Company Financial Analysis

Apple, Inc.

Financial Statement Analysis

Author

Lynn University

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1. Company Introduction

1.1 Background

Apple Inc. is an American multinational technology company headquartered in Cupertino,

California, that designs, develops, and sells consumer electronics, computer software, and online

services.

The company's hardware products include the iPhone smartphone, the iPad tablet

computer, the Mac personal computer, the iPod portable media player, the Apple Watch

smartwatch, the Apple TV digital media player, the Apple AirPods wireless earbuds and the

HomePod smart speaker. Apple's software includes the macOS and iOS operating systems, the

iTunes media player, the Safari web browser, and the iLife and iWork creativity and productivity

suites, as well as professional applications like Final Cut Pro, Logic Pro, and Xcode. Its online

services include the iTunes Store, the iOS App Store, Mac App Store, Apple Music, Apple TV+,

iMessage, and iCloud. Other services include Apple Store, Genius Bar, AppleCare, Apple Pay,

Apple Pay Cash, and Apple Card.

Apple is well known for its size and revenues. Its worldwide annual revenue totaled $265

billion for the 2018 fiscal year. Apple is the world's largest information technology company by

revenue and the world's third-largest mobile phone manufacturer after Samsung and Huawei. In

August 2018, Apple became the first public U.S. company to be valued at over $1 trillion.

1.2 Recent performance

Apple’s current stock price is $166.52, a 0.48% increase. Change in financial ratios can

explain this performance. Apple had an increase on their return on equity and increased from

2017 to 2018 in many other areas. Although they had decreasing in some areas, this does not

always affect stock price or their health. Apple is a company that invests a lot in their spending

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and their future of new initiatives, which can be shown in some of the decreases such as their

cash flows.

2. Financial Analysis

The financial analysis is conducted around the following areas including Overall Financials,

Profitability, Growth, Cash Flow, Financial Health and liquidity, and Efficiency.

2.1 Overall Financials

The table above shows major financial statistics for Apple. Looking first at their revenue,

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Apple has continued to increase since 2016. From 2016 to 2018, Apple’s revenues increased by

almost $50 million dollars. The last three years for Apple have been very strong and not only

does their revenue increase, but their net income continues to increase as well. The increase we

see in Apple’s profit and net income has to do with their smart investment decisions. The

decisions I mentioned before happened within the last three years and has positively impacted

the company’s growth. Apple’s payout ratio increased from 2016 to 2017 but decreased from

2017 to 2018. This is the opposite of what happened to their free cash flow from the last three

years. Between 2016 and 2017 their free cash flow decreased and increased from 2017 to 2018.

Apple’s working capital also decreased from 2016 to 2018.

2.2 Key Ratios – Profitability

Over the last three years from 2016 to 2018 there was not much change in Apple’s net

margin %. Over the last year they have increased in asset turnover, and majorly increased in

return on assets. Apple’s financial leverage has steadily increased since 2016, and their return on

equity decreased slightly from 2016 to 2017 and then increased again from 2017 to 2018.

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2.3 Key Ratios – Growth

Apple has not seen much growth in terms of revenue in their 3,5,10-year average.

Most recently in their 3-year average operating income, they decreased but increased in the 5,10-

year average. Also, in their 3-year average net income %, they decreased but increased in their

5,10-year average.

2.4 Key Ratios – Cash Flow

Apple’s operating cash flow has decreased up until 2017, but recently increased in 2018.

A decreasing cash flow does not always resemble a hurting company, something that could have

affected this is their increase in research and development budget that I mentioned previously.

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2.5 Key Ratios – Financial Health

Understanding the financial health of a company is very important. It is important for

investors and for the future of the company’s success. A company does not need to have all

positively increasing categories in order to be considered healthy. The company needs to be

making a profit, not be in debt, and be worth wile for investors. Apple’s total current assets were

decreasing up until this last year in 2018 and their long-term debt has slowly started to decrease

from 2017 to 2018 as well which is a positive sign. There are factors that affect the company

that Apple is not able to control such as the economy and the consumer behavior. Apple has

taken many initiatives to continue growing and being a stable healthy company.

2.6 Liquidity / Financial Health

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The financial leverage for Apple has steadily increased from 2016 to 2018. The current

ratio and quick ratio have both decreased from 2016 to 2018, and the debt/equity decreased from

2016 to 2017 but increased again in 2018.

