FINC 330

Research Project Part 2

Apple Inc.

Business Finance Group 1

Colin Brogan

Edelmira Hernandez

Elizabeth Fisher

Jessica Butler

Khalia Alexander-Cobbs

Francesca Bodunrin

University of Maryland Global Campus

FINC 330 6982: Business Finance

Professor Bryan Smith

August 3, 2021

Research Project Part 2 - Apple Inc.

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’s bond performance within the last couple of years and see if it is potentially a good investment.

Financial Leverage Ratios

Collection and Evaluation of the Data About Bond Performance of Apple Inc.

Collection and Evaluation of the Data About Stock Performance of Apple Inc. for the Last One Year

In the past three years, the Price-to-Earnings ratio has been relatively high for Apple Inc. However, the ratio started out at 24.7 in 2019 and then increased to 40.45 in 2020, which is an extremely high P/E ratio, but in the past year it dropped to its current ratio of 28.49. Overall these are great numbers for their Price/Earnings ratio but it is not good news for the company that their Price to earnings ratio decreased in the past year. The industry average ranges from 13 to 15 which is significantly lower than Apple’s P/E ratio.

Apple’s Price/Book ratio has been extremely high over the past few years. In 2019 it was 14.23, followed by 34.16, and is currently 37.51. This implies that Apple is considered to be overvalued. Typically any P/B ratio above 3 means that it is overvalued, which can lead to investors of the company losing money. The current industry average for this ratio is 11.2 which is still significantly less than Apple’s P/B ratio.

Over the past 3 years, Apple’s diluted earnings per share has been positive and increasing year to year, which is great news for the company. The current industry average is about 4.85 which is slightly lower that Apple’s current EPS, backing up the fact that Apple is performing well. However, there is still a ton of room for improvement since the EPS can go all the way up to 99.

Apple’s dividends per share has also been positive and increasing over the past three years, however their dividends per share never goes above 1 which is lower than the industry average of 1.5. This implies that the stock market's price is higher than the dividend payments that shareholders get from owning the Apple stock. Therefore, Apple’s low dividends per share indicate that the company is overvalued.

Although Apple, Inc. is mostly performing above industry averages it is still safe to say the company is overvalued. As shown in the statistics above, the Price/Book ratio is considered overvalued when it's above 3 and Apple’s current P/B ratio is 37.51. Another indicator that Apple’s stock is overvalued is the fact that Apple’s dividends per share are lower than the industry average. Given this information above, it is reasonable to believe that common stockholders are not receiving an adequate return on their investment and instead should invest in a company with a lower Price/Book ratio and a higher dividends per share ratio. Furthermore, it is also not a good idea to buy this stock due to the overvaluation of the company.

Market Ratio Analysis

Specific Recommendation, with Supporting Rationale for Apple Inc.’s Management

Reflection

What I learned about this project is how to understand and calculate bond rations to better understand investments. An important ration to know is the price to earnings ratio. This ration helps you evaluate if the bond is overpriced or underpriced. Knowing this information will help you make better investment decisions.

- Edelmira Hernandez

While evaluating the data about the stock performance of Apple, Inc. I learned how to calculate many different ratios in order to learn more about Apple, Inc. This assignment showed me what each ratio(P/

References