Financial Assessment of Apple

1.0 Executive Summary

Apple Inc. is a publicly traded company with its current market capitalization as of June 2023 is 2.98 $trillion.It primarily focuses on software, online services, and consumer electronics and comprises the DJIA, NASDAQ 100, and S&P 100 indexes. The company has consistently maintained profitability because of its tenacity in the face of shifting market conditions and threats from competitors. The move to Apple Silicon, the expansion of services, 5G technology, augmented reality, privacy and security measures, and other topics are some of the current trends at Apple.

2.0 Analysis

2.1 Role of financial statements

Financial statements provide a comprehensive overview of Apple’s financial position, performance, and cash flows. They serve significant purposes for internal and external stakeholders by evaluating financial performance, assessing the financial position, analyzing cash flows, decision-making, comparison, and benchmarking, and enhancing compliance and regulation(Fridson& Alvarez, 2022). Additionally, financial statements are crucial in comparison of current and past performance and in forecasting the future performance of Apple. Hence, financial statements must be completed accurately and ethically to ensure financial transparency, proper planning, evaluation of tax liability, and mitigation of errors, among others. Should Apple fail to offer adequate financial information in its financial statements, it could face ramifications ranging from bankruptcy, financial loss, reputational damage, penalties, fines, and bad operational decisions.

2.2 Approach

On Apple’s financial situation, ratio, horizontal, and vertical analyses are all carried out. Ratio analysis is essential for assessing liquidity, profitability, solvency, efficiency, risk, and operational effectiveness. Horizontal analysis is essential for spotting trends and patterns; vertical analysis is pertinent for comparing line items(Enyi, 2019).

2.3 Key Ratios

2.3.1 Profitability

Over the past three years, Apple’s profit margin has risen, indicating that the corporation is making enough money from sales. The return on assets has also been rising, indicating revenue generation efficiency. Apple’s return on equity shows that the business has been improving its capacity to produce income from equity. Apple’s return on capital employed shows inconsistent capital efficiency and an inability to provide enough returns on firm investment.

2.3.2 Liquidity

Apple’s current, quick, and cash ratios have declined during the last three years, showing a decline in the company’s capacity to meet short-term financial obligations(Saleem& Rehman, 2011).

2.3.3 Debt

Apple can pay back its loans entirely because of its high debt-to-equity ratio and high level of leverage. Investors might also check if the company can make timely debt payments. The growing debt-to-equity ratio over the last three years proves that the company is financed mainly through equity rather than Debt. The company’s interest coverage ratio shows it is susceptible to interest rate fluctuation and does not generate enough operating income to meet interest payments.

2.3.4 Operating Performance

Over the past three years, Apple’s fixed asset turnover ratio has risen, a sign that the company is improving at using its fixed assets to produce profits or cash flows(Chowdhury & Chowdhury, 2010).

2.3.5 Cash Flow

Despite a modest dip in 2022, the dividend payout ratio climbed dramatically in 2021, suggesting that Apple has been boosting its earnings relative to its share price. The management should work harder to raise the dividend payment ratio to make the company’s equities more appealing and competitive.

2.3.6 Investment Valuation

Apple’s price-to-book value in 2022 was 0.003, which is excellent as it shows that the stock may be undervalued(Sun, 2012). