of the company(Jillele and Ross 2015).
2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%

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Trend in Industry Strategic Analysis Key Competitors
Growing Smartphone Industry
• Wider Frameless OLED
Larger Display Screen
• High Definition
Camera
• VirtualReality & High
Graphics
Improved iPhone
• Full Screen Display
• Advanced camerasensor and
high mega pixel camera
• Automated Smartphone with
Sensor and Face Unlock
Samsung (The Key Competitor)
• LargerframelessOLEDdisplay and
full screen display.
• Improved cameraperformance
• Gear VR facility with the
SamsungS8
Better, more powerful
Smartphones
• Collapse of Market
for Tablets
• Updated and High
Performance Operating
System
iPhone Plus Improvements
• Largerdisplayswithsimila
r devicesizing
• Morepowerfulprocessorst
o substitutetablets
Samsung
• Better and Efficient Software
backup facility
• 8 core processors, High
RAM and additional
storage facility
InternetStreaming
• Increased usage of Online
Applications and Video
Streaming
• Increased subscription of
Online Applications and
Software’s
Apple Music IPod & Apple Smart TV
• Subscription services to
allow streaming of music
andvideos
• Device capable of
streaming media and
playinggames
Spotify&Chrome-cast
• Offline and Online Support for
the subscription of the
Application and Services.
• Device capable of streaming
media(universal)

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The company has a strategic advantage in the technology and IT industry as the company
covers almost 20% of the demand of the IT and technological hardware product of the
industry(Dhar 2018). The Google Android and the Apple IOS software services covers almost
the majority of the industry and are the key dominant player in these areas. The key advantage
for the company has been the diverse product portfolio, which it had the extra additive features,
which it provided then the competitors, which could not provide similar products (Ometov et al.
2016).
SWOT Analysis
Strengths
 The Strong Distribution network is the key strength of the Company.
 Efficient Management system and distribution of good management team.
 Brand Value and the Goodwill of the Company.
Weakness
 Absence of diversification of product portfolio and dependent on single product IPhone is
the key weakness.
 High Price of the product
 High Competition with other Chinese Companies
Opportunities
 Exploration of New Market.
 Increasing the Product Revenue Base.
 Categorized Product Price
 Bringing Operational Efficiency and Technological Up-gradation
Threats

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 Emerging of low cost firms
 Mismanagement of data.
 High Price of Products
Macro-Economic Exposure
To understand macroeconomic exposure of Apple Inc, it can be beneficial to describe
about gross domestic product (GDP) of various countries, where it has expanded its business
significantly. Countries like The United States, China, Japan, European Union and India have
become important market place of this country (Xiaoet al. 2018). Hence, analyzing trend of
GDP growth rate of this country and contribution of Apple Inc on it can be an important issue to
analyze and describe. Through providing huge amount of tax, the company has become one of
the main economic drivers of these countries. In this context, fluctuation of exchange rate will
also be a major issue to discuss. This is because, higher fluctuation can affect revenue of Apple
either in positive direction or towards a negative direction.
Gross Domestic Product:
Apple Inc. has a large market share in international economy. Consequently, the
company earns more than 60% revenues from other countries except the US. Its global
presence influences the global real GDP significantly and this in turn predicts the growth of
international economy. This company has become the first one, which has successfully crossed
the $1 trillion mark under market capitalization.

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Figure 3: GDP of countries and Apple market Cap
Source: (Strasek and Kelc 2018)
Apple has also significant contribution on real GDP of the US Since the period of
economic crisis economy of this country experiences a stable and slow recovery. Economists
predict that this recovery will continue up to the next 1 to 3 years. In 2016, real GDP of the US
was 1.6 percent. Considering increasing economic condition of the US, economists predict that
real GDP of the US will be within 2 percent to 2.5 percent. Increasing real GDP implies an
increase in production as well as increase in interest rates. These increasing interest rates
adversely can affect real GDP of this country. Apple has announced that it will invest more
amounts to support US economy and the entire labor force. According to estimation, this
company states that it will create more than 20000 employments for the next five years.
Moreover, it predicts that the amount of contribution to the US economy will be $3500 billion
during this coming period (Ciesielska and Iskoujina 2018). As of 2018, this company invests $55
billion on domestic suppliers as well as manufacturers. In addition to this, apple contributes