Apple Company Financial Analysis - Example

APPLE COMPANY ANALYSIS By Name: Tutor Course: Institution: Location: Date: APPLE COMPANY ANALYSIS Part A Current Economic Situation of the Apple Company Most recently, Apple announced its financial results of the fiscal third quarter of 2015 (Kane, 2014, p. 4). The company calculated and released the amount paid as revenue and the net profit from the sales of its goods and services in various parts of the world such as America, Europe, China, Japan and the Asian pacific (Cadle, 2014, p.12). According to the quarterly reports, the revenue payments of the company in this year, 2015 were of about $49.6billion with profit placed at $10.67billion (Burns and Bohall, 2005). When the values of this quarter undergo comparison to the previous quarter, where revenue was at $37.4Billion and net profit at $7.7billion, it is conclusive and evident that there has been a major improvement in the economic aspects of the company in reference to the sale of goods and services. The reports generally showed that International sales were the greatest contributors to the boost of profit and the acquisition of the high net profits and revenue interests by accounting for 64 percent of the quarter’s revenue (Linzmayer, 2004, p. 15). The third quarter in particular is said to having been fueled by the great sales of products such as the iPhone and the Mac. This was also supported by the launch of the Apple watch, which showed diversity and progression leading to the attraction of another wave of customer interests and customer base (Linzmayer, 2004, p.12). Apple’s current CEO Tim Cook took the initiative to acknowledge that indeed the strong sales were facilitated particularly by the sale of Mac and the great services of the Apple App store and watch. In addition to this, the Company’s CFO explained that the report of the third quarter of 2015 is a sign of Apple’s continued financial and economic growth (Kane, 2014, p. 7). This was in reference to the year after year improvement especially in terms of revenue and profits and their improved abilities to repay all the shareholders through a capital return plan (Johnson & Johnson, 2012). For the fourth quarter, the company has issued reports that promise that there will be even greater improvement within a certain threshold decided about by the company’s management (Cadle, 2014). First, on the bases of revenue collection, the company promises growth from the $49 billion collected to $51 billion. Within the short time, there are other overall analyses that the company makes such as the possible increase in operating expenses from $5.85 billion and $5.95 billion (Vogelstein, 2013). Similarly, the company is certain that the gross margins will improve between the percentages of 38.5 percent and 39.5 percent. The tax rate is also set to go higher by about 26.3 percent with other average income and expenses differences of close to $400million. Documents showing the Apple’s Statement of operations as of the month of July Diagram 1 Showing the revenue collected in the Third Quarter of 2015 Source: https://www.apple.com/pr/library/2015/07/21Apple-Reports-Record-Third-Quarter-Results.html Diagram two showing the statement operations of the third quarter of 2015, Source: https://www.apple.com/pr/library/2015/07/21Apple-Reports-Record-Third-Quarter-Results.htlml Impact on the General Investment Strategy Achieving the top position in one of the most competitive industries has led to Apple developing sensitivity on matters that affect the company’s general investment strategy (Johnson & Johnson, 2012). To begin with, the company is always quick to establish its estimated revenue, the gross margin, the rate of tax payable, the income and the expenses such as the operating expenses (Linzmayer, 2004, p.44). This therefore means that the company takes measures to ensure that in all areas of the market, the risks and uncertainties are weighed. Diagram three showing the Consolidated Balance sheet of the Third Quarter of 2015. Source: https://www.apple.com/pr/library/2015/07/21Apple-Reports-Record-Third-Quarter-Results.html The list of risk and uncertainties that the company is concentrating on are endless but they are all for the overall benefit of the company and its operations (Burns and Bohall, 2005). They include matters that enhance the competitive advantage such as, limiting the effects of the competitiveness of other companies by identifying ways to react to the facilitating factors. The company also needs to look at the continued pressure of new inventions and tactics and find ways to deliver as well as stimulate customer interest on new and improved products (Cadle, 2014). In addition, the company needs to keep up with all technological innovations and learn to adapt to constant change and transition to avoid being left out by the competitors (United States, 2008). Likewise, the company can look at ways to introduce personal transitions and trends that enable the change in product pricing and company growth. All these are the strategies adopted that deal with the competitors and the overall safeguard of the investment of the company (Johnson & Johnson, 2012). Likewise, the company can look at ways to introduce personal transitions and trends that enable the change in product pricing and company growth. All these are the strategies adopted that deal with the competitors and the overall safeguard of the investment of the company. Diagram 4 Showing the Statement of Cash flows of the third Quarter of 2015. Source: https://www.apple.com/pr/library/2015/07/21Apple-Reports-Record-Third-Quarter-Results.html The company has an important responsibility of maintaining the stability and the advancement of the business (United States, 2008, p 22). This is such that, the business is able to carry on with its everyday operations and cut on expenses and possible losses. The first issue that is evaluated is the company’s gross margin, the risk of the inventory that is associated with the company and its need to pre commit in the production or ordering of products. The company