Apple Inc Working Capital - Case Study Example

Apple Inc. Working Capital By: Student’s Name Institution Affiliation City: Date: Apple Inc. Working Capital Introduction Working capital remains an important factor in the performance of any firm. Working indicates the ability of the firm to be in a position of handling the short-term obligations. Short term obligations include those liabilities that should be paid instant or other obligations of running the firm daily operations. When working capital of any firm is affected negatively then it is possible that most of the activities of the firm will stop. It is the working capital that will ensure the activities of the firm are running as expected. Also, at the event that firm obligations are not fulfilled, then it will affect the credibility of the firm. Negative working capital will see the firm to have negative credit records and have battles related to unfulfilled obligations. It is expected that the current assets always should be of value that they will be able to settle the current liabilities. Current liabilities is the immediate obligation that the firm should undertake without failure. They should always be serviced before any other obligation comes. In a scenario where company assets are less that the current liabilities, there is likelihood of using other methods to settle short term credit. However, if they do not manage to payback the creditors, it turns out to a worst case of bankruptcy of the organization (Beaney & Shaun, 2005, pg. 01). Change in working capital is usually reported in the cash flow statement. The cash flow statement is used since the net income can be totally different from the operating cash flow. There are various analysis that can be done in a company to indicate whether the current working capital can be able to meet the needs of the organization. Some of the liquidity ratios are the ones that are used to indicate whether the organization is moving towards the right direction. When they show negative trend, it is important for the organization to change. In this paper we are going to discuss the working capital of Apple. Different factors and different trends of the working are to be discussed to gain different inside information about working capital in any organization (Beaney & Shaun, 2005, pg. 01). Apple’s working capital In the period of 5 years between the year 2007 and that of 2011 the working capital of Apple has been in constant rise. The company has tried to constantly to ensure that the maintained working capital ratio is magnificent and desirable to ensure that its obligations are met. Through the working capital we can be able to know the operational efficiency of Apple. Due to the fact that, the company has been able to maintain a top and desirable working capital. This has made apple to be one of the top companies desirable for investment (Jimmy, 2016, pg.1). The major goal of Apple Inc. working capital management department is to ensure that all its operations continue without any problem. The department has ensured that the existing working capital will be able to assure continuity of the operations and also be at a position of settling the maturing short term debts and also those expenses that may arise out of the upcoming operations. The management has been able to realize that the usage of the net working capital is vital for the company as a measure of it liquidity. In the world, Apple Inc. is one of the few companies that have been able to operate with no absolute debt. However, most of those investors who have invested in Apple Inc. have worries whether the institution will be able to maintain its statues of efficiency and proficiency if it can pay out its investors. But according to the status the company it is currently there is no need for the investors to worry as the management has done a brilliant job to invest it funds back to the economy and the market. The working capital trend can be shown by the table below that indicates the changes in the working capital since the year 2007 to the 2016 (Jimmy, 2016, pg.1). The change has been positive such that the company remains to be stable in the fulfillment of its obligations. The trend has made able to be one of the reputable institutions in the world as it can be able to fulfill its obligations on time without any problem. Apple Annual Data on change in working capital. Sep07 Sep08 Sep09 Sep10 Sep11 Sep12 Sep13 Sep14 Sep15 Sep16 Change in Working Capital 1,325 2,045 -586 1,236 5,757 -299 6,478 7,047 11,647 484 According to the analysis the current ratio indicate that Apple is able to meet all the short term obligations. The ratio is calculated by dividing Total Current Assets of the company with the Total Current Liabilities. By undertaking all these the current ratio of Apple Inc. is estimated to 1.35 as per the year that ended September 2016. For the last 13 years, the company has recorded the highest current ratio as 3.39 while the lowest has been recorded as 1.08. The median has been found to be 2.40. The current ratio is an indication that Apple has financial strength that is good to service its short term obligations. The table below indicates the current ratios that Apple has recorded since the year 2007 (Jimmy, 2016, pg.1). Apple Annual Data on Current ratios Sep07 Sep08 Sep09 Sep10 Sep11 Sep12 Sep13 Sep14 Sep15 Sep16 Current ratio 2.36 2.64 2.74 2.01 1.61 1.50 1.68 1.08 1.11 1.35 In any organization it is important that analysis of the current ratios to take as they are important in indicating the financial health within the organization. They indicate the level of efficiency that the firm will operate in and its ability to convert its product into cash in its operational cycle. In the case where the company have problems related to fulfillment of alleviated in regard to payment of their receivables or turn into long inventory turnover. This is because there are different business operations in in different industries. However to ensure that Apple is doing well in regard to current ratios, it is best that the company comparison is done with companies in the same industry. This is so because the current ratios are usually acceptable differently from industry to industry differing generally between the current ratios of 1 to 3 to ensure healthy of a business. When the current ratio is higher, the company is