Apple Financial Analysis Paper

apple Financial depth psychology paper apple Inc. is a unique social club in the own(prenominal) entertainment sector. It has been loyal to its design and market strategy over the past 33 twelvemonths and has been fitting to position itself as a furor brand that is known worldwide for its innovative and market atomic number 82 business operation.Steve Jobs, CEO of orchard apple tree Inc. one time said A lot of companies arouse chosen to downsize, and maybe that was the right thing for them. We chose a diametrical path. Our belief was that if we kept putting wide outputs in front of customers, they would continue to open their wallets (Warner, 2009).It is this attitude and the provoking further entertaining way the companionship introduces new products and presents itself to the public that made me want to put up a look behind the scenes and into their finances.Background apple Computer Inc. was founded in 1977 in the United States, in Cupertino, calcium and renamed to Apple Inc. in 2007 to display its comprehensive product portfolio (Datamonitor, 2010). Today Apple Inc. and its subsidiaries (from here referred to as Apple) mesh in the wide field of personal entertainment. This includes designing, producing and promoting a variety of hardw ar products such as personal computing devices, mobile communication and media devices, and portable digital music players (Apple Inc., 2010, p. 1) as well as softw be solutions and operate around its products.Over the past 3 years the company has raised its resources for research and tuition leading to expenses of $1,109 zillion in 2008, $1,333 million in 2009 and $1,782 million in 2010, a total annex of 60% (2008 to 2010). As a result Apple launched several new and revolutionary products such as the iPhone in 2007, the time capsule software in 2008, a new edition of the iPhone in 2009 and the iPad in 2010 which have led to a sustained success that reflects in the monetary statements of the recent ye ars (Datamonitor, 2010, p. 9)In the pecuniary years 2008, 2009 and 2010 outcome in kinfolk of separately year Apple change magnitude its tax income by 14,4% to $42,905 million (2008 to 2009) and thereafter by 52% to $65,225 million (2009 to 2010). The companys net profit was $6,119 million, $8,235 million and $14,013 million in 2008, 2009 and 2010 which resembles an increase of 34,6% (2008 to 2009) and 59% (2009 to 2010). The introduction of the iPad, where 300,000 pieces have already been sold on its launch day, April 3rd 2010, and 7,458 million pieces since its launch (Apple Inc., 2010, p. 33) as well as the new release of the iPhone and the third-party offers in the iTunes Stores being music and electronic book downloads are main(prenominal)ly responsible Apples recent success (Dowling, Press Release, 2010).In station to consume a deeper understanding of the effects of the end of year financial results for Apple and its past and proximo development a critical analysis of its financial statements has been conducted and is presented hereafter.AnalysisThe critical analysis of the financial statement of Apple includes the general comparison of Apples main financial influencing factors and secondly a ratio analysis which will result an in depth audit of the financial performance and its effects on the company.Main financial influencersThe main influencing factors of Apples financial statements are the revenue, operating profit, net profit, cost of gross sales and earnings per per centum. These forefingers show the overall financial performance of the company. The overview given in Table 1 (Refers to accessory V) spiritedlights the superior performance of the company from 2008 until 2010. Apple Inc. is an American based company, which is why the figures are expressed in USD and in the following table in $ million except for the earnings per share, which express the per share amount.Apples financial results are a good power for the economys prog ressing reco precise from the financial crises of the recent years. The above-average rise of Apples revenue and profit are the result of its investments in product developments which have met the needs and wants of the target markets. The image of the company was strengthened by its very good sales performance which was influential for the rise of earnings per share. The great increase for Apples costs of goods sold result from the development and production of the iPad, which will also be visible in the result of the financial year ending September 2011, as well as the development and production of the new release of the iPhone.Ratio AnalysisA ratio analysis is used to express how the figures in the financial statement relate to each other and by interpreting the ratios to explain how the figures affect each other and the companys development and performance (Dyson, 2010, p. 219). Comparisons of the figures are made within Apples own performance over the past financial years and w here appropriate the figures are compared to two Apples competitors. For this critical analysis the free-enterprise(a) companies are Dell Inc. since they compete within the personal reckoner segment and Microsoft, who are one of Apples main competitors in the computer software sector (Datamonitor, 2010, p. 27). It shall be mentioned that presently there is no other company which provides a similar product portfolio as Apple. Therefore no absolutely satisfactory industry comparison can be made for the ratio analysis but indications on the positive or negative trend on the figures can be made. liquidity ratiosLiquidity ratios allow the assessment of the amount of cash which a company has access to from its own resources within the future(a) twelve months. The two ratios which are put into one context are the menstruum ratio and the contiguous ratio (Table 2 Refers to Appendix I).The norm result for the current ratio is 21 (Hendricks, 2010, p. 6). The high gearer(prenominal) the current ratio, the more than liquid resources are available for the company to behave its short enclosure debts. The current ratio for Apple was higher in 2009 but is still within the industry norm in 2010.By reducing the stock list, the quick ratio is considered a more reliable statement of a companys liquidity. A ratio of 11 accounts as safe. This again has been greatly outperformed in 2009 and slightly decreased towards 2010 which indicates on Apples good ability to turn assets into cash quickly.The overall decrement of both ratios in the Financial yr 2010 (FY 2010) can be traced back to the fact that the companies liabilities have increased due to RD, production and retail keep investments.Profitability RatiosProfitability ratios calculate the earnings a company generates in relation to the expenses and