Corporate Finance: Analysis of Apple's Financial Performance and Risk

This report provides a comprehensive analysis of Apple's corporate finance, delving into key aspects such as the cash conversion cycle, major risks, and capital structure. The analysis includes the calculation of the cash conversion cycle for 2017 and 2018, comparing Apple's performance to Samsung's. It identifies significant risks, including intense competition and technological changes. Furthermore, the report examines Apple's share price trends and debt management, presenting financial data and graphical representations. The report also explores capital budgeting techniques, including Net Present Value (NPV) and Internal Rate of Return (IRR), to assess the feasibility of building new stores. The findings indicate that building new stores is viable if the cost of capital is at 5.94%, with a positive NPV of $16,103,996,062. The conclusion underscores the importance of corporate finance in managing financial decisions and investments to increase profitability. The report uses various financial metrics and analysis to evaluate Apple's financial performance and make investment recommendations.

Corporate finance

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
A) Cash conversion Cycle...........................................................................................................1
B) Major risk of Apple.................................................................................................................2
C. Apple Share and Debt.............................................................................................................2
PART 2............................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Corporate finance is consider to be each aspect of finance that are relevant to a business
firm which includes, capital investments, operations, budgeting and banking (Damodaran,
2016). In this report, cash conversion cycle for apple and major risk are discussed. Apart this
capital budgeting are presented within report to determine the better result.
PART 1
A) Cash conversion Cycle
It is refereed to be a metric that display the total time taken by a company to transfer their
inventory and other essential resources into cash flows from sales to meet basic requirement.
This metric takes into account the time needed to sell its inventory, the time required to collect
receivables, and the time the company is allowed to pay its bills without incurring any penalties.
In Apple the CCC is calculated to determine the cash flows generated to perform other business
operation. Formula to calculate cash conversion cycle:
CCC=DIO+DSO-DPO
In which,
DIO stand for days for inventories outstanding.
DSO denotes Days of sales outstanding
DPO Days payables outstanding.
In year 2017
CCC= 9.82+28.21-116.95
= (78.92)
For year 2018
CCC= 20.76+14.30-73.80
= (38.74)
In analysis of working capital efficiency of apple and its competition Samsung it has been
ascertained that Apple have higher retail operation due to which huge cash are generated through
sales so its days of sales outstanding reduces. On the other side Samsung mainly depended on
distribution for its customer electronic operation those require a credit period of respective
purchase. The inventory turnover is better and driven by effective demand planning and it use of
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contract producers and its efficient product portfolio. While in Samsung its has sizeable
manufacturing so it provide several of product thus needed huge cash run these operations.
B) Major risk of Apple
There are basically few risk that due to which operation and performance of apple can be
hinder in future time. Such as
 Global marketplace for various goods and services have high competition and
technological factors keeps on changing due to which Apple may be not able to compete
effectively (Ehrhardt and Brigham, 2016).
 The second risk is depended on other, it is assured that apple depends on network
carriers, national and regional retailer, wholesaler and other sources to sell their product
to large number of customer.
All these above mention risk related to Apple are systematic risk, which means that these
risk are inherent to the overall market and are also known as undeliverable risk. This is because
each risk of apple are both unpredictable and impossible to avoid completely.
C. Apple Share and Debt
I) From the above graph, it has been discussed that share price of Apple have shown a
major growth in last three year as compared to market situation. From year 2017-18 the
company is performing well according to market and there is bullish trends going which
would help investors to get more advantage while investing in company.
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II) The statement of financial position, shows that Apple have taken more long term debt to
manage and complete various operation. In 2014 the valuation of non-current portion of
term debt was $28,987, which keeps on increasing year by year like, $53,329 in 2015,
75,427 in 2016, $97,207 in 2017 and $93,735 in 2018.
III) Face value=$ 1000, rate 4.5% Maturity= 2020 Maturity rate of interest= 5%
Thus interest paid = $45 and the present value of bond = (0.53021*1000)= $530.21
Present value of interest payment of ordinary annuity of 1 bond at 6% for 13 years is 3.464 and
value = 3.464*45= $155.88
Present value of bond = $155.88+$530.21= $686.09
PART 2
A) The value of land is not consider by the analysis while calculating the IRR because the land
have been already purchased and can be used again for different purpose after 20 year when
project life is over (Rule of IRR, 2019). As per IAS 12, it states that land is considered to non-
depreciable assets therefore al other expenses are consider while calculating IRR value of
investments.
B) The above source shows that the free cash flow generated by apple's new store over the 20
years was $461039961.
C) NPV: It is referred as the actual difference among the present values of total inflows and
outflows within a specific period of time (Johnson, McLaughlin and Haueter, 2015). It is mainly
used in capital budgeting and also help in investment planning that support to determine the
productivity and profitability of projects or investments.
NPV=t=1∑n(1+i)tRt
D) IRR: It is an crucial part of capital budgeting that support to estimate the profitability of a
particular investments (Gullifer and Payne, 2015). It is consider to be discount rate that help to
ascertain the net present values of total cash inflows and outflows for a specific project equals to
ZERO. Formula to calculate IRR =
IRR=NPV=t=1∑T(1+r)tCt−C0=0
E) From the detail calculation and analysis, it has been observed that Apple can build new store
In case if the cost of capital is 5.94%, as the net present values are positive and total internal rate
of return would be helpful in giving positive outcome. The value of NPV is $16,10,39,960.62
when initial investment was about $300.
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CONCLUSION
The above report, concluded that corporate finance help companies to manage their
financial decision and investments so that profitability can be increased. With the help of IRR the
net present value of initial investments can be determined.
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REFERENCES
Books and Journals:
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Ehrhardt, M. C. and Brigham, E. F., 2016. Corporate finance: A focused approach. Cengage
learning.
Gullifer, L. and Payne, J., 2015. Corporate finance law: principles and policy. Bloomsbury
Publishing.
Johnson, C. J., McLaughlin, J. and Haueter, E. S., 2015. Corporate finance and the securities
laws. Wolters Kluwer Law & Business.
Online
Rule of IRR. 2019. [Online] Available Through: <https://courses.lumenlearning.com/boundless-
finance/chapter/internal-rate-of-return/>
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