Apple Inc: Financial Analysis



Apple Inc: Financial Analysis

Introduction

Apple Inc., Formerly Apple Computer, Inc., Is a multinational American company who designs and sells consumer electronics, from computers and computer software. Among the best known products of the company's computers are Macintosh , the iPod , the iPhone and the iPad , the media player iTunes , the office suite iWork, the multimedia suite iLife or software for professionals such that Final Cut Pro and Logic Pro (O'Grady, 2009). In 2011, the company employs 60,400 employees for an annual turnover of 108.25 billion dollars and operates 362 Apple Stores in 12 countries and an online store which sell devices and software from Apple but also from third parties (Lashinsky, 2012).

Current Scenario

In recent quarter ending in March 2012, Apple delivered tremendous results exceeding the near-term expectations of analysts. The company maintained the fair value estimate of $670 per share. Total revenue of $39 billion was Apple's second-highest quarterly total, representing a 59% increase over the prior-year quarter. Apple's cash and investments on hand now total $110 billion, or $118 per share. The clear standout metric, however, was Apple's gross margin of 47.4%, up 600 basis points year over year and 270 basis points sequentially (Apple Annual Reports). The ability to expand the gross margin and deliver massive unit shipment growth signals that Apple is having no trouble moving premium-priced units (Winseck & Jin, 2011). With nearly 75% of revenue derived from the iPhone and iPad, these product segments are clearly the driving force behind Apple's momentum. The March quarter represented a sequential decline in key unit shipments, but following the blockbuster December quarter, this was to be expected. Year-over-year unit shipment growth of 88% and 151% for the iPhone and iPad, respectively, was a strong showing for Apple, considering it was the second quarter of availability for the current generation iPhone and that the third generation iPad was only on the market for a few weeks during the quarter (Apple Annual Reports).

Financial Health

Liquidity/Financial Health

2010

2011

Latest Qtr

Total Stockholders' Equity

63.57

65.84

67.91

Total Liabilities & Equity

100

100

100

Current Ratio

2.01

1.61

1.58

Quick Ratio

1.72

1.35

1.32

The company has $30 billion in cash and short-term investments, holds another $68 billion in long-term investments, and generated more than $33 billion in free cash flow during fiscal 2011. It carries no debt. The company is maintaining a current ratio well above the industry average but individually Apple Inc is facing declining trends in their current and quick ratios. The reason behind this decline is increases in liabilities of the company as it has been increasing tremendously in last three years (Apple Annual Reports).

Efficiency Ratios

2010

2011

Latest Qtr

Financial Leverage

1.57

1.52

1.47

Days Sales Outstanding

24.82

18.34

16.46

Days Inventory

6.95

5.18

4.65

Payables Period

81.31

75.48

70.28

Receivables Turnover

14.71

19.9

22.17

Inventory Turnover

52.51

70.53

78.53

Despite Apple's near-term momentum, it's reluctant to change longer-term forecast based on this quarter. As we look over a longer forecast period, it is believed that a product mix-shift could dampen Apple's earnings trajectory, even given our high expectations around unit shipment growth (Gowthorpe, et.al, 2008). There is no evidence to suggest that we have reached the inflection point in Apple's ascent yet, but a key issue for investors to ...