also needs to ensure that its services and products are available such that the components essential for the continuity of the company obtained from limited sources are in check. In the same context, to protect the investment of the company, it is crucial that the management is aware of the third party agreements, directives or dependency especially in relation to manufacturing and logistics (Burns and Bohall, 2005). This is by evaluating all, the services that are rendered, the risks in encouraging the international operations such as the possibility of war and terrorism outbreaks, the reliance on advice based on intellectual property and digital contents (Cadle, 2014). The other issue that may arise from this kind of relationship is the probability that the company may infringe on intellectual property resulting in unfavorable lawsuits (Mcdowell, 2011, p17). Other problems may be related to the possibility of disruptions of the supply, demand and delivery channels that may affect the productivity of the company in general. Overall, it is crucial that apple takes such steps towards development and improvement of their services and that preparation should always be considered vital even in other matters such as natural disasters and public health issues. Current or Potential Economic Affecting the Capital and Money Markets Currently, Apple may be facing two major economic challenges that may lead to the reduction in revenues and a possibility of an economic slowdown in this year. One of them is that the Apple company in China is largely known as the producers of some of the largest knock offs in the industry. This industry has been growing in terms of customer base and affordability of products such that it has lost authenticity appeal of about 32 percent reducing the credibility of Apple (Mcdowell, 2011, p23). On the other hand, people are more interested in purchasing the knock offs and it causes strain to the legitimacy of the industry such that it may eventually affect the overall capital and Money Markets. Similarly, there are reports that are currently indicating that China is facing a great drop in the Chinese stock Markets. Some of the prestigious companies in China are undergoing the aftermath of the drop such that their average trading is below the expected mark. The growing concerns are that the slowdown that has affected China is likely to shake many other world markets around the world. This big sell off in Chinese stocks may be responsible for the trend that is continuing to grow and create greater suspicion. Considering the fact that China is one of the biggest markets of Apple products, this is a very worrying factor. Part B Swot Analysis of the Company SWOT is an acronym that analyzes the business and market status of a company. It represents the strengths, weaknesses, opportunities and threats of a company. Strengths refer to the characteristics or the team that make the business more advantageous over others. Conversely, weaknesses are the limitations that affect these characteristics and team aspects making them relatively lower than the competitors (Mcdowell, 2011, p18).Opportunities however refer to the many chances that the company can take or use to improve its overall performance within the internal or external environment of the company. The threats on the other hand are the external and internal factors that could bring out problems for the business and its operations. Strengths First, Apple is at the forefront in the production of a wide range of products and services. These products for instance include the iPhone, The Mac, the iPad and uniquely distinctive operating systems such as i0S and the OSX operating systems among others (Kane, 2014, p. 10). Repeatedly, these products have been ranked above many of their kind and have often been great contributors to the company’s source of revenue (United States, 2008, p.13). Secondly, the brand image of the company is globally recognized and considered greatly valuable. The recognition of the brand would however not be possible were it not for the loyalty of the customers and the attraction of new sales and customer bases (McLaine, 2015, p. 26). This therefore creates a strong competitive base that places it at an advantage over other products and companies in this market. The financial strength of the company is also another remarkable aspect of the company meaning that the company is able to expand and stand on its feet in all seasons. Financial backup comes from the outstanding amount in revenues that the company makes and the net income alone from the sales (Burns and Bohall, 2005). With this strength therefore, there are sufficient possibilities of carrying out further research and developing new designs and strategies that give the commodities distinctive innovation. Lastly, the sophistication in the chain of operation of Apple is yet another improved infrastructure that ensured the company is at its best at all times. According to research carried out by Gartner, the operations of this company have been the best especially for the past four years. This is because with such great sophistication, the company is able to create long lasting and stable global operations and connections that well coordinated. Weaknesses The pricing in apple commodities and services is often higher than the competitors are. For instance, one of the latest phones, a 6GB iPhone 6, costs $649 and it gets costlier when combined with the 64GB handset that costs $749 among others. If compared with some of their direct competitors such as Samsung, the phone and the combination with the handset often cost about $280 less than Apple. This therefore makes the apple products not conducive or available people of lower financial statuses. The issue of incompatibility of Apple products to others in the industry significantly makes the product less attractive because most people favour convenience. This therefore means there is a whole group of consumers that the products and services of the company cannot reach. The sophistication of Apple products may also be a shortfall