2.7 Key Ratios – Efficiency Ratios

The receivables turnover, went from an increase in 2016 to 2017, to a decreased in 2018.

The inventory turnover and fixed asset turnover has continued to decline since 2016, and the

asset turnover decreased between 2016 and 2017 then increased in 2018.

3. Recent Financial Decisions

Apple has made many investment decisions to get where they are today as a company.

One of their most recent major investment decisions has been their pact to contribute $350

billion to the U.S. economy over the next 5 years. In early 2018, Apple announced a new set of

investments they are setting in place to build on their commitment to support the American

economy and its workforce (Apple, 2018). Apple said they would concentrate on three major

areas where they had the biggest impact on job creation, these three areas include: spending and

investing with Apple’s domestic suppliers and manufacturers, direct employment with the Apple

company, and adding to their fast-growing app economy they created (Apple, 2018). Apple has

already helped to support and create two billion jobs across the United States, and are expected

to create even more with their new investment initiatives they announced last year (Apple,

2018).With combining their new investments with their current pace of spending, Apple’s

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contribution to the United States economy will surpass $350 billion over the next 5 years, with

20,000 jobs created (Apple, 2018).

The planned capital expenditures in the United States, investments in American

manufacturing and a tax payment will account for $75 billion of Apple’s contribution (Apple,

2018). Apple is already the largest U.S. taxpayer, and they are anticipating repatriation tax

payments of $38 billion, the largest of its kind (Apple, 2018). In January of 2018, Apple said

they expect to invest over $30 billion in capital expenditures in the United States over the next 5

years, and this will lead to the creation of over 20,000 jobs (Apple, 2018). Apple employs

around 84,000 people in all U.S states, and with this new investment they will hire throughout

existing campuses and also open a new one where they will house technical support or customers

(Apple, 2018). Over $10 billion of Apple’s expanded capital expenditures will be part of

investments in different data centers scattered across the United States (Apple, 2018). Along

with growing operations in the United States, they dedicated to investing in Apple’s domestic

suppliers and manufacturing partners. During the time of this announcement, Apple increased

the side of the Advanced Manufacturing Fund by $4 billion dollars (Apple, 2018). The

Advanced Manufacturing Fund was created to help support innovation among different

American manufacturers, and to help others establish their presence within the United States

(Apple, 2018). Along with the investment initiatives already mentioned, Apple also plans to

increase their efforts among the United States in support of coding education and programs that

are Science, Engineering, Technology, and Art and Math related (Apple, 2018).

Another major capital budgeting decision Apple made was expanding their research and

development budget. Apple is investing money into their R&D in attempt to improve the

products that do not generate a lot of revenue but have the potential to in the future (Business

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Insider Intelligence, 2017). In Q4 of 2016, Apple spent $2.8 billion on R&D which brought

them to $10.5 total for the year (Business Insider Intelligence, 2017). There are three main

reasons that Apple expanded their budget: their growing product range, their expanding services

segment, and their bigger focus on in-house technology development (Business Insider

Intelligence, 2017). Investing in their R&D budget is a smart and massive investment decision

as it will give opportunities to earn more profit from their products that they sell.

Financial data is heavily used to make different investment decisions. Financial data is a

way to track financial transactions and report on company records and financial data from daily

business operations. Financial data helps provide investors an analysis and insight to the

company, it helps creditors assess the trustworthiness of the business, and helps managerial

accounting make decisions about where to allocate resources.

4. Investment recommendation

Based on the analysis about Apple, I think an investor would make a smart decision by

investing in Apple. Apple is a healthy and successful company that continues to grow and push

new initiatives. This company has shown substantial growth in multiple aspects, and proves they

are a trustworthy and healthy company dedicated to growing. Based on the financial data

presented, Apple proves that they are a company that should be invested in.

References

Apple. (2018, January 17). Apple accelerates US investment and job creation. Retrieved from

https://www.apple.com/newsroom/2018/01/apple-accelerates-us-investment-and-job-

creation

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Business Insider Intelligence. (2017, February 17). Apple’s CFO explains the company’s $10

billion R&D budget. Business Insider. Retrieved from https://businessinsider.com/apples-

cfo-explains-the-companys-10-billion-rd-budget-2017-2