Finance.

Stock Structure and Risk

Stock Structure and Risk

Stock Structure of Apple Company

The capital structures of Apple Inc. looks at how much of the operations are financed by debt utilization and the percentage that is financed by the equity (Lochard & Schneider, 2011). As at September 2015, the 10-K filling by Apple Inc. indicated that the stockholder’s equity totaled to $119.36 billion. The company also has debt financing in its books totaling up to $171.12 billion.

Elements that comprise the Capital Structure

The main elements that comprise the capital structure of equity are the debt and equity financing. The 10-K fillings in the year 2015 indicated that the company has total equity of $119.36 billion. The common stock at par value was at $27.42 billion, and the retained earnings were at $92.28 billion. The other comprehensive income deducted from retained earnings was at $345 million. Apple Inc. has indicated that the outstanding shares are at 5.579 billion and the convertible securities are at reported 29.72 million shares. The market capitalization of the company as at August 2016 was at $600 billion.

The other component of Apple Inc. capital structure is the debt. It is a representation of the amount that the company owes the creditors. As per September 2016, the company’s 10-K indicated that the current liability was $80.61 billion. Much of the current liabilities were the accrued expenses at $25.18 billion. The long-term debt and non-current liabilities were measured at $90.51 billion. Therefore, the total liability was at $171.124 billion which is an increase of 200% over the past three years. The data above indicate that the company is highly geared since the total debt of $171.124 is more than the total equity of the company which is at $119.30 billion.

History of Company’s Growth

The last stock closed at $158.73, and the trading volume was at 20.5 million. The history of Apple takes one back to the year 1980. If an investor had taken up $990 and invested into the Apple IPO of 1980 at the price of $22, it would have given one 45 shares. The company has had up to four share splits to date. After the fourth split, an investor with the initial 45 shares would end up having 2500 shares in the company (Lochard & Schneider, 2011). The company’s share has grown in value over the past 37 years by 618%, a factor that makes the company’s shares very attractive.

Company’s Stock versus Market

Source: NASDAQ (2017).

The comparison of the stock above has been conducted within the industry. The companies that have been used are Apple’s main rivals in the industry. In terms of performance of the shares, Apple Inc. is the best-priced share in the Industry (Blankenhorn, 2017). The share price is at a high of $158.73 compared to the closest rival in IBM which has its shares priced at $144.39. Apple is the only company in the industry which recorded a positive change in the share price by the last closing day of trade. The rest of the players recorded a drop in the share price, and the biggest drop was recorded by HP Inc.

The Risk Levels and Feeling about the Risk

The fact that the company’s debt is more than the equity means that the company is highly geared, making it a risky enterprise to invest in. The risk arises in the sense that the company will spend much of the income to finance the debts hence cutting on the amount of dividend attributable to equity investors.

The risk of investing in a company’s share is indicated by the beta. The deviation from the expected income is shown by the better figure. The bigger the beta figure, the higher the risk of investing in a firm. Apple Inc. has recorded beta of 1.55 which is the second highest after Dell at 1.66 (NASDAQ, 2017). The risk factor has indicated that Apple Inc. is the second most risky investment in the industry. The stability in the industry is provided by IBM which has the second highest share price and the lowest risk levels with a beta of 0.47. It means that in every dollar of deviation, an investor stands to lose 47 cents in IBM, but at Apple Inc. the investor is likely to lose one dollar and fifty five cents for every deviation from expected value.

References

Blankenhorn, D. (2017). Apple Inc. versus Alphabetic Inc.: Value or Growth. Investor Place.

Lochard, R. G., & Schneider, G. W. (2011). Stock and scion growth relationships and the dwarfing mechanism in apple. Horticultural Reviews, Volume 3, 315-375.

NASDAQ, (2017). Apple Inc. Comparison. Retrieved from http://www.nasdaq.com/symbol/aapl/stock-comparison