Question
Running Head: INCOME STATEMENTS 1
Income Statements
Barbara Tatum
The University of Arizona Global Campus
BUS 401 Principles of Finance
Instructor: Kristine Beaird
October 18, 2021
INCOME STATEMENTS 2
Overview of the company
My financial analysis will involve Apple Company, an international company that deals
in producing electronics and software products (Al Kibaida & Nobanee, 2020). The company is
situated in the United States, but it has various branches across the globe. The company has all
over the years it has dealt with a variety of hardware such as Apple Smartwatches, Apple TV,
iPhone Smartphones, and Mac personal computer. However, the company also deals with
manufacturing minor electronic devices such as Home pod speakers and iPod media players. The
company also deals with the development of software such as IOS, OS X, TV OS and Watch
Operating system. Apple Company also owns multiple application software such as iLife, Pro X,
Final Cut Pro, and iWork. Apple Company also provides additional services to the customers
such as internet service, for instance, Mac store, iTunes and iCloud, Apple Pay, and Apple care.
Apple is the second-largest electronic company after the giant Samsung and the largest phone
producer in terms of revenue across the globe. Therefore, the main revenue of the company
occurs from the sales of software and hardware.
Income Statements
Based on the financial statements the net income was $59,531,000, $ 55,256,000 and
$57,411,000 on 2018, 2019 and 2020 respectively. The company was able to get more income in
INCOME STATEMENTS 3
2019. In 2018 companies were able to make the normal income, particularly due to political,
economic, and political stability. However, in 2019 due to the emergency of COVID-19, the net
income was reduced. The purchasing power of many customers was reduced, thus forcing many
companies to reduce their production. Most of the employees laid off their workers due to
reduced productivity and the sales in an organization. However, in 2020 Apple company
established some strategies to counter the virus and thus increase sales and profitability. Many
companies in 2020 were able to advertise their goods online as a method to counterattack the
effect of the virus. During the year, many organizations noted that COVID-19 was probably
going to stay for a while. Therefore there were no options but to develop strategies to cope with
the situations.
The effect of net income affected almost all parameters of the financial statements. For
instance, the companies experienced the same trend in revenue. For instance, in 2019, the
company made a revenue of $5,522,000 which was a drop from 7,543,000 in 2018. However, in
2020 the company experienced an increase in revenue to $6,643,000. Revenue is the net sales
subtract the expenses within a specific period. Therefore, the negative impact on the net income
will also affect the revenue in the same proportion. Operating income is the total amount of
resources a company gains after recurring costs and expenses are subtracted from the net income.
Production in an organization affects sales and marketing, thus affecting the net income and
revenue. The operation was higher in 2018, followed by 2020. The operating income 2018 was
$77,434,000 2019 was $63,930,000 and in 2020 the operating income was 66,288,000.
Common size income statements
INCOME STATEMENTS 4
The gross margin is the difference between the cost of goods and revenue divided by
revenue (Beesley & Barker, 2016). The change is expressed in terms of percentage. The cost of
goods includes the total expenses incurred in production less indirect costs such as
administration, rents, and office expenses. The purpose of calculating the gross margin is to
determine the promotion decisions and pricing of the commodity.
Gross margin in 2018
(7,543,000- 70,898,000)÷ 7,543,000 = -8.4% meaning the gross margin is 8.4%
Gross margin in 2019
(5,522,000-161,782,000) ÷ 5,522,000 = 1.9%
Gross margin in 2020
(6,643,000- 169,559,000) ÷ 6,643,000 = 15.5%
Since the gross margin is higher in 2020 than all the other years, it means that Apple Company
was much better positioned to produce a profit above and over its cost of production.
INCOME STATEMENTS 5
Operating margin in 2018
77,434,000÷7,543,000= 10.3%
Operating margin in 2019
63,930,000÷5,522,000=11.6%
Operating margin 2020
66,288,000÷6,643,000=10.0%
The operating income margin was higher in 2019, meaning that Apple Company had created
more value for its shareholders and could rent some loans to crucial stakeholders. The total net
profit margin and the gross margin are the same and are calculated in the same way.
