Apple Financial Statement Analysis

Financial Accounting – Mex (02225)

Aldo Gabriel Calcáneo Anzaldo

Financial Statement Analysis

Financial Statement Analysis Apple Inc.

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Financial Statement Analysis – Apple Inc.

Section I – Summary Apple Inc. is an American multinational corporation responsible for the design, manufacturing, and marketing of personal computers, mobile devices, portable music players, andtheir related software. Apple Inc. is a major player on different and highly competitive business segments, which includes top companies like Google and Microsoft for software, HP and Dell for personal computers and Motorola, Nokia and Samsung for mobile devices. Section II Since 1998, the release of different products returned Apple Inc. to the road of profitability. The iMac in 1998, the iPod in2001, iTunes in 2003, iPhone, iPod Touch and Apple TV in 2007, and the iPad in 2009 had helped Apple to consistently increase its Sales and Net Income. Apple has been a really good choice for its investors as I analyze on the following chart.
1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00

1.55

1.54

1.54 ROE

1.03 0.31

1.06 0.35

1.13 0.42Profitability Efficiency Leverage

0.19 2009

0.21 2010

0.24 2011

According to the following ratios, Apple has performed really well through the last three years, as it is demonstrated by its Return on Equity, which has increased from 0.31 on 2009 to 0.42 on 2011. This performance is achieved mainly by the increase on Profitability from 0.19 in 2009 to 0.24 in 2011 which is a sign that thecompany is achieving better deals with its suppliers in order to reduce the costs of materials used to produce their products. Performance has been also boosted by a better use of the company assets, which can be reviewed on the improvement on Efficiency from 1.03 in 2009 to 1.13 in 2011. This ratio shows that Apple’s strategy of heavily investing in Retail Stores to provide a better customerexperience has helped to increase sales and also the usage of these investments. Finally, it is clear that Apple´s strategy to finance their investments is to use owners’ capital instead of asking borrowing money. Their leverage is almost the same in the last three years (1.55 in 2009, 1.54 in 2010, and 1.54 in 2011), but, considering the increase on their assets, their level of debt has not increasedconsiderably. After Cost of Sales and SG&A, Research & Development is the most important expense. Apple dedicates an important part of its revenue to this activity (0.02), considerably above of Dell (0.01), the same as HP (0.02), but much less than Google and Microsoft, both with 0.13. This comparison tells us that, in R&D, Apple behaves more like a manufacturing company than like a softwaredevelopment company. Interest is not shown in the Income Statement as a separate charge, so we can assume that it is not an important expense due to Apple’s low leverage as stated in page 36 under Other Income and Expense: “During 2011, 2010 and 2009, the Company had no debt outstanding and accordingly did not incur any related interest expense.” A ratio that has an unusual behavior is the InventoryTurnover, which increased from low 50s in 2009 and 2010 to 70.53 in 2011. Apple has been highly successful in increasing the number of times its inventory is sold during the year, which is also reflected in the increase of net sales. Also the negative Cash Conversion Cycle indicates high liquidity, achieved by increasing the payment period to suppliers and reducing the payment period to itscustomers. This is also confirmed by its Current Ratio, where Apple can pay 1.61 times its next year’s liabilities. Apple’s leverage is lower than companies in the same sector like HP (0.71) and Dell (3.79). This locates it with lower risk of default and more appealing to interested investors due to its solvency. Finally, the most impressive indicator of Apple’s success is how fast it is growing in a...