Apple Inc. Assessment - Case Study Example

Apple Inc. Name: Institution: Date: Introduction There are many companies which have managed to reach great success in the industry that they operate in. These companies make use of tactics which the management comes up with in order to ensure that the objectives are met fully and profits are made in the process. Some of the major companies that we can use as examples are companies like the Coca Cola Company, Toyota Company, and Apple Inc. among others. These tactics help guide the personnel in the right direction in terms of finances and customer satisfaction. We shall take a deeper look at Apple Inc. and try and see the types of tactics they use and the progress they have made over the years. Apple Inc. deals with designing and manufacturing gadgets like the mobile phone, media devices, personal computers and portable digital music players. It also deals in production of software’s that are used in the Gadgets it produces together with offering networking solutions and third party digital content and applications. The company’s brands include the IPad, Mac, IPhone, IPod and the Apple TV. The company has also gone ahead to produce some programs like the iOS and the OSX which are operating systems that go hand in hand with their products. Apple became incorporated in the year 1977 after being founded by Steven Paul Jobs with the help of some other friends of his in the year 1976 with its headquarters in California[App14]. Among Apples many products the iPhone is a product that has been sold very much. The iPhone is a device that combines a communication device, a portable music device an internet communication device all in the same gadget. It is very popular and it is among Apple Company’s best product. The company has branches in over 150 countries worldwide where its products are sold and others are serviced. Therefore the company is huge and this is mainly due to the tactics that it has employed over the years in order to market their products and ensure that they are satisfactory to the customers. The Apple Company in a nutshell is an electronics and software producing company[App151]. The strategy that a firm uses is a direct reflection of the kind of leaders it has under the leadership of Steven Jobs Apple’s strategy was the use of elegantly simple designs for its products. However since Cook took over from Jobs he has come with his own strategy to ensure that the company continues to dominate the market. The strategy that Mr. Cook has put forward has three elements that make it up. The first element is to try and leverage moment with scale. The second element is to expand the walled garden geography and IOS foundation and finally to invest in new directions which means investing in new product platforms and innovations[App152]. The first element simply means that Apple will try to meet demands for hundreds of millions of annual units which are ordered in the market flawlessly through its supply chain. These is because if the products should lac even a single component then its quality would not be satisfactory there Apple will try to meet this demands fully with quality products. The second element means that the Apple Company will try to ensure that its products are firmly founded and are dominating the market. They have tried to establish roots in China and other developing countries as a strategy to ensure that they cover every area with their products hence expand the use of the products they manufacture. Thirdly on the elements for their strategy is the investment on other innovations. Currently there has been speculation on the new product that Apple is working on which is the Apple TV. Apparently the Television is going to be next generation and therefore many people are eager to experience this new Apple product. As it is evident Apple has decided to fund some new innovations like the Apple television and this increase the market and it will ensure that the company is diverse in the products it manufacture increases customer loyalty[Mar15]. Apples financial earnings for its third fiscal quarter of 2015 which run from the end of March until June were recorded as follows; a revenue of 49.6 billion and a profit of 10.7 billion. This was an improvement from the quarterly in the year passed. Apples revenue went up 59 percent from the last year this shows that Apple has been making remarkable sales in the products it produces. Therefore financially Apple is stable since the sales are increasing and therefore their earnings are increasing too. Return on equity tells the company stakeholders how effectively their money is being utilized or even reinvested. It is very important especially when analyzing the company’s profitability or how effective the management is. On the other hand the return on equity ratio also shows how effectively a company utilizes investments to generate income. It is generated by dividing the net income by the total equity then multiplying by a hundred. Based on the latest financial records Apple company has 41.15% return on equity