Financial Analysis of Apple Inc. - FIN203 Corporate Finance Assignment

This report presents a financial analysis of Apple Inc., focusing on key financial metrics and investment considerations. The analysis begins with an examination of the cash conversion cycle, comparing Apple's performance to Samsung's and discussing factors influencing the cycle's length. The report then identifies and categorizes risks facing Apple, distinguishing between systematic and unsystematic risks, and assesses the company's share price movement relative to market benchmarks. Part 2 of the analysis delves into project valuation, calculating the Net Present Value (NPV) and Internal Rate of Return (IRR) for a hypothetical project, and providing recommendations based on the financial outcomes. The report utilizes data from Apple's 2018 Annual Report and other sources to support its findings and conclusions, providing a comprehensive overview of Apple's financial health and investment potential.

Running Head: FINANCIAL ANALYSIS 1
FINANCILA ANALYSIS

FINANCIAL ANALYSIS 2
Table of Contents
PART 1.........................................................................................................................................................3
Part 2...........................................................................................................................................................5
References...................................................................................................................................................7

FINANCIAL ANALYSIS 3
PART 1
Cash conversion cycle
A) The cash conversion cycle is a metric that expresses the time, taken by the company in
converting its inventory, accounts receivables and the accounts payables into the cash.
The cash conversion cycle is also known as the net operating cycle and it attempts to
measure how the value of each dollar is tied up into the cash received. This scenario also
determines how effectively it can manage the working capital and its operations
effectively. After analyzing the cash conversion cycle of Apple and Samsung it can be
stated that the cash conversion cycle of Apple stood at the days of 53 in number for the
financial year 2015. In contrast to the Samsung’s cash conversion cycle it’s was higher
than the Apple and was close to 78 days (Forbes, 2018).
The above situation has been landed because of the following reasons. Apple has a
sizable operation channel via the cash and credit card for the large of the percentage of
sales. In this case the days of the sales outstanding are reduced. Samsung on the other
hand are also dependent on the consumer distributors who hardly require the credit
period. The inventory turnover of Apple is much quicker which is likely driven by its
effective planning in order to streamline the product. Samsung on the other hand offers a
wide range of the products which require huge cash and the inventory. Apple appears to
be the best negotiator at the terms of the credit and the same has been low in case of the
Samsung it sources low in the volume and products are different with each other.
Moreover the life cycle of the Apple is relatively long thereby making the businesses
more valuable to the vendors (Apple Inc, 2018).

FINANCIAL ANALYSIS 4
B) There are three risks which are determined by the Annual report from the Apple are as
follows.
The first risk is the risk of the competition from the global market but before that the two
major categories of the risk are the systematic as well as the unsystematic risk.
Systematic risk does not have a particular definition but rather does inborn hazard exist in
the financial exchange. These dangers are relevant to every one of the parts however can
be controlled (The Motley Fool, 2015). In the event that there is a declaration or occasion
which impacts the whole securities exchange, a reliable response will stream in which is
a methodical hazard. On the other hand the unsystematic risk is the one where the threats
are based on the industry or the firm (Wall Street Mojo, 2018).
These risks are those that do exist but does not have any set plan for their occurrence and
can cause great disruption. The three major risks proposed by the company are the high
level of the competition, the dependency of the Apple on the other for the distribution of
the product and the concept of the soul sourcing are the three major categories of the risk,
which states that the first one is the unsystematic risk and the latter two are systematic
risks. In order to mitigate the risks, the best way is to take the necessary and the
corrective measures as soon as possible (Wall Street Mojo, 2018).
C)
i) As per the chart given in the case study the share price movement of the Apple is
better than the normal average returns of the S&P and Dow Jones. The trend lines
showcases the average returns determined by the Apple are quite appealing over
the period of the last three years. The movement of the share price of the Apple is

FINANCIAL ANALYSIS 5
not associated with the market forces and it showcases the indirectly the inverse
relationship between the standards.
ii) From the period of the 2014 to 2018, the share price movement it can be inferred
that the company opted for more debt as it increased to $93735. The clear
indication is of the rise in the debt and the debt component has also seen a rise in
it (Huang, Wu, Yu and Zhang, 2015).
iii) The price of the bond is $530.74 and it has been calculated using the formula in
the excel file.
Part 2
A) The cost of project does not include the price of the land as the analysis of the does not
includes the price of the land while measuring its value. In other words the cost of land is
bound to incur whether the project is happened or not.
B) A free cash flow is the flow of cash produced by the organization from its day to day
business operations after the deductions made in the form of expenditure on asserts. As
the cash flow of the last twenty years of the organizations is $8.84. On the basis of the
above analysis, it can be understood that the organization in order to pay back the
expenses, the organization has to generate cash flows (Maravas and Pantouvakis, 2018).
C) The difference between the present value of cash inflows and the cash outflows of the
organization is the NPV of the Apple Limited. On the basis of the analysis the NPV of
the project considered by Apple is $28.77. Such figures indicate that the NPV of the
project is positive and such project will provide high growth to the company in future.
However, the NPV projects the present value of Dollar which treats it more valuable than
the future value (Gallo, 2016). Since the net present value give more weightage towards

FINANCIAL ANALYSIS 6
the present value of the cash rather than the future it also makes sure that the costs of
capital belongs to the current market value of the company.
D) The IRR also commonly known as the internal rate of the return is a concept used in the
organization which takes into the consideration for the timely value of money. It is
basically a rate which the NPV is equal to zero. The cost of the project and IRR of the
project are 5.94% and 7.09% respectively. On the basis of the above analysis the
company shall accept the project as IRR is higher than the Cost of capital (Maravas and
Pantouvakis, 2018).
E) As per the above analysis it can be concluded that Apple shall build a new store as the
Cost of Capital is 5.94%. On the basis of IRR and NPV, Apple should take the project
because of the positive NPV. The project is also likely to provide higher rate of return
clearly indicates that the project would be proved successful for the organization.

FINANCIAL ANALYSIS 7
References
Apple Inc, (2018) Annual report [Online] Available from
https://s22.q4cdn.com/396847794/files/doc_financials/quarterly/2018/Q4/10-K-2018-(As-
Filed).pdf [Accessed on 21st May 2019]
Apple Inc., (2018). Overview [Online] Available from https://finance.yahoo.com/quote/AAPL/
[Accessed on 21st May 2019]
Forbes, (2018) Cash conversion cycle [Online] Available from
https://www.forbes.com/sites/greatspeculations/2016/06/07/why-is-apples-cash-conversion-
cyclesignificantly-shorter-than-samsungs/#25e5193e58eb [Accessed on 21st May 2019]
Gallo, A., 2016. A refresher on internal rate of return. Harvard Business Review Digital Articles,
pp.2-4.
Huang, T., Wu, F., Yu, J. and Zhang, B., 2015. International political risk and government bond
pricing. Journal of Banking & Finance, 55, pp.393-405.
Maravas, A. and Pantouvakis, J.P., 2018. A New Approach to Studying Net Present Value and
the Internal Rate of Return of Engineering Projects under Uncertainty with Three-Dimensional
Graphs. Advances in Civil Engineering, 2018.
The Motley Fool, (2015) 3 Risks to Apple Inc.'s Business [Online] Available from
https://www.fool.com/investing/general/2015/12/01/3-risks-to-apple-incs-business.aspx
[Accessed on 21st May 2019]

FINANCIAL ANALYSIS 8
Wall Street Mojo, (2018) Systematic Risk vs Unsystematic [Online] Available from
https://www.wallstreetmojo.com/systematic-risk-vs-unsystematic-risk/ [Accessed on 21st May
2019]