FINC 330

Research Project Part I

Apple Inc.

Edelmira Hernandez

Colin Brogan

Khalia Alexander-Cobbs

Elizabeth Fisher

Jessica Butler

(ADD YOUR NAMES)

University of Maryland, Global Campus

FINC 330 6982

July 20, 2021

Introduction

Apple Inc. is a tech company established in 1977 known for its design, development, and retailing of high-end electronic products. The products include iPhones, tablets, personal computers, smartwatches, among others. The company also offers services such as advertisements either through its internal platforms or third-party licensing. The company's success makes it a very strong asset also traded in the stock market. This paper seeks to evaluate the company performance by looking at different rations and seeing where they stand in the market.

Trend Analysis

Sales Growth-

In the past five years Apple, Inc. has experienced sales growth in four out of five years. Starting 2016, Apple experienced growth of approximately 6% and then 15% until hitting a wall in 2019 in which the company had negative growth of 2%. Although many companies struggled in 2020 due to COVID-19, Apple, Inc. managed to increase their growth from -2% to approximately 5%. This implies that Apple is using effective marketing strategies and has designed products that are attractive to their customers. Another implication is that Apple, Inc. has increased their market share and profitability but they need to continue to adapt to the changing market in order to maintain this growth and customer acceptance.

COGS Growth - Similarly to the sales growth, the COGS growth has also been positive 4 out of the last five years, with the highest growth being roughly 16% and the lowest growth around -1%. Once again, the negative growth came in 2019 and was turned around in 2020 when the company experienced around 5% of COGS growth. This information implies that it is becoming more expensive for Apple, Inc. to produce their products which can decrease the companies profitability. In order to fix these growing percentages of COGS, Apple, Inc. should improve cost controls and production by perhaps finding a more technologically advanced way of producing products that will save them wage expenses and will be more cost effective.

Gross Income Growth -

https://www.marketwatch.com/investing/stock/aapl/financials?mod=mw_quote_tab

Financial Ratios Trends Analysis (Khalia Working DRAFT)

Apple, Inc’s financial results for its second quarter 2021 fiscal cycle ending on March 27, 2021 recorded revenue of $89.6 billion, up 54% higher than last year, and significantly stronger profits due to an onsite of software products and a charge for more iPhones from its consumers (Levy, 2021). Apple’s quarterly earnings share of $1.40 for international sales accounted for 67% of the quarter’s revenue. The company's March quarter performance included revenue records in each of Apple’s geographic segments and strong double-digit growth in each product category, driving their installed base of active devices to an all-time high. These results allowed the company to generate operating cash flow of $24 billion and return nearly $23 billion to shareholders during the quarter (Levy, 2021). https://www.cnbc.com/2021/04/28/apple-price-hikes-and-services-growth-produced-a-42point5percent-gross-margin.html

According to Apple’s Investor Updates of FY 21 Third Quarter Results, the company’s board of directors has declared a cash dividend of $0.22 per share of the Company’s common stock, an increase of 7 percent. The dividend is payable on May 13, 2021 to shareholders of record as of the close of business on May 10, 2021. The board of directors has also authorized an increase of $90 billion to the existing share repurchase program (Apple, 2021).

https://investor.apple.com/investor-relations/default.aspx#tabs_content--2021

Here’s how Apple did versus Refinitiv estimates:

· EPS: $1.40 vs. $0.99 estimated

· Revenue: $89.58 billion vs. $77.36 billion estimated, up 53.7% year-over-year

· iPhone revenue: $47.94 billion vs. $41.43 billion estimated, up 65.5% year-over-year

· Services revenue: $16.90 billion vs. $15.57 billion estimated, up 26.7% year over year

· Other Products revenue: $7.83 billion vs. $7.79 billion estimated, up 24% year-over-year

· Mac revenue: $9.10 billion vs. $6.86 billion estimated, up 70.1% year-over-year

· iPad revenue: $7.80 billion vs. $5.58 billion estimated, up 78.9% year-over-year

· Gross margin: 42.5% vs. 39.8% estimated

DuPont Analysis (Jessica) WORKING DRAFT

A DuPont analysis takes into consideration three components, the profit margin, total asset turnover, and financial leverage to find the return on equity (ROE). These three components assist investors with comparing the operational efficiency of a company. Apple Inc has many competitors such as Samsung and Microsoft which makes a DuPont Analysis required by many shareholders. The profit margin is used to understand where the company is at and how to reduce expenses or even increase prices to help the margin increase. The profit margin is calculated by dividing the net profit by the revenues from the same year. (CALCULATIONS ON PM). The total asset turnover explains the efficiency a company has in using the assets on hand. This is a commonly used formula to compare two similar companies when choosing who to invest in. A high turnover rate is better for the company’s return on equity. The total asset turnover is calculated by dividing revenues by average assets from the same year. (CALCULATIONS ON TR). The financial leverage is used to determine the debt usage compared to the assets on hand. Any debt a company takes on should only be used to finance operations and continue growth for organization. There should be a healthy balance the company chooses for the debt taken on. The financial leverage is found by dividing average assets by average equity. (CALCULATIONS ON FL). Apple Inc’s ROE compared to Microsoft’s ROE are listed in the chart below for comparison.

(FY 2020)	Apple Inc	Microsoft Corp
Profit Margin	20.91%	30.96%
Asset Turnover	0.85	0.47
Financial Leverage	4.96	2.55

(Comparison between the two).

Recommendation

Reflection

References