Kaplan Business School FIN203: Financial Analysis of Apple Inc. Report

This report provides a comprehensive financial analysis of Apple Inc., examining key metrics such as the cash conversion cycle, accounts receivable, and accounts payable to assess the company's working capital management. It delves into the risks facing Apple, differentiating between systematic and unsystematic risks, and analyzes the company's beta value in relation to market volatility. The analysis further explores Apple's debt levels, bond pricing, and free cash flows over a twenty-year period. The report calculates the Net Present Value (NPV) and Internal Rate of Return (IRR) of a potential project, concluding with a recommendation on whether Apple should proceed with building a new store based on these financial indicators and the cost of capital. The report uses data from Apple's 2018 Annual Report and other financial sources to support its findings.

Running Head: FINANCILA ANALYSIS 1
FINANCILA ANALYSIS

Running Head: FINANCILA ANALYSIS
Table of Contents
PART 1.........................................................................................................................................................3
Part 2...........................................................................................................................................................5
References...................................................................................................................................................7

Running Head: FINANCILA ANALYSIS
PART 1
Cash conversion cycle
A) The cash conversion takes a gander at the measure of time an organization takes to sell its
stock, gather its receivables and the time it takes to pay providers. The measurement
demonstrates how effectively an organization is dealing with its working capital and
producing money streams. Apple's money change cycle remained at - 53 days for FY'15,
interestingly, Samsung has a long CCC of near 78 days (Forbes, 2018). This indicates
that the apple company has the Sizeable operations in the retail sector and gets the
payment in the cash whereas the Samsung then again depends to a great extent on
merchants for its buyer gadgets tasks, while its parts business pitches to other purchaser
hardware sellers, who likely require a credit period (Forbes, 2018).
In terms of the Accounts receivable the turnover ratio is 17.2 in case of the Apple and 22
in case of Samsung this suggests that the cash realizing capacity of the Apple is much
finer than the cash realizing capacity of the Samsung, whereas the situation is altogether
opposite in case of the accounts payable as the as the payment capacity of the Apple is
32.8 and that of the Samsung is 6.2. This truly indicates that the company is performing
well in realizing cash yet it’s not making the payment to its suppliers and hence the cash
conversion cycle is negative.
B) The three major risks that are discussed in the Annual report are the risk of the supply
and the pricing, risk of the international operations and the risk of the protection of the
data. The first two risks are termed as the systematic risks, whereas the latter one is
termed as unsystematic as it refers to the risk associated with specific company.
Unsystematic hazard alludes to explicit organization or industry dangers. On the off

Running Head: FINANCILA ANALYSIS
chance that you had just a single stock in your whole portfolio, you would put your cash
in danger by putting the majority of your riches on that one organization's intrinsic hazard
factors. In the event that the organization goes bankrupt, you're up the creek without a
paddle. The beta value of the stock of the Apple is 0.89 this implies that the Apple is 15%
more volatile than the market risks and hence it can be classified as the systematic risk.
This is due to the fact that it is very close to 1 (Carlson. 2014).
C)
i) The share price movement of the Apple in comparison to the market price over
the last three years have been outstanding than the market. The trend line depicts
that the S&P is below the trend line of the Apple Inc, and Apple Inc is above S&P
300 index and as well as Dow Jones. This indicates that the prices of the Apple
are independent of the market forces and provides the higher returns than the
average returns of the market (Ahmar, 2016).
ii) From the year 2014 to 2018 the company has taken more debt as the debt
was$28987, whereas it reached to $93735, this clearly indicates that there is an
increase in the debt component of the company 223% (Carlson. B, 2014).
iii) The price of the bond is $530.74
Price of the bond
Face value 1000
Periodic coupon rate 4.50%
No. of periods till
maturity 13
Yield to maturity 5%

Running Head: FINANCILA ANALYSIS
Price of the Bond 530.74
This has been calculated using the formula.

Running Head: FINANCILA ANALYSIS
Part 2
A) The analysis of the land is not considered in the price of the land as that cost is not
associated with the cost of the project. Whether the project is undertaken or not, the cost
of land is bound to happen (Apple Inc, 2018).
B) Free cash flows over the last twenty years are $8.84. The FCF is the cash that is created
by the company by the way of its operations after deducting the expenses on the assets. In
the other words FCF is the one that is left after the company has paid the expenses. From
the above analysis it can be stated that the company is required to have the cash flows to
pay back the expenses (Apple Inc, 2018).
C) The NPV of the Apple Limited is the one which describes the difference between the
present value of the cash inflows as well as the cash outflows. The NPV of the project
considered by the Apple is $28.77 (Baucells and Bodily, 2018). This indicates the
company shall accept the project as the NPV is positive and it will give the company a
beautiful growth in future. Since the NPV depicts the present value of the dollar and
treats it more valuable than the future value.
D) The IRR is the rate at which the NPV is equal to zero. The IRR concept is used as it takes
into consideration the concept of the time value of money. The internal rate of the return
of the project is 7.09% whereas that of the cost of the capital is 5.94%. The company
shall consider the project the as the IRR is higher than the cost of the capital (Bornholt,
2017).
E) On the basis of the analysis the Apple shall build the new store if the cost of capital is
5.94%. The decision is taken keeping in mind both the considerations, such as NPV and
the IRR. After calculating the results the Apple must take the project as the positive NPV

Running Head: FINANCILA ANALYSIS
and the higher rate of return clearly suggests that project will give the results in near
future (Hopkinson, 2017).

Running Head: FINANCILA ANALYSIS
References
Ahmar, A., 2016. Predicting Movement of Stock of Apple Inc. Using Sutte Indicator.
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 19th May 2019]
Apple Inc., (2018). Overview [Online] Available from https://finance.yahoo.com/quote/AAPL/
[Accessed on 19th May 2019]
Baucells, M. and Bodily, S.E., 2018. NPV Analysis of Projects Under Expected Utility.
Bornholt, G., 2017. What is an Investment Project's Implied Rate of Return?. Abacus, 53(4),
pp.513-526.
Carlson. B, (2014). Apple after earnings [Online] Available from
https://awealthofcommonsense.com/2014/01/apple-earnings/[Accessed on 19th 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 19th May 2019]
Hopkinson, M., 2017. NPV and risk modelling for projects. Routledge.