Financial Management Analysis: Apple's CEO Change and Market Impact

This report analyzes the financial management of Apple Inc., focusing on the impact of the CEO transition from Steve Jobs to Tim Cook. It examines the shift in corporate objectives, from a product-centric approach to a more decentralized structure, and its effects on financial decisions, including stock buybacks, dividend declarations, and market expansion. The report explores the influence of the economic environment on Apple's strategies, such as the diversification of product portfolios and expansion into emerging markets like China and India. It highlights the company's adaptation to global market dynamics and the importance of logistics and supply chain management. The analysis includes financial data, stock performance, and references to show how the CEO change impacted Apple's financial performance and market position.

FINANCIAL MANAGEMENT

Contents
Financial Corporate Objectives – Before and after the new CEO change.......................2
Impact towards financial decisions in finance and capital market....................................2
Possible Impact of economic environment on Apple’s financial management.................4
References.......................................................................................................................6
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1. The Firm - Apple
1.1 Financial Corporate Objectives – Before and after the new CEO change
Apple Inc. became the most valuable company in the world before Steve Jobs stepped
down as CEO in 2011. (Luckerson, 2014). Before the CEO change the Apple’s
objectives were focused on providing best quality product even though they were not
pioneered the product itself. The focus was on product engineering and marketing with
no role of operations and logistics in decision making. After the CEO change, the
objectives has shifted from centralization to a more decentralized organization. Earlier,
Jobs personally handled M&A and product designing and marketing activities.
(Lashinsky, 2012). After the CEO change, the company has empowered its managers
to take charge with minimal intervention and guidance of new CEO.
1.2 Impact towards financial decisions in finance and capital market
The change in objectives of Apple Inc. under the new CEO has the following impact in
the financial and capital market:
a. The company used the cash reserves to buy back the equities from the
shareholders. This helped the company to boost its earning per shares and
provide cash to the investors who wanted to opt for buyback of equity.
(Lashinsky, 2012)
b. The company’s focus to reward shareholders for their investment led to
declaration of quarterly dividends. This was in stark contrast of retaining and
reinvesting every money earned philosophy under Jobs. (Lashinsky, 2012)
c. The company meeting rooms for long term planning and product innovations
involved product management and supply management inputs as well which not
the case was in the earlier set up. (Lashinsky, 2012)
d. Traditionally, Apple has been able to boost its profitability through huge volumes
on a small range of products. The new CEO introduced new products which were
cheaper alternatives to the existing ones. This helped the company to extend its
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market further to the lower earners class within the developing and emerging
economies. This boosted the sales of the company. (Luckerson, 2014)
e. The new CEO was open to mergers and acquisitions. There were big ticket
acquisitions under new CEO. The earlier CEO was not as open to mergers and
acquisitions as the focus was on innovation rather than copying quality through
acquisitions. Acquisition of Beta Electronics by Apple Inc. under the new CEO is
viewed as loss of innovative spark within the company. (Luckerson, 2014)
f. The stock price of the company has gained successive strengths post the new
CEO as per chart below:
(Source: Tetzeli, 2015).
The company has outperformed the benchmark index by more than 4900 basis
points.
The financial parameters of Apple Inc, from 2011 to 2014 shows increased in
profitbaility and volumes of the company. They are sumarised as below:
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(Source: Tetzeli, 2015)
g. The level of preparation by the company of the Steve’s expected departure
coupled with this terminal illness being made public two years before his stepping
down and identification of an inside man for the new role contirbuted to the lower
shock on Steve’s eventual departure. (FTI Journal, 2011)
h. The new CEO expanded its reach to the new emergiing market of China. The
earlier CEO made no attempt to capitalize on the potential demand in China
(Luckerson, 2014). The new CEO reflects upon globalisation as the new