costs it has during the financial year. An increase of the value of a profitability ratio indicates that a business performing well. In order to interpret the companys pe rformance a comparison to two competitors in Apples operating environments has been d roughn.Apple has invested in its rooted(p) assets by expanding its retail segment which explains the slight decrease in return on crying(a) assets (ROA). As financial analysts state a ROA should not undergo 5%, Apple is in a very good position with an ROA of 24.66%. (Table 3 Refers to Appendix II,A,B).A high return on shareholder fair-mindedness (ROE) expresses a companys effective employment of stakeholder investments and in return high earnings for the stakeholders. The figures show that Apple has been able to invest more effectively in FY2010. But the company comparison reveals that even with a great loss in ROE for Dell in 2010 it can compete with Apples performance. Where as Microsofts ROE with 40.6% is untold higher. However since the ROE should be interpreted in relation to the debts, and Apple however has short term debts which the company covers quickly, the investment strategy of App le can be considered as benefiting for both the company and the shareholders.Apples gross ratio decreased in FY2010. This is due to the less efficient use of its headstrong assets in raw material and manufacturing. The company comparison shows that Apples gross ratio is at a high percentage a positive indication for profit that is confirmed in Apples overall results.The figures of Apples profitability ratios in relation to its contention display Apples ability to manage its investments and sales lucrative.Efficiency RatiosEfficiency Ratios express the ability of a company to use its resources profitably. An increase of the ratio figures over the years show an efficient management of resources. (Table 4 Refers to Appendix III).The rate of stock turnover (ROST) can be described as the number of times the stock is being replaced per year. A high ROST show the efficient investments and a low ROST can be an indicator stockpiling and poor sales. Since Apples sales have greatly increased in FY2010 the decrease in ROST of 33% from FY2009 to FY2010 near likely result from inefficient stockpiling. Speculations can be made that a too high prognosis on iPad sales in combination with a lower sales rate of iPods may have led to an increased inventory level.The fixed asset turnover (FAT) has decreased by 27% in FY2010 which means that Apple was less successful in using its fixed assets to generate sales. The reduction in FAT is the result if Apples investment in its retail branch and therefore an increase of fixed assets.While the ROST and FAT are decreasing naturally the cost of sales ratio (COS) will increase. Apples has more money tied up in its fixed assets and was not able to handle its stock as efficient as in recent years.The debt ratio expresses the percentage of assets which are financed by debts. Apple only has short term liabilities and no long term debts (Apple Inc., 2010, p. 27). Even though the short term debts have increased to 36.43% which Apples should r educe over the coming financial periods 63.57% of Apples assets are covered by equity. The risk for Apple therefore is low.Investment RatiosThis part of the ratio analysis helps to judge how remunerative a potential or existing investment is or might be (Table 5 Refers to Appendix IV).Apple does not pay dividends per share to its shareholders explaining the dividend yield of $0.00. Therefore the company has more financial resources to reinvest in its business and the development of its products to obligate a peer position in the market.The earnings per share (EPS) allot the profit of a company to its number of shares and therefore indicating on the companys overall profitability. Apples EPS increased by 67% to $15.41 in FY2010 which relates to the nearly 60% higher net profit in 2010. It also reveals an increase in investment in the companys shares which most likely result from Apples positive consumer and investor awareness through the introduction of its new product developments .A high price/earnings ratio (P/E) describes the high demand of the shares and therefore the confidence of investors towards a positive future of the company. With the high increase in EPS the P/E has risen as well. Apples market price per share ($) tradedat 14.76x the EPS of $15.41.Over the past years Apple has proven to be a lucrative company to invest in and it is likely that this trend continues for the following financial year.Impact of current event since concluding balance sheetThe publishing date of Apples recent annual financial report is the 25th September 2010. Since then Apple has introduced a new developments of its MacBook, the MacBook Air, a thinner and more powerful version of the Apple laptop (Dowling, Press Release 2, 2010).This will affect the sales of the iPad since it can be seen as a competitive product and it is likely to increase Apples stock turnover ratio because it is an additional product in the companys range. But at the same time Apple has made a move to stay competitive in the personal computer sector and it is likely that the company will increase its total revenue until the next financial report.Conclusion and recommendationsFinancially the fiscal year 2010 was a very successful year for Apple.The company has increased the investments in research and development of new products and its retail branch. This has led to the launches of the iPad and the new iPhone propagation and has brought the focus of public attention to the company enhancing its image and increasing its desirability in the minds of shareholders and investors.Apple has increased its revenue by more than 50% and is taking a leasing position in the personal computer market despite the intense competition and price sensitivity of the consumers. The software and online services Apple is go through third parties, such as the e-books have gained popularity.A negative affect has been recognized when analyzing Apples power in using its resources. The stock turnover d ecreased compared to the previous year which affected the cost of sales and fixed asset turnover.It is recommended to continue the trend of high investments in research and development as this is a key success factor for Apple to be one step ahead of its competition. Additionally the service offers though third party suppliers in the range of music, e-books and applications for the mobile phones should be kept up, as they increase the popularity of Apples products. Furthermore Apple could compensate the negative effects of the decrease in stock turnover by introducing improvements in its marketing and promotion efforts to boost sales.