Apple Financial Performance in Relation to IBM and Samsung - Example

A REPORT ON APPLE FINANCIAL PERFORMANCE IN RELATION TO IBM AND SAMSUNG Student’s Name Course Name Date University A. Introduction The focus of this report is on conducting an extensive research into Apple Incorporation in relation to its operations and financial performance. It also conducts a ratio comparison analysis with two other companies within the technology industry: Samsung and IBM. The last section of the report involves interpreting the results attained in the comparison and thereafter, provides a recommendation on its current performance standing. It is important to indicate that all of these companies operate within a global Information technology industry, which basically deals with the production of personal computers and other gadgets like tablets and smartphones. Notwithstanding, these companies enjoy a significant market share in both their local as well as international market platforms, which means that they have continued to incorporate intensive strategies in conducting operations despite the ever-changing external environmental factors. Company Profile/Background Apple Incorporated was founded in 1976 solely as a computer-producing company. However, with time, the company expanded its operational base to include other notable advanced gadgets in the market (Apple Inc, 2014). The firm is engage in the designing, production and marketing of such crucial gadgets as personal computers, portable music players, smartphones and a broad variety of different software, services and accessories, networking solutions as well as third-party digital content and their relative application. Some of the most notable company’s products and services include; iPhone, iPads and the recently launched Apple TV and Watch, an extensive and distinctive portfolio of consumer and professional software-based applications, iOS and OS-X operating systems (Apple Inc, 2014). Significantly, it is directly engaged in the selling and delivering of digital content and other notable applications through such popular platforms as iTunes Store, iBooks Store and Mac App Store. It is crucial to note that the company sells most of product-lines in a worldwide arena through its already established and functional retail stores, online platforms as well as through direct sales force. Some of other notable selling platforms recently adopted include; third-party cellular network carriers, intensive wholesalers networks as well as value-added resellers (Apple Inc, 2014). Another important aspect to note about Apple operations rests with the fact that it sells directly to consumers, small and mid-sized businesses as well as educational-based packages, enterprise and government customers. It operates under a fiscal year that cuts through to 52-53 week period that always end in the last Sunday of each month of September (Apple Inc, 2014). Under its business strategy, Apple is always obligated to ensure that the end user of their every product-line experiences a perfect experience through its existing top notch hardware, software and services (Apple Inc, 2014). The strategy has, for a long period, been able to leverage its distinctive capacity to design and create its own operating systems, hardware, application software as well as other services in an effort to provide its customers with items and solutions that match up with their respective innovativeness and seamless incorporation (Apple Inc, 2014). In essence, given its already established business strategy, Apple Inc continues to widen its operational base for the immediate discovery and thus, the discovery of possible third-party digital solutions and content. Consequently, it has significantly improved its competition strategies by way of allowing third-party software and hardware products as well as other notable digital solutions that fairly integrates and complements its existing product and services portfolio. It operates under the notion that a high-quality purchasing experience with skillful and experienced salesperson that clearly comprehends and can convey the intended value of products, services and solutions provided, will surely improve on its capacity to attract and retain a significant number of customers (Apple Inc, 2014). Thus, Apple Inc’s strategy further involves the development and widening of its own retail and online stores as well as its existing third-party distribution network to distinctively and efficiently attain a significant level of customers and therefore, provide them with a top notch sales and post-sales supportive experience. It therefore goes without saying that Apple Inc is of the immediate strong perception that intensive research and development, marketing and advertising activities is indeed important to the overall growth and development of the provision of innovative products and top notch technologies. Under its business organisation framework, Apple Inc is engaged in the direct management of its fundamental businesses based on a geographical basis (Apple Inc, 2014). Most notably, the operational results