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A report on
Financial performance of Apple Inc.
Submitted to
Instructor’s name
                                    Submitted by
                                    Student’s Name
                                    Course Name and Number
                                    Date of submission
Introduction
This paper evaluates the financial performance of the Apple Inc over past three years so investors may take rationale decision of investment. Financial evaluation is carried on through several approaches and tools like ratio analysis, Du Pont Analysis, EVA, Company’s policy regarding Capital structure, dividend, growth etc. Company’s performance is also compared with Industry so more detailed insights can have. Company’s performance is also looked in theoretical framework to confirm its policy and accordingly investment decision is made.
Apple Inc. is an American multinational corporation that was established on Apr 1, 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. It’s headquarter is in California. It designs, develops, and sells personal computers, computer software, consumer electronics and online services. Mac computers, iPod media player, iPhone, iPad are some of its flagship products. iCloud, iTunes and its won App stores are online service platforms. Besides there, OSX and IOS operating software are Apple’s well known operating system available in personal computers and other electronic goods.
Following table gives a snapshot of key statistics of Apple Inc in 2018.
    Market Cap (intraday)
    888.46B
    Enterprise Value
    935.81B
    Trailing P/E (ttm, intraday)
    16.57
    PEG Ratio (5 yr expected)
    1.81
    EPS
    11.78
    Profit margin
    21.50%
    ROE
    52.69%
    Total debt/equity
    112.40
    Payout ratio
    25.13%
    Beta
    1.08
             Source: http://www.finance.yahoo.com
The following graph shows the trend in Apple stock over past five years –
(

Source
:
http://finance.yahoo.com
)
Review of financial statement
Apple’s financial position in 2018 is better than other competitors in the industry. In 2018, the revenue is $265,595 million while the gross income is $101,839 million. Operating income is reported to $70,898 million. After deducting other expenses including tax, the net income is reported to $59,531 million which is highest in past three years. The balance sheet represents the overall financial position of Apple Inc. In 2018, the current assets are $131,339 million while the fixed assets are $234,386 million. Therefore, the total assets come to $365,727 million, which is highest in its industry. The total current liabilities are $116,866 million while the long term debts are $93,735 million. Total shareholders’ equity is $107,147 million.
Following table shows the major financial indicators of Apple against Industry in 2018 –
    
    Apple Inc
    Industry
    Valuation Ratio
     
     
    P/E Ratio
    17.97
    8.59
    Price to Sales
    3.73
    1.33
    Price to Book
    9.13
    1.32
    Beta
    1.24
    1.26
    Dividends
     
     
    Dividend Yield
    1.47
    3
    Dividend Payout
    25.57
    25.71
    Growth Rate
     
     
    Sales 5-yr growth rate
    9.22%
    1.30%
    EPS 5-yr growth rate
    16.54%
    10.31%
    Financial Strength
     
     
    Quick ratio
    1.26
    2.16
    Current ratio
    1.32
    2.63
    Debt Equity ratio
    106.4
    5.56
    Profitability ratio
     
     
    Gross profit margin
    38.05%
    43.42%
    Operating profit margin
    25.34%
    20.99%
    Net profit margin
    21.69%
    16.00%
    Efficiency
     
     
    Receivable turnover
    17.58
    6.56
    Inventory turnover
    25.53
    4.64
    Asset turnover
    0.73
    0.72
    Management Effectiveness
     
     
    Return on Assets (ROA)
    15.81
    11.47
    Return on Investment (ROI)
    21.3
    14.89
    Return on Equity (ROE)
    48.18
    16.24
Source: https://www.reuters.com/finance/stocks/financial-highlights/AAPL.OQ
The above table shows that company’s most of the financial indicators surpass the Industry’s average and thus, company has outperformed the industry. Company’s valuation measures, profitability, growth rate, efficiency, management’s effectiveness all are higher than Industry’s average. However, company has to work more on dividend policy and its financial strength to further boost the sustainability. Overall, company’s financial position is better in 2018.
Pro Forma Financial statement for next two years –
Under the assumptions of growth rate of 10% in revenue and Cost of goods sold, the pro forma financial statement of Apple for next two years are as follows –
    Income Statement
    Fiscal year ends in September. USD in millions except per share data.
    2019
    2020
    Revenue
    292,155
    321,370
    Cost of revenue
    180,132
    198,145
    Gross profit
    112,023
    123,225
    Operating expenses
    
    
    Research and development
    15,659
    17,225
    Sales, General and administrative
    18,377
    20,214
    Total operating expenses
    34,036
    37,440
    Operating income
    77,987
    85,786
    Interest Expense
    3,564
    3,921
    Other income (expense)
    5,755
    6,331
    Income before taxes
    80,178
    88,196
    Provision for income taxes
    14,695
    16,165
    Net income from continuing operations
    65,483
    72,031
    Net income
    65,483
    72,031
    Earnings per share
    
    
    Basic
    12
    12
    Diluted
    12
    12
Here, the other heads like Research and development cost, Sales, General and administrative costs, Interest expenses, Income tax provisions etc are calculated by finding their percentage of sales through Vertical analysis method in 2018.
The given assumption of 10% growth rate in revenue and Cost of goods sold affect the few items of balance sheet. Following assumptions are formed for balance sheet items –
· Account receivable increases by 10%
· Account payable increases by 10%
· Inventory decreases by 10%
· Shareholders’ equity increases by 10%
Therefore, the pro forma balance sheet for 2019 and 2020 are as follows –
    Balance Sheet
    Fiscal year ends in September. USD in millions except per share data.
    2019
    2020
    Assets
    
    
    Current assets
    
    
    Cash
    
    
    Cash and cash equivalents
    25,913
    20,289
    Short-term investments
    40,388
    53,892
    Total cash
    66,301
    74,181
    Receivables
    25,505
    28,055
    Inventories
    3,560
    3,204
    Deferred income taxes
    
    
    Other current assets
    37,896
    31,735
    Total current assets
    199,563
    211,356
    Non-current assets
    
    
    Property, plant and equipment
    
    
    Gross property, plant and equipment
    90,403
    75,076
    Accumulated Depreciation
    -49,099
    -41,293
    Net property, plant and equipment
    41,304
    33,783
    Equity and other investments
    170,799
    194,714
    Goodwill
    
    5,717
    Intangible assets
    
    2,298
    Other long-term assets
    22,283
    10,162
    Total...