business driver for Apple. (Dou, 2017).It has plans to duplicate its success story
of China within India as well, the new market with huge potential for apple’s
products. (Mukherjee, 2016). The company aims to open a production and
assembly centres in India to boost lower cost product avaiability and direct
market reach capability of the company.
i. The new CEO has caused Apple Inc. to invest heavility in the production and
assembly facilities in low cost regions in China. The underlying intention of
providing 100% financing of the production facilities reflects the commitment of
the company to long term volume generation from the Chinese facilities
(Lashinsky, 2012).
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2. Possible Impact
2.1 Possible Impact of economic environment on Apple’s financial management
The management at Apple Inc. has been receptive of the changes in the business
sentiments within US and other global economies. Apple has been selling limited
products which were pioneers in technological and engineering innovation. This enabled
the company to derive high profitability through premium pricing and high volumes.
However, the premium priced products were often beyond the reach of medium level
earners based in the Asian economies of China and India. This expectation of potential
demand caused the company to expand and diversify its product portfolios. The
company engaged in production and marketing of lower priced cheaper alternatives of
its highly successful i-pad. (Luckerson, 2014).
The cheaper alternatives enabled the company to tap the potential market base within
the middle class of Chinese and Indian market. The company was able to reap on the
scale of economies and drive its margin on its increased volume of new range of
products (Luckerson, 2014)
The next phase of Apple Inc.’s growth would have been possible through new
production facilities based out in emerging economies to take advantages to market
proximity, lower cost through cheap labour and economies of scale. This global
opportunity was addressed by Apple to rapid expansion of production facilities in
Chinese market. (Luckerson, 2014). It has plans to boost the product reach and open
new production base in the new Indian market (Mukherjee, 2016).
Apple Inc.’s growth is now a reflection of its strong logistics and product management.
With apple’s products reaching out to many countries across the globe, the economic
environment required a strong logistics team to ensure smooth supplies and reach of
apple’s products to the eventual consumers. Under new CEO, the product management
and supply management divisions of the company were given top priority in business
meetings. They used to be sidelined earlier under the leadership of Jobs. (Lashinsky,
2012).
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Apple decided to reward investors with a stable dividend policy and buy back of equity.
This reflects the current economic environment where the shareholders expect cash
flows in addition to capital appreciation. The financial management under the New CEO
started rolling out quarterly dividends USD 2.65 per share and a buyback of USD 10
billion worth of equity from the shareholders. (Tonner, 2016).
2.2 Real case example (Other company)
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References
Dou E (2017), Apple CEO Tim Cook Defends Globalization in China Speech, Retrieved
from http://www.foxbusiness.com/politics/2017/03/18/apple-ceo-tim-cook-
defends-globalization-in-china-speech.html
FTI Journal (2011), CEO Transitions, Retrieved from:
http://www.ftijournal.com/article/ceo-transitions
Luckerson V (2014), 4 ways Tim Cook has changed Apple as CEO, Retrieved from
http://time.com/3162246/apple-tim-cook-ceo-3-years/
Lashinsky A (2012), How Tim Cook Is Changing Apple, Retrieved from
http://fortune.com/2012/05/24/how-tim-cook-is-changing-apple/
Mukherjee W (2016), India is one of the fastest growing markets for Apple: CEO Tim
Cook, Retrieved from
http://economictimes.indiatimes.com/news/industry/tech/hardware/india-is-one-
of-the-fastest-growing-markets-for-apple-ceo-tim-cook/articleshow/
53408091.cms
Tetzeli R (2015), Tim Cook on Apple’s Future: Everything can change except Values:
Sales and Net Income in $ Billions, [Image], Retrieved from
https://www.fastcompany.com/3042435/steves-legacy-tim-looks-ahead
Tetzeli R (2015), Tim Cook on Apple’s Future: Everything can change except Values:
Stock price since Steve’s death, [Image], Retrieved from
https://www.fastcompany.com/3042435/steves-legacy-tim-looks-ahead
Tonner A (2016), Why Does Apple Repurchase So Much Stock?, Retrieved from
https://www.fool.com/investing/2016/08/27/why-does-apple-repurchase-so-much-
stock.aspx
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