of the entire geographical segments are evaluated in regards to such sections as Americas, Europe, and China among others. Each of these segments sales a similar level of products and services to the existing consumer base. In regards to competition, Apple Inc notes that it is now more focused on widening its market platform and opportunities in regards to such important gadgets as personal computers and other media services (Apple Inc, 2014). It operates under the notion that these market segments could be highly competitive in nature due to the fact that it involves fairly-funded and experienced counterparts. B. Apple Inc Review Analysis: Review Literature According to Kristof and Milstead (2015, p.46-47) notes that Apple Inc is the world’s most valuable firm that makes into the list of 10 profitable stocks one can invest. This is despite the fact that Wall Street still remaining adamant and anxious about its future prospects even though the firm continues to experience intensive growth and its immediate capacity to command premium prices for most of smartphones models. While some critics argue that the firm will likely experience redundant growth due to its overconcentration on iPhones that is perceived to be solely driving its sales growth. However, the company has continued to prove its critics wrong by launching some of its prominent products like the smart watch and also, managed to secure a profitable deal to stream HBO programs on its devices and recording high-figure sales revenue for its App Store product (Kristof & Milstead, 2015). The article notes that Apple was able to sale about 74.5 million of its new generation and sixth-generation smartphones in the last three months of the financial year that ended in 2014. Substantively, the firm’s earnings is expected to grow by at least 40 per cent more in the financial year that has ended in September 2015, which is indeed a tremendous growth level for a firm that enjoys a market capitalisation of only $741 billion (Kristof & Milstead, 2015). Currently, the firm is expected to reward its immediate shareholders by way of increasing its dividends levels as well as buying back shares program as the treasury held cash and other short-term investments soaring to $194 billion or rather $33 per each share held. Lashinsky and Burke, (2009, p.62) review of the company indicates that under the founder Steve Jobs managed to set a promising future in relation to its financial stability. For instance, it notes that in the year ending 2000, the firm was only worth $5 billion but after Steve launched a digital lifestyle strategy that was well received by potential customers, it managed to improve the portfolio to the current $170 billion, which position it high and above Google Inc. prior to the adoption of this strategy, its market share of such fundamental products as its Apple PCs continued to deteriorate while the cash drain of the company remained intensively severe. However, currently this has since improved with the company enjoying more than $ 194 billion in just cash and other short-term investments, which has surpassed its immediate competitor Dell. McCorvey (2014, p.23-24) notes that music product is fundamental to Apple’s brand identity but since iTunes has remained redundant over the years, then the move to purchase Beats By Dre would help acclaim coolness to the Cupertino. Since inception of the iTunes Apple Inc has continued to enjoy at least $4billion per each operational year from music downloads, which constitutes a significant portion of the company’s annual revenue sales. Thus, the bid to acquire Beats was a significant move that would in fact revive its prowess within the music industry as a whole (McCorvey, 2014). It is seen to have acquired necessary tools that it needs in order to improve on its brand image especially because it had already introduced more people into a music download culture. The move is set to bring in even more revenues hence assure of its survival into future operations (Bland, 2014). Apple Inc’s performance is set to even attain higher standards of performance as a result of recent inclusion of top notch management personnel. According to Chu (2014, p.52-54), the recent employment of Burberry former CEO Angela Ahrendts assuming the position of the company’s retail chief will trigger an element of open culture that would improve way issues are handled in the executive level. She is expected to shape Apple’s merchandising capacity by way of revitalizing its already huge retail businesses situated across the globe. Under her retail leadership, Apple Inc’s previous $20 billion has increased six times more while the 30,000 staff has also been improved while still ensuring that the company’s products and services remain as a single choice of selection in consumer’s daily undertakings. Lashinsky (2014, 74-75) provides both positive and negative criticism on Apple Inc user experience that is sometimes frustrating especially on the internet platform. The author notes that its online platform is less effective, which has cost its music download stream of