which is 891.57% greater than of the consumer goods sector[andCost]. Due to the fact that the Apple Company makes a huge net income and it has a low equity then the return on equity is big which means that the company can be able to give dividends to the shareholders. As the company make more and more sales the return on equity becomes bigger therefore people become more interested in purchasing the shares and hence the due to high demand the price of shares rises higher and higher. In generalthe pple company gets revenue from many countries not just the US therefore the changes in exchange rates mostly in the stengthenning of the US dollar has a negative effect on the companies net sales and gross margins as expressed in the US currency. There is also a risk in that the company may have to adjust local currency product pricing as a result of the competitive pressures where there has been a significant volatility in the foreign exchange rates. . The strategies that Apple Company has used have made their product launches to be very successful in the first place. Which is very important in order to promote the product so that it can have a wider market. The strategies have enabled Apple to capture high margins with early adopters and drive penetration into the more price conscious client at later date. The strategies have also helped Apple as an electronic and Communications Company to stay ahead of its competitors due to their consistent innovations. This strategies have also enabled Apple to direct product development to the satisfaction of its consumers therefore ensuring that they have a wider market for their products and increased customer loyalty. Apples strategic direction can be explained as one where the company is focused in keeping its eyes on the future. This helps them as they tirelessly work to come up with even more sophisticated products that wow their clients and they end up dominating the market with their products. Listening to their customers is also among Apples strong strategies that they cherish this enables them to understand the consumer’s tastes and preferences hence they modify their products to fit what their consumers want. The company has also held on strongly to the tactic of pricing their products to customer segments which often helps them generate more income and capture a wider market. Their biggest strategy however would be the strategy on new innovations in technology where they seek to come up with next generation gadgets which keeps them ahead of their competitors. Apple mission statements states that Apple Inc. leads the world of technology with the best products in the business. It also says that Apple has led the world into a whole new music experience through the iTunes. It pushes its researchers to come up with new improve products so that it can always be ahead of its competitors. Therefore its main objective is to be the best in the field and to make new innovations that are going to surprise its consumers. This are aligned with Apples strategic direction since their strategies only push them to be better[App15]. Apples highly liquid investments with maturities of around three month are classified as cash equivalents. The management determines the classification of investments when they are purchased and reevaluates the balance sheet dates that each one has been recorded. Apple Inc. divides its marketable debt securities as either short term or long term based on the maturity date. The company also takes into account its derivative instruments as either assets or liabilities and carries them at a fair value. Apple has also classified its marketable equity securities as either short term or long term based on the nature of the security and whether or not it is available to be used in the company’s operations[Ift13]. The allowance for doubtful accounts are recorded after an assessment has been carried out on different factors. Using the first in, first out method the inventories are stated at the lower of cost. The property and plant equipment are stated under cost. It is safe to say that the team of employees in Apple are very dedicated to ensure that they achieve their goals. The balance sheets are also prepared with utmost care and every item that consists as Apple property is taken into account. The shops that are located worldwide are also taken into account and the money they generate together with the securities and the assets are all noted on the master balance sheet[Arn07]. Operating Activities Fiscal year is October-September. All values USD millions. 