such that it becomes difficult to produce a wide range of products especially if one is expecting uniqueness. Other companies are less rigid and for this reason, there are wide arrays of options to choose from and to explore (McLaine, 2015, p. 18). This concept affects the next point that is that Apple products are not able to improve the quality or standards of their new versions and products perhaps because they usually have already outdone themselves in the beginning. This also contributes in the competitive disadvantage to its counterparts. Opportunities Many opportunities are available to support the growth and expansion of this company. Due to company’s stable source of revenue and high recognition in the market, several steps that the company can take to improve the competitive advantage. Firstly, there is the deeper participation in the research and development to diversify the goods further and discover products manufacturability. This is possible through the formation of partnerships and carrying out productive interviews from the consumer base (Cadle, 2014). The reduction of prices out of profit margins such that the products are no longer as costly and are affordable to the classes of consumers cut out could boost the market much further (Vogelstein, 2013). Similarly, product diversification is crucial especially in creating new interesting products and services that keeps the product talked about and improved economy wise. Threats The most devastating shortcoming that placed other companies slightly ahead of Apple on the other hand, is the death of Steve Jobs, the founder of apple and the source of great inspiration to the company (Burns and Bohall, 2005). His innovativeness and creativity is what held the company at the top position for so long and therefore, this pushed the company a few steps back. On the other hand, the competition exerted by countries that produce goods of low quality and much lower credibility from countries such as China and India disable the progress of this company to some extent (McLaine, 2015, p. 29). This is because many people that prefer easy ways outs support such operations and the easy access to fake versions of apple itself shows the extent of such damage. Lastly, the Apple Company was not very long ago accused of infringement of Intellectual property rights of the Samsung Company. This was not a good media presence for the company and it may have set the company a few steps back due to the damaged reputation among other things. Part C Forecast of Apple’s Next Year Share Price The forecast of Apple’s next year shares are most likely to get a big boost especially after the long periods of poor company shares. This is precisely so due to the new iPhone that has sent the market to a craze with a series of reorders beating the previous one by close to 10millions in sales. The market close was on 15th September 2015 and by that time the stock was $116.28 per share. This kind of remarkable improvement shows that this is likely to improve further and therefore Apple is purposely delaying the release of a new operating system and the Apple watch (Vogelstein, 2013). This year alone, thanks to the overwhelming orders by China, this is still the second largest Apple market despite the concerns that the economy was deteriorating. However, it turns out that the communication was misguided and that the assumptions were premature. In addition to this, Apple is further attempting to create an understanding between its devices such that the iPhone users can have the privileges of using the Mac books and the iPad (Burns and Bohall, 2005). This saves on the probability of there being devices that are likely to synchronize which shows that there is no need to change from the iPhone to any other devices that may incur further costs. With this therefore, it is certain that any other company that desires to compete with this brand should be ready put up an outstanding fight. As further proof that Apple is indeed superior, it is noticeable that contrarily to the competitors such as Samsung and Motorola, the market share for this company rose significantly. Apple’s market share changed from 12.2% from 14.6% while Samsung’s went down from 26.2% to 21.9% as indicated in the Gartner Research. Apple’s iPhone, on the other hand, seem to get so much attention and the sales are driven by people leaving behind their previous choices and relying on the new upgrades. Approximately, there are signs that indicate that about 14.9M US customers will be eligible for upgrades by the time the next iPhone is launched. This will be as an additional 5.3 Million in customers compared to the year of 2014. Recommendation on whether the share to be a BUY, SELL or Hold proposition The above information shows that the share situation is more likely to be the buy and sell proposition because when the shares go up, most of the people interested due to the tax advantage that it brings (Burns and Bohall, 2005). On the other hand, shares are risky endeavours and considering the fact that the shares related to Apple have been failing, it is important that once this change is effective, people can sell their shares to avoid going through a loss to hold the same position by taking the risk that eventually, the shares will be advantageous. Conclusion Finally yet importantly, it is evident that this report has emulated certain aspects that relate to Apple and the revolution it has brought to technology. Starting from the innovation by mackintosh to what this company had become today the leading company in the production of all the futuristic technologies such as the Mac books, the iPad, the iPod and the Apple Watch among many other things (Vogelstein, 2013). This report has shown that the company has continued growth and advancement and this is due to the mastery of its SWOT aspects and the risk management affairs keeping it alert, protected and well informed (Vogelstein, 2013). 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Vogelstein, F, 2013, Dogfight: how Apple and Google went to war and started a revolution. Read More