FIN203 Corporate Finance: Assessment 2 Individual Analysis

This document presents a comprehensive solution to a Corporate Finance (FIN203) individual assignment. The assignment analyzes the financial performance of Apple and Samsung, focusing on their cash conversion cycles and identifying key risks. The solution calculates and interprets the debt ratio of Apple over several years. The second part of the assignment delves into capital budgeting, addressing the feasibility of a project using Net Present Value (NPV) and Internal Rate of Return (IRR) methods. The document utilizes provided sources, including Apple's annual report, to support its analysis and conclusions, demonstrating a strong understanding of corporate finance principles.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE FINANCE
Table of Contents
Part 1: Company Perspective.....................................................................................................2
Question a:.............................................................................................................................2
Question b:.............................................................................................................................3
Question c:.............................................................................................................................3
Requirement i:....................................................................................................................3
Requirement ii:...................................................................................................................3
Requirement iii:..................................................................................................................4
Part 2: Capital Budgeting:..........................................................................................................4
Question a:.............................................................................................................................4
Question b:.............................................................................................................................5
Question c:.............................................................................................................................5
Question d:.............................................................................................................................6
Question e:.............................................................................................................................6
References:.................................................................................................................................7

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Part 1: Company Perspective
Question a:
Table 1: Cash conversion cycle of Apple and Samsung for the years 2017 and 2018
(Source: S2.q4cdn.com 2019: Samsung global 2019)
Cash conversion cycle assists in measuring the efficiency of an organisation for
management of its working capital and generation of cash flows (Nobanee and Al Hajjar
2014). Apple’s cash conversion cycle has increased negatively from 2017 to 2018, while
Samsung’s cash conversion cycle has increased positively in the same period. This is because
the retail operation of Apple is sizeable and thus, it receives cash or card payment for
majority of its sales. On the other hand, Samsung relies on its vendors for sales due to which
higher credit period is needed. Moreover, the inventory turnover of Apple seems to be
quicker owing to its sound demand policy, while for Samsung, the manufacturing operation is
less sizeable (Forbes.com 2019). Furthermore, the negotiation terms of Apple with vendors

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are better than Samsung. Thus, cash conversion cycle of Apple is better than Samsung in both
years.
Question b:
From “Page 8 of the Annual Report of Apple”, the three significant risks that have
been identified include the following:
 International and domestic economic conditions could have material and adverse
effect on the business and financial conditions of Apple.
 There is increased competition in the markets where Apple operates and they are
subject to quick technological change.
 Applies relies primarily on the performance of wholesalers, carriers, retailers as well
as other resellers.
These risks are identified as systematic risks, since they include the possibility of loss
related to the entire segment or market, which could be controlled through preparing
contingencies well ahead of time (Savor and Wilson 2016).
Question c:
Requirement i:
From the provided Source 4, it has been evaluated that the stock price of Apple Inc
has performed better than S&P 500 index, as the trend is upward over the years. This is
because Apple is generating more returns from its employed capital of the shareholders and
hence, higher returns are provided to the investors. Therefore, by investing in the shares of
Apple, positive returns could be earned in future.

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Requirement ii:
In order to find out the proportion of debt in the capital structure of Apple, debt ratio
is used, which is shown below:
Table 2: Debt ratio of Apple for the years 2014-2018
(Source: S2.q4cdn.com 2019: Samsung global 2019)
From the above table, it is evident that Apple has undertaken more long-term debt
from 2014 to 2017, as debt ratio is observed to increase during this period. However, this
ratio has fallen slightly in 2018, which indicates that Apple has minimised its debt in the year
as well.
Requirement iii:
Part 2: Capital Budgeting:
Question a:
Since Apple has already purchased the land on which the store would be built, land
value is not taken into consideration. Moreover, the land is not expected to generate any

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revenue like rent income over the life of the project. It is only considered when the same is
rented or leased that would result in opportunity cost for the business (Rossi 2014).
Question b:

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Question c:

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Question d:
Question e:
When the NPV of any project is positive and higher and the internal rate of return is
higher than the cost of capital, it implies the feasibility of the project (Andor, Mohanty and
Toth 2015). In case of Apple, both the criteria are fulfilled and hence, the project needs to be
accepted, as it would result in considerable amount of profit for the concerned organisation.

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References:
Andor, G., Mohanty, S.K. and Toth, T., 2015. Capital budgeting practices: A survey of
Central and Eastern European firms. Emerging Markets Review, 23, pp.148-172.
Forbes.com., 2019. Why Is Apple's Cash Conversion Cycle Significantly Shorter Than
Samsung's?. [online] Available at:
https://www.forbes.com/sites/greatspeculations/2016/06/07/why-is-apples-cash-conversion-
cycle-significantly-shorter-than-samsungs/#7e2e5e7658eb [Accessed 22 May 2019].
Nobanee, H. and Al Hajjar, M., 2014. An optimal cash conversion cycle. International
Research Journal of Finance and Economics. March (120), pp.13-22.
Rossi, M., 2014. Capital budgeting in Europe: confronting theory with practice. International
Journal of Managerial and Financial Accounting, 6(4), pp.341-356.
S2.q4cdn.com., 2019. [online] Available at:
https://s2.q4cdn.com/470004039/files/doc_financials/2018/q4/10-K-2018-(As-Filed).pdf
[Accessed 22 May 2019].
Samsung global., 2019. Investor Relations │ Samsung. [online] Available at:
https://www.samsung.com/global/ir/ [Accessed 22 May 2019].
Savor, P. and Wilson, M., 2016. Earnings announcements and systematic risk. The Journal of
Finance, 71(1), pp.83-138.