Wk 4 Summative Assessment: Financial Market Shareholder Analysis

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Apple Inc. Financial Report

Gbenga Adeogun

University of Phoenix

Carol Sommers

FIN/571

March 28th, 2023

Apple Inc. Financial Report

Financial Reports with the Market Conditions of Apple

The fiscal year for Apple 2022 ran from October 1st to December 31st. The first quarter's revenue of USD 117,154,000,000 was down from last year's revenue of USD 123,945,000,000. (Gala, 2023). This year's net income was USD 29,998 million, down from USD 34,630 million in the prior year. The health and economic crisis caused by the COVID-19 pandemic reverberated throughout the world economy in 2021. The economy, interest rates, and the Federal Reserve's ability to adjust monetary policy were all profoundly affected. To maintain financial market liquidity and economic activity following the 2008 financial crisis, the Federal Reserve of the United States (the Fed) took unprecedented stimulus measures.

The Fed's Response Meant Interest Rates

The Fed's response meant interest rates were at historic lows throughout 2021. The federal funds rate stayed low throughout most of 2021, ranging from 0-0.25%, while 10-year Treasury yields dropped significantly over the year -- from 1% in January to 0.6% by December before slowly recovering towards 1%. This made borrowing much more affordable for companies like Apple Inc., allowing them access to inexpensive capital without taking on too much debt (Donovan & Park, 2022). However, Apple's revenue decreased 5.5% to $117.15 billion in 2022, almost $3 billion less than analysts had predicted through Refinitiv. IPhone sales were down 8.2%, at $65.78 billion -- a decrease of $2.5 billion compared to estimates -- and Mac revenue also fell 29%, totaling $7.74 billion; again, that was around $1.9 billion lower than expected figures given by analysts before the release of these results. These numbers suggest that despite the low-interest rates seen earlier in 2021, they did not affect the company's revenue generated during 2022 due largely in part to a strong U.S. dollar and high-interest rates leading up to the start of 2022 - reducing consumers' purchasing power worldwide for this period.

Moreover, these low borrowing costs enabled Apple Inc.—with its strong cash position—to benefit from lower financing costs during 2021 and reduce its debt servicing expenses compared to pre-pandemic levels when interest rates were higher. This effect can be seen within the company's long-term investment portfolio. Apple's long-term investments came in at $114.095 billion for the quarter that ended on December 31, 2022, representing a decrease of 17.73% year-over-year. The long-term investments made by Apple in 2022 totaled $120.805 billion, which is 5.53% less than in 2021. A gain of 26.75% from 2020, Apple's long-term investments for 2021 were $127.877 billion.

The Fed also implemented large-scale asset purchase programs or 'quantitative easing' (Q.E.) in 2021 to provide additional support to financial markets and encourage further investment into riskier assets such as stocks and corporate bonds due to increased demand created by quantitative easing. This pushed down yields across different maturities of Treasuries securities, leading investors to seek higher returns elsewhere within fixed-income markets, including corporate bonds issued by companies such as Apple Inc. This pushed up stock prices across multiple sectors, including technology, where Apple is listed, resulting in improved valuations for many tech firms, including itself. However, lower revenues were reported primarily because of decreased sales caused by pandemic-related lockdowns/restrictions imposed worldwide over the quarter ending December 31, 2022 (Brenton, Ferrantino, & Maliszewska, 2022). Additionally, Apple increased its profit margin relative to previous quarters thanks to the reduced cost associated with research & development projects undertaken before the Covid 19 outbreak.

Conclusion

Overall, it can be concluded that market conditions seen during 2021 have been favorable for Apple Inc., particularly given their strong balance sheet position going into the pandemic and historically low-interest rates maintained throughout the majority year, enabling the company to acquire capital relatively cheaply. The lowered cost associated with R&D projects allowed the company to improve its margins. In contrast, increased demand created through Q.E. policies improved stock price valuation, although the decrease in overall revenue was reported in the first quarter ending December 31, 2022, compared to last year.

References

Brenton, P., Ferrantino, M. J., & Maliszewska, M. (2022).  Reshaping global value chains in light of covid-19: Implications for trade and poverty reduction in developing countries. World Bank Publications.

Donovan, K. P., & Park, E. (2022). Knowledge/seizure: debt and data in Kenya’s zero balance economy.  Antipode,  54(4), 1063-1085.

Gala, T. (2023). Apple reports first-quarter results. Apple Newsroom. https://www.apple.com/newsroom/2023/02/apple-reports-first-quarter-results/#:~:text=Cupertino%2C%20California%20Apple%20today%20announced