Balance sheets
An asset is a property that is owned by the company and can be used to generate income
or sold to settle some debts of the company (Petchrompo & Parlikad, 2019). Based on the three
years, Apple Company had more assets in 2018; however, the asset's value dropped to
338,516,000 in 2019 and 323,888,000 in 2020. The economic uncertainty in 2019 and 2020
could be the reason for the drop in the asset's value. The current assets are funds either in hand or
at the bank or items that can be easily be converted to cash. The total current assets for the
INCOME STATEMENTS 6
company were $143,713,000, $162,819,000 and $131,339,000 for 2020, 2019 and 2018
respectively. It is an indication that the company is financially stable and can settle its debt by
selling the organization's fixed assets. However, the current assets have decreased drastically
from 2018 t0 2020. The reason might be that Apple paid most of its employees during the
COVID-19 pandemic while the sales of the products decreased drastically due to a lack of
purchasing power among many clients. On the other hand, current liabilities are short-term debts
that current assets can easily settle. The company has been able to maintain a stable current
liability throughout the three years. There has been a drop in current liabilities from 2018 to
2019. The current liabilities in 2018 were $ 116,866,000, the liabilities were $105,718,000 and in
2020 was $105,392,000. Long term debts are also known as long-term liabilities. Since the
long-term liabilities are not, they will be calculated by subtracting the current liabilities from
total liabilities. Based on the calculation, Apple Company has maintained a manageable
long-term debt per with the current liabilities. However, long-term liabilities were much more in
2020 compared to the other two years. The liabilities might have occurred to maintain operations
during the COVID-19 pandemic. In general, the company has faced many challenges, thus
reducing the shareholders' equity drastically from $107 147,000 in 2018 to $65,339,000 in 2020.
Apple Company must make deliberate strategies in investing in less exploited areas to increase
its sale and profit to increase the shareholders' equity.
2020 2019 2018
Total Liabilities 258,549,000 248,028,000 258,578,000
Current liabilities 105,392,000 105,718,000 116,866,000
Long-term debts 153,157, 000 142,310,000 141,712,000
INCOME STATEMENTS 7
Common size balance sheets
The total assets is 323,888,000 +338,516,000 + 365,725,000 = 1,028,129,000
Trend in current assets
2020 2019 2018
Current assets 323,888,000 338,516,000 365,725,000
Total assets 1,028,129,000 1,028,129,000 1,028,129,000
Percentage 31.5% 32.9% 35.6%
The trend in the total current liabilities
2020 2019 2018
Total current liabilities 105,392,000 105,718,000 116,866,000
Total assets 1,028,129,000 1,028,129,000 1,028,129,000
Percentage 10.25% 10.28% 11.4%
The trend in the long-term debt
2020 2019 2018
Long-term debt 153,157, 000 142,310,000 141,712,000
Total assets 1,028,129,000 1,028,129,000 1,028,129,000
INCOME STATEMENTS 8
Percentage 14.9% 13.84% 13.78%
The trend in the shareholders' equity
2020 2019 2018
Shareholders’ equity 65,339,000 90,488,000 107, 147,000
Total assets 1,028,129,000 1,028,129,000 1,028,129,000
Percentage 6.4% 8.8% 10.4%
Based on the four analysis on the current assets, total current liabilities, long-term debt, and
shareholders' equity. All the parameters in relation to the total assets have dropped in terms of
percentage from 2018 to 2019 and indication of the company's poor performance.
Cash flow
Cash flow 2020
57,411,000+ 66,760,000- 38,016,000 =86,155,000
Cash flow 2019
55,256,000 + 58,579,000- 48,844,000=64,991,000
Cash flow 2018
INCOME STATEMENTS 9
59,531,000+ 49,099,000- 25,913,000=82,717
The flow was high in 2020 and 2018. There was a low flow of income in 2019.
Cash flow 2020
66,288,000+66,760,000-9,680,000= 142,728,000
Cash flow 2019
63,930,000+58,579,000-10,481,000=112,028
Cash flow 2018
72,903,000+49,099,000-13,372,000=108,630
Operation cash flow reduced from 2018 to 2020.
Financial analysis conclusion
The company's main strength is the ability to maintain the current liabilities and the
current assets within its operation. It indicates that the fixed assets can never be compromised if
the organization fails to settle its debts. The biggest weakness is an inability to manage the
stakeholders' equity where the reduction is not equivalent to other parameters such as
depreciation. Based on the cash flow, size balance sheets, income statements, the value of the
company is depreciating may be because of loss of customers and reduction in production. The
INCOME STATEMENTS 10
overall financial strength is noted in the stakeholders' equity: since there has been a reduction of
more than half of the equity from 2018 to 2020. The process indicated the depreciation of the
share and the unwillingness of sponsors to invest in the company. I think that the financial
strength of the company is neutral based on the shareholders’ equity.
2020 2019 2018
Shareholders’ equity 65,339,000 90,488,000 107, 147,000
Total assets 1,028,129,000 1,028,129,000 1,028,129,000
Percentage 6.4% 8.8% 10.4%
References
Al Kibaida, O., & Nobanee, H. (2020). Financial Statement Analyses of Apple. Available at
SSRN 3647455.
INCOME STATEMENTS 11
Beesley, A., & Barker, A. (2016). Apple Tax Deal: How it Worked and what the EU Ruling
Means. Financial Times. Retrieved from
https://www.ft.com/content/cc58c190-6ec3-11e6-a0c9-1365ce54b926
Petchrompo, S., & Parlikad, A. K. (2019). A review of asset management literature on
multi-asset systems. Reliability Engineering & System Safety, 181, 181-201.