said to be more capable of fulfilling its obligation. When the current ratio is below 1 it is an indication that the company financial health is not good and it may fail to fulfill its obligations at a point. Whereas this may be an indication of poor financial health within the organization, it is not automatic that the company will run bankrupt as there are many financial assessment that must be done to determine bankruptcy. However, this ratio does not indicate a good financial health status within the organization. If the scenario of having an equal current assets and liabilities, then the creditors will consider a ratio that I higher compared to the low one. Creditors who are expecting to receive their payments in the 12 months’ time they will always consider high ratios as the company will likely pay them because it will be at a position of meeting their liabilities then (Myers & stewart, 1974 pg. 10). The internal working capital control processes and procedures To ensure that the company maintains a proper amount of working capital then several controls will be undertaken. Some of the controls are there to ensure that operational activities are kept minimal as possible so that unnecessary costs. To ensure this it requires the management to look into different operational processes that can be avoided. Also, it is necessary to avoid duplications of functions so that double payments can be avoided in the long run. Another area where the control can apply is ensuring that productivity to any allocation is done in the right manner that will ensure that different understandings are able to meet the required costs and give a return that will sustain the processes in the future (Beaney & Shaun, 2005, pg. 3). When coming to the working capital procedures different methods that are considered when investing working capital are considered in this area. It is in this are different capitals sources of working and types of working capital are described. The proper methods of investing inventory, accounts receivables and accounts payables are properly considered. It is at this point that the working capital procedures meant to ensure that the minimum working capital is used while meeting the all the operational needs. The minimization of the operational cost and working capital applies across all departments. This ranges from the operations, accounting, finance, and sales department. Apple Inc. also has been able to take seriously and it tries hard to ensure that its working capital needs are kept down as possible. However, while trying to ensure that working capital is kept as low as possible the management ensure that no operation is disturbed. This is one of the strategies that ensures that Apple has remained at the top of the world in electronic production. The reputation has been achieved through ensuring that all the activities and obligations are done on time (Kieso & Donald, 2007, pg.738). The major goal of Apple Inc. working capital management department is to ensure that all its operations continue without any problem. The department has ensured that the existing working capital will be able to assure continuity of the operations and also be at a position of settling the maturing short term debts and also those expenses that may arise out of the upcoming operations. The management has been able to realize that the usage of the net working capital is vital for the company as a measure of it liquidity. In the world, Apple Inc. is one of the few companies that have been able to operate with no absolute debt. However, most of those investors who have invested in Apple Inc. have worries whether the institution will be able to maintain its statues of efficiency and proficiency if it can pay out its investors. But according to the status the company it is currently there is no need for the investors to worry as the management has done a brilliant job to invest it funds back to the economy and the market (Brealey, 2005, pg. 02). Conclusion Working capital remains an important factor in the performance of any firm. Working indicates the ability of the firm to be in a position of handling the short-term obligations. Short term obligations include those liabilities that should be paid instant or other obligations of running the firm daily operations. When working capital of any firm is affected negatively then it is possible that most of the activities of the firm will stop. It is the working capital that will ensure the activities of the firm are running as expected. Also, at the event that firm obligations are not fulfilled, then it will affect the credibility of the firm. So far Apple Inc. has been able to achieve sufficient working capital level. References Beaney, Shaun, 2005 "Defining corporate finance in the UK", Corporate Finance Faculty, ICAEW. Brealey, Myers, and Allen, 2005. Principles of Corporate Finance, 8th edition (McGraw-Hill/Irwin). Carlos Correia; David K. Flynn; Enrico Uliana; Michael Wormald (15 January 2007). Financial Management. Juta and Company Ltd. pp. 5 Corporate Finance: First Principles, Aswath Damodaran, New York University's Stern School of Business Inevitable Steps. August 18, 2015. "Negative Working Capital: Definition & Examples". Investment Decisions and Capital Budgeting, Prof. Campbell R. Harvey. The Investment Decision of the Corporation, Prof. Don M. Chance. Lawrence J. Gitman; Michael D. Joehnk; George E. Pinches (1985). Managerial finance. Harper & Row Freeload Press, Inc. 1968. Financial Management; Principles and Practice. pp. 265 Gross Working Capital vs Net working Capital G. Bennett Stewart III. 1991. The Quest for Value (HarperCollins) Jimmy Luong‎, 2016. Working Capital APPLE INC. Financial Resources. Jim McMenamin (11 September 2002). Financial Management: An Introduction. Routledge. pp. 23– Kieso, Donald E.; Weygandt, Jerry J. & Warfield, Terry D. (2007). Intermediate Accounting (12th ed.). New York: John Wiley & Sons. p. 738. Prof. Jonathan Lewellen, MIT: Financial Management Notes: Risk Management Myers, Stewart C, 1974. "Interactions of corporate financing and investment decisions—implications for capital budgeting." The Journal of finance 29. 1-25. William Lasher (2010). Practical Financial Management. South-Western College Pub; 6 ed. Working Capital Management, Studyfinance.com. Working Capital Management, treasury.govt.nz Read More