BUSINESS FINANCE.

Business Finance

Business Finance

Company Overview

Apple Inc. designs, manufactures, and markets personal computers, portable digital music players, and mobile communication devices. It sells a variety of related software, services, peripherals, and networking solutions. The Company sells its products worldwide through its online stores, retail stores, direct sales force, and third-party wholesalers, and resellers. In addition, the Company sells a variety of third-party Macintosh ("Mac"), iPod and iPhone compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores. The Company sells to education, consumer, creative professional, business, and government customers.

The Company's fiscal year is the 52 or 53-week period that ends on the last Saturday of September. The Cupertino, California based company's U.S. Mac shipments grew 37.2 percent year-over-year - more than twice as fast as any other manufacturer ranked in Gartner's top 5 PC vendors for the three-month period ending September 2007 - helping it snag a spot as the No. 3 U.S. PC vendor overall (Gartner, 2007). Apple's US-based Mac shipments during the quarter totaled 1,338,000, compared just 975,000 during the same time last year. Hewlett-Packard and Toshiba also posted somewhat healthy growth during the quarter of 16.5 percent and 16.3 percent to garner a 25.7 percent and 5.7 percent share of the U.S. market, respectively.

Ratio Analysis

Financial statements are historical documents. They tell us what has happened during a particular period. It is essential to try and predict what will happen in the future. Financial ratios help assess the financial health and future prospects of a company (Appendix).

Current ratio. This measures the short term debt paying ability of Apple, inc. At 2.7, this is lower than the personal computing industry average. This has been relatively stable which is a good sign. A declining ratio could be a sign of deteriorating financial condition. On the other hand it might be the result of eliminatingbsolete inventories or other stagnant current assets. An improving ratio might be the result of stockpiling inventory or it might indicate an improving financial situation.

Quick Ratio. This helps determine how well a company can meet its obligations without having to liquidate or depend too heavily on its inventory. Apple's quick ratio is 2.2. Again this is lower than the industry standard but having $2.2 to back every $1 of liabilities is still strong.

Accounts receivable turnover. This indicates how quickly credit sales are converted into cash. Apple's average is 19 days. Values less than a month are positive. Collection periods ranging from 10 to 180 days are common depending upon the industry.

Dividend payout. Apple used to pay dividends to the owners of its stock but it discontinued that policy in December 1995. Since, Apple is a fast growing company and the industry it competes in requires constant innovation and rolling out of new products, Iphone for example, if Apple started paying its shareholders dividends there would be a lot less money to research and develop new products which in turn would ...