income over the years as such companies as Pandora and Spotify have optimized on this gap to attract substantial level of revenues. However, it is argued that the firm’s immediate competitors like Samsung and Microsoft are far much complicated in their operations giving Apple an opportunity to manage its product development in a much easier manner (Lashinsky, 2014). The less complicated products of the company are always purchased with their immediate instruction manual and they have interfaces that depict less clutter in comparison to competition. C. Apple Ration Analysis Profitability The overall profitability level of Apple Inc is positioned high and above its competitors indicating that the company has devised effective and efficient ways of utilizing its existing asset-base and equities to post enough profits. For the five year periods, the profitability of the company improves and in cases where it decreases; the decrease do not fall below the competitors as well as industry averages. A perfect of profitability ration of the company that has shown improvement over competitors is the 5 Year Average Return On Assets, which has increased from 16.7 to 23.15 in the six-year period between 2009 and 2014 respectively in comparison to Samsung’s that increases slightly from 8.7 to 12.2 and IBM from 9.7 to 12.9 within the same period as shown in the Figure 1 chart below. Figure 1 Growth Ratios The company’s growth ratio indicate a favourable growth over the years, which means that the management has put up with effective policies on how to utilise the existing resources to increase in sales growth. There has also been improvement in the rate at which inventories are translated to sales, which means more revenues in the future for Apple as opposed to its competitors. For instance, Apple’s inventory turnover increases from 53.2 to 57.9 in the period between 2009 and 2014 while for Samsung, the ratio decreases from 9.7 to 7.0; while IBM’s increases slightly from 20.01 to 21.02 within the same period as shown in Figure 2 below; Figure 2 Credit Ratio Apple’s credit ratio indicates a favourable growth in comparison to its immediate competitors. For instance, the company’s total debt-to-total equity ratio increases from 0 to 31.64 in the six-year period in comparison to Samsung’s ratio that reduces from 12.86 to 6.7; and IBM whose ratio increases immensely from 114.7 to 339.61 within the same period as shown in Figure 3 below; Figure 3 Liquidity Ratio Apple’s liquidity ratio does not indicate a favourable position at all in comparison to recommended averages as well as some of its competitors. For instance, its current ratio decreases significantly from 2.7 to 1.08 as compared to; Samsung whose ratio increases from 1.5 to 2.2; and IBM whose ratio decreases slightly from 1.3 to 1.2 as shown in Figure 4 below; Working Capital Apple maintains favourable working capital management ratios as compared to its competitors: Samsung and IBM. For instance, the days sales outstanding ratio for the firm increases slightly from 24.5 to 30.4 in the six years while for Samsung the ratio increases from 39.9 to 43.9 as IBM’s increase tremendously from 99.1 to 116.3 within the same period as shown in Figure 5 below; Yield Growth Ratios Apple’s yield ratios are favourable in comparison to its competitors. Figure 5 below shows EPS growth trend amongst the three companies. Du Point Analysis Return on Equity= total asset turnover* financial leverage 2009: 1.0256* 1.5513= 1.5916 2010: 1.0633* 1.5445= 1.6422 2011: 1.1302* 1.5397= 1.7401 2012: 1.0704* 1.501= 1.6481 2013: 0.8923* 1.5845=1.4138 2014: 0.8331* 1.8666=1.5561 Conclusion From the above discussion, it can be seen that Apple operates at over and above its competitors: Samsung and IBM for this case, in regards to profitability, leverage and liquidity. It is therefore, recommended that a potential investor make investment with this firm as opposed to the others since it has positive future in terms of dividends and earnings growth. Management is also recommended to ensure that they devise effective policies meant to trigger a significant balance the amounts employed as owners and debt funds. It is further recommended that they maintain this balance in order to secure favourable credit rating as well as ensure a full control of daily operations. References List Apple Inc 2014. Form 10-K. Retrieved from http://files.shareholder.com/downloads/AAPL/803961068x0x789040/ED3853DA-2E3F-448D-ADB4-34816C375F5D/2014_Form_10_K_As_Filed.PDF Bland, M 2014, 'Finding More Than One Worm in the Apple', Communications of the ACM, 57, 7, pp. 58-64 Chu, J 2014, 'A NEW SEASON AT APPLE. (Cover story)', Fast Company, 182, pp. 52-101 KRISTOF, K, & MILSTEAD, D 2015, '10 GREAT STOCKS from AROUND The WORLD. (Cover story)', Kiplinger's Personal Finance, 69, 8, pp. 46-50. Lashinsky, A, & Burke, D 2009, 'The DECADE of STEVE. (Cover story)', Fortune International (Europe), 160, 9, pp. 60-66. Lashinsky, A 2014, 'Apple's Newest Product: Complexity', Fortune, 169, 8, pp. 73-76 McCorvey, JJ 2014, 'WHY APPLE NEEDS BEATS', Fast Company, 188, pp. 23-26 Read More