Analysis of Apple Inc.'s Financial Management and Prospects

This report provides a comprehensive financial analysis of Apple Inc., examining its financial performance from 1976 to 2020. The analysis includes an overview of the company, its competitors (Microsoft and Samsung), and a detailed financial analysis. This includes horizontal and vertical analysis of the income statement and balance sheet, as well as ratio analysis covering liquidity, solvency, profitability, and efficiency ratios. The report also covers capital expenditure, dividend policy, working capital management, and risk assessment. The analysis highlights the company's strengths, such as its customer loyalty and increasing profitability, and areas for improvement, such as working capital and efficiency. The report concludes with recommendations for the company to maintain and improve its market share and financial performance.

Running head: APPLE INC.
APPLE INC.

Running head: APPLE INC.
Table of Contents
Introduction................................................................................................................................3
Competitors................................................................................................................................3
Financial analysis.......................................................................................................................4
Horizontal Analysis and Vertical Analysis................................................................................5
Ratio Analysis............................................................................................................................6
Capital expenditure....................................................................................................................8
Dividend Policy..........................................................................................................................8
Working capital management....................................................................................................8
Risk Assessment.........................................................................................................................9
Recommendation........................................................................................................................9
References................................................................................................................................10

Running head: APPLE INC.
Introduction
Apple Inc. is an American multinational company which was incorporated in the year
1976 and its headquarters in California, United States of America. The company is known
for its for its range of products such as iphones, ipad, macbook pro etc. The company also
deals with various software and hardware requirements of its products. The company was
founded by Steve Jobs and Steve Wozniak who were the two young hackers. The company
has first introduced its product as a simple working circuit board in the year 1976 named as
Apple I and again launched Apple II with the colour display and several other features which
has introduced the work of the first micro-computer (Dolata, 2017).
The commercial success of the company begun when a public relations officer
appointed who later attracted the investment of Intel Corporation, the growth of the company
was growing at such rapid pace which has resulted in a constant increase in the investment
form the Intel Corporation which as a result became a majority shareholder of the company.
At the end of 1980 the growth of the company has started increasing day by day which has
resulted in the profits of one hundred million dollars and also an increase in 1000 employees
for the company.
Competitors
The company was on the verge of building its own market share in the market, where
the company faced tough competitions from the company like International Business
Machines Corporation also called as IBM. In order to have an ideal competition with Apple
Inc., IBM in the year 1980 has braked its tradition to using its own hardware and software
materials as the company has its ambition to has its own proprietary software’s and
hardware’s but instead of that the company has adopted readily made components and

Running head: APPLE INC.
software’s with an intention to provide a tough and a healthy competition to Apple Inc
(Nithisathian, et. Al 2018). The company has also adopted to use Intel chipsets and Disk
Operating System from Microsoft. Currently the Apple Inc. has been facing competition
majorly from Microsoft and Samsung. However, the company is also dealing in the range of
products such as apple TV, ipods etc which has helped them in gaining overall market share
in the electronics market (Soh & Najihah, 2019). The following chart represents the market
share of Apple Inc in 2019:
(Source: Businesswire).
Financial analysis
Apple Inc in order to counter the IBM’s products the Apple Inc. went public in the
year 1980 where the share price was quoted as $14 per share which has been subscribed at
$22 per share which was sold within the few minutes from the time of issue. The company
issued 4.6 million shares to its subscribers. On the first day of trading at the stock market the
share price of Apple Inc. was last quoted with $29 per share which has generated a total
valuation of $1.778 billion which is more than the IPO of Ford Motors. The company in the