2010 2011 2012 2013 2014 5-year trend Net Income before Extraordinaries 14.01B 25.92B 41.73B 37.04B 39.51B Net Income Growth - 84.99% 60.99% -11.25% 6.68% Depreciation, Depletion & Amortization 1.03B 1.81B 3.28B 6.76B 7.95B Depreciation and Depletion - - 2.6B 5.8B 6.85B Amortization of Intangible Assets - - 677M 960M 1.1B Deferred Taxes & Investment Tax Credit 1.44B 2.87B 4.41B 1.14B 2.35B Deferred Taxes 1.44B 2.87B 4.41B 1.14B 2.35B Investment Tax Credit - - - - - Other Funds 903M 1.17B 1.74B 2.25B 2.86B Funds from Operations 17.38B 31.77B 51.16B 47.19B 52.67B Extraordinaries - - - - - Changes in Working Capital 1.21B 5.76B (299M) 6.48B 7.05B Receivables (4.86B) (1.79B) (6.97B) (1.95B) (6.45B) Accounts Payable 6.31B 2.52B 4.47B 2.34B 5.94B Other Assets/Liabilities 361M 4.76B 2.21B 7.06B 7.64B Net Operating Cash Flow 18.6B 37.53B 50.86B 53.67B The strategic steps that Apple has played an important role in ensuring that Apple as a company has grown to be a worldwide company over time. Due to the strategies that Apple has employed it announced on 21st of July 2015 on its third quarter that it had made a revenue of 49.6 billion with a profit of 10.7 billion. The iPhone revenue had gone up by 59 percent and the there was also strong sales of the Mac and other services and software’s from the App store. Due to the strategies that Apple has used its revenue in the first quarter of the year went up in the third quarter of the financial year by 33 percent and the earnings per share went up also by 45 percent. The company was able to generate a strong operating cash flow of 15 billion and returned 13 billion to its shareholders. This shows that the strategies are strengthening Apple’s finances and revenue it gets[App13]. FINANCIAL RATIOS Company Industry Valuation Ratios P/E Ratio (TTM) 13.10 15.30 P/E High – past 5 years 19.50 385.40 P/E Low - past 5 years 8.00 9.50 Beta 0.92 0.31 Price to Sales (TTM) 2.88 2.38 Price to Book (MRQ) 5.14 4.54 Price to Tangible Book (MRQ) 5.53 5.30 Price to Cash Flow (TTM) 10.60 10.70 Price to Free Cash Flow (TTM) 11.80 12.00 Dividends ratios Dividend Yield (%) 1.80 2.50 Dividend Yield - 5 Year (%) N.A. 1.10 Dividend 5 Year Growth Rate (%) N.A. 53.81 Payout Ratio (TTM) 22.00 25.00 Sales (MRQ) 1 Year Ago (%) 32.50 16.30 Sales (TTM) vs TTM 1 Year Ago (%) 7.00 6.40 Growth Rates (percentage) Sales - 5 Year Growth Rate percentage 25.80 -3.16 EPS (MRQ) 1 Year Ago percentage 37.80 40.70 EPS (TTM) vs TTM 1 Year Ago percentage 37.80 40.70 EPS - 5 Year Growth Rate (%) 26.89 N.A. Capital Spending - 5 Year Growth Rate percentage 58.16 2.76 Financial Strength ratio Quick Ratio (MRQ) 0.80 0.80 Current Ratio (MRQ) 1.10 1.00 LT Debt to Equity (MRQ) 0.38 0.36 Total Debt to Equity (MRQ) 0.43 0.43 Interest Coverage (TTM) 114.00 52.20 Profitability Ratios (percentage) Gross Margin (TTM) 44.20 42.90 Gross Margin - in 5 years 43.00 39.10 EBITD Margin (TTM) 34.70 29.90 EBITD - in 5 years 31.37 0.00 Pre-Tax Margin (TTM) 30.70 22.40 Pre-Tax Margin - in 5 years 31.00 15.40 Management Effectiveness (percentage) Net Profit Margin (TTM) 22.60 16.34 Net Profit Margin - in 5 years 23.10 10.40 Return on Assets (TTM) 18.60 11.30 Return on Assets - in 5 years 19.60 7.40 Return on Investment (TTM) 29.30 22.90 Return on Investment – in 5 years 30.20 16.80 Efficiency ratios Revenue/Employee (TTM) 2,312,752.00 1,087,507.00 Net Income/Employee (TTM) 523,062.00 177,686.00 Receivable Turnover (TTM) 12.20 9.30 Inventory Turnover (TTM) 68.80 16.30 Asset Turnover (TTM) 0.90 0.70 The ratios show that over time the company has increased in the amount of revenue it has been acquiring and therefore this explains the changes in the financial ratios that are evident. Some of the financial strengths of Apple Inc. include the music store which brings in a good amount of revenue together with the iPod. Apple’s market which helps the company with some of the insulation from the price competition. Another financial strength is the good customer loyalty that Apple has from its clients which keeps the sales boosted whenever a new product is introduced in the market. The use of web technology helps the Apple Company to keep the clients informed about the new products and other modifications hence the sales are boosted due to this. Apples cash balance has built up to point where there was need to run it flexibly in order to take advantage of the strategic opportunities. Studying the BU7753 module enables one to be conversant with the financial information pertaining to how balance sheets are prepared, how cash flows can be prepared how to record items in the books of accounts and analyze them. It also helps the learner to be conversant with financial ratios and what they are for. In the process of taking this course one is able to understand how to analyze the financial ratios and use them to determine the trend of a business as well as analyze the progress of the business. In a nutshell this course enables one to be ready and able to analyze a business financially. This course therefore helps the learner to learn the process of identifying, analyzing and interpreting information for the pursuit of a firms goals not to mention communicating that information. Therefore it prepares one to be a good managerial accountant[Pro06]. References App14: , (Apple Digest, 2014), App151: , (Apple Inc, 2015), App152: , (Apple Inc. Company profile, 2015), Mar15: , (Market watch, 2015), andCost: , (Drury, 2007), App15: , (Apple Inc, 2015), Ift13: , (Iftikhar, 2013), Arn07: , (Arnold, 2007), App13: , (Apple Inc, 2013), Pro06: , (Proctor, 2006), Read More