Running head: APPLE INC.
year 1981 was facing through the rough changes inside the companies where various
structural and management changes were made by the upper management officials. During
the period of these changes Steve Wozniak plane crashed which has resulted in the death of
Steve Wozniak. After the death of Steve, Mike Markkula became the president of the
company having Steve Jobs as the chairman of the company where the company has started
promoting products through advertising and marketing (Yoffie & Baldwin 2018). As per the
current market scenario the total value of company has been calculated $1150 Billion at a
share price of $241 which showcases the success of the company from 1976 to 2020 (APPLE
INC, 2019).
Horizontal Analysis and Vertical Analysis
The horizontal analysis is undertaken on the basis of the previous year and the vertical
analysis is carried out on the basis of the sales being 100%. After an in-depth analysis it can
be seen that the major variations are in the income statement as the cost of goods sold have
increased to 62%, over the period of three years. The interest expense has been increased
from 0.68% to 1.22% over the last three years. The sales and administrative expenses have
decreased over the period. In the year 2018, the expenses were 6.66% of the sales and later on
it reached to 6.295. The horizontal analysis have also been carried out and it reveals that the
sales have been increased by 15%, whereas the cost of the revenue that have also been
increased by 16.10%. The research and developmental costs have also seen acceleration as
the costs reached to 22.93%. The positive outlook showcases that the interest expense have
decreased to 39.47% and the same have been reduced in terms of the previous year. Overall
the profit has increased to 23.12% and this implies that the company has clearly focused on
improving the performance of the company (Easton & Sommers, 2018).

Running head: APPLE INC.
After analysing the balance sheet of the company, it is evident that cash and cash
equivalents have increased over the period by 7.095, however the short term investments
have been deceased. Overall current assets have been increased and reached to 35.91% over
the period of three years. The short term debt has been escalated by 5.7% in the current year
and this again defines that the short term debt of the company has also increased. Due to
increase in the current liabilities the liquidity of the company has been compromised
(Carreras-Simó & Coenders, 2019).
While analysing the balance sheet on the basis of the horizontal basis, the major
decline have been found in the elements like cash and inventories. The goodwill has been
increased along with the other long term assets and this indicates that the company is
focusing more towards enhancing the performance and productivity. The debt has been
increased whereas the deferred tax liabilities are reduced to almost lower level at $426. The
retained earnings have also decreased from $92330 to $70400. Overall position of the
company has been smooth and satisfactory however there are certain elements which need to
be improved (Horobet, et al 2011).
Ratio Analysis
Ratio Analysis is a methodology which is used to understand the financial health of
the company. The financial health has been analysed on different basis such as profitability,
liquidity, solvency as well as efficiency.
Liquidity of the company can be analysed on the basis of the two major parameters,
such as current ratio and quick ratio. The current ratio defines the ability of the company to
realize the capacity of the company to pay back the contractual liabilities. The current ratio of
the company has been decreased from 1.35 times to 1.12 times. The quick ratio has also seen

Running head: APPLE INC.
a fall from 1.05times to 0.77 times. Overall the company’s liquidity position has been
suffering, but this can be improve if the company gets rid of the old assets.
Solvency ratios are used as a metric to define the financial performance of the
company via two type of the ratios namely debt to equity ratio and debt to total assets ratio.
The debt to equity ratio describes the proportion of the company in which the funds have
been acquired. The debt to equity ratio of Apple has increased over the period of three years
from 1.51 times to 2.41 times. This implies that the company is bringing the cash in the
company in the form of the debt more rather than equity. The debt to total assets has also
increased from 0.64 times and 0.71 times, which is evident that the debt is used to finance the
assets which are ultimately used in running the daily operations of the business. The capital
structure of the company has been in the form of more debt and less equity (Hallikas,
Virolainen & Tuominen, 2017).
The profitability plays a crucial role in the business and its performance as the users
are interested in the reports prepared by the business. Henceforth, the profitability of the
business needs to be analysed carefully. The profitability of the company is defined on the
basis of three major elements such as net profit margins, time’s interest coverage ratio and the
asset turnover ratio. The net profit margin of the company has increased from 21.19% to
22.41%. There is no major variation as such, but there are several strategies that can be used
by the company to improve overall performance of the business. The times interest coverage
ratio is also the ratio that displays the ability of the company to payback the financial
liabilities. The asset turnover ratio of the company defines how much sales are generated
from the assets acquired in the business. The asset turnover ratio has increased from 0.61 to
0.73 times. Overall the profitability of the business is satisfactory, yet Apple has a lot of
methods that could potentially enhance Apple’s feasibility (Bouchet, Clark & Groslambert,
2013).

Running head: APPLE INC.
Efficiency ratios have also been catered to understand the cash collection capacity of
the business. The days inventory outstanding are 5.4 days in case of inventory collection, the
cash is collected from the receivables in 31.9 days whereas, in earlier times it took 26.7 days
only. The company is not collecting the cash in the fastest manner and these needs to be
improved.
Capital expenditure
In terms of the capital expenditure, the plant property and equipment has been sold in
comparison to the previous year. The marketable securities have been paid off as earlier the
marketable securities were $71356, whereas the same are now $39630. Overall the capital
expenditure of the company has been reduced (Grosse-Rueschkamp, Steffen & Streitz, 2019).
Dividend Policy
The dividend policy of Apple reflects that the shareholder is getting the dividends and
the same has been increased on the basis of the previous year. The dividend per share is 3cent
per share and the same was $2.72 per share. The history of the dividends also indicates that
Apple knows well on how to cater the preferences of the shareholders and the investors
(Serfling, 2016).
Working capital management
The working capital management of the company reflects the difference between the assets
and liabilities of current nature of an enterprise. This indicates how much raw capital is
available within the firm to run the operations and hence, overall study displays that the
working capital has been fallen from $27831 to $14473 (Arkan, 2016).
Particulars 2017 2018 2019
Current Assets $106869 $128645 $131339

Running head: APPLE INC.
Current Liabilities $79006 $100814 $116866
Working capital $27863 $27831 $14473
Risk Assessment
In general the company is a net receiver of currencies other than U.S and this reflects that
foreign risk is prevailing in the company. The interest rate risk is also the risk which is found
in the investment portfolio and outstanding debt. The company is also exposed to global
interest rate fluctuations. These types of risks can affect the performance of the business
(Hallikas, Virolainen & Tuominen, 2017).
Recommendation
From the overall analysis it can be seen that the Apple’s performance is on the verge
of the improvement. Further the profitability position is satisfactory other than that the
company needs to take hold of the methods that could bring back Apple in the game as the
company has one advantage which is loyalty of the customers. As the Microsoft Company
has been successful in achieving 77% market share globally as compared Apple Inc which is
13% however the company has easily acquired the market share of cell phones as compared
to Microsoft, however the company is facing a tough competition from different companies
and hence it becomes necessary for the company to keep focus on the grabbing the greater
market share through setting up competitive prices, diversifying the products and reducing
the operating costs.

Running head: APPLE INC.
References
APPLE INC, (2019). Annual Report. Retrieved from
https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-(As-
Filed).pdf
Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case
study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, 79(1), 13-26.
Bouchet, M. H., Clark, E., & Groslambert, B. (2013). Country risk assessment: A guide to
global investment strategy. John Wiley & Sons.
Carreras-Simó, M., & Coenders, G. (2019). Principal component analysis of financial
statements. A compositional approach. Revista de Métodos Cuantitativos para la
Economía y la Empresa, 29.
Dolata, U. (2017). Apple, Amazon, Google, Facebook, Microsoft: Market concentration-
competition-innovation strategies (No. 2017-01). Stuttgarter Beiträge zur
Organisations-und Innovationsforschung, SOI Discussion Paper.
Easton, M., & Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.
Grosse-Rueschkamp, B., Steffen, S., & Streitz, D. (2019). A capital structure channel of
monetary policy. Journal of Financial Economics, 133(2), 357-378.
Hallikas, J., Virolainen, V. M., & Tuominen, M. (2017). Risk analysis and assessment in
network environments: A dyadic case study. International journal of production
economics, 78(1), 45-55.

Running head: APPLE INC.
Horobet, A., Lupu, R., Dumitrescu, S., Dumitrescu, D. G., & Tintea, I. (2011). Dynamic
trade-offs in financial performances of Romanian companies. Analele Stiintifice ale
Universitatii" Alexandru Ioan Cuza" din Iasi-Stiinte Economice, 2011, 85-100.
Nithisathian, K., Wall, W. P., Thanitnan, C., & Ponwiritthon, R. (2018). Maintaining
Indispensable Competitive Advantage: Corporate Strategy for 21st Century. RMUTL
Journal of Business Administration and Liberal Arts, 6(1), 11-24.
Serfling, M. (2016). Firing costs and capital structure decisions. The Journal of
Finance, 71(5), 2239-2286.
Soh, N., & Najihah, N. (2019). AN ANALYSIS OF AN EXPLANATION OF APPLE INC.
Yoffie, D. B., & Baldwin, E. (2018). Apple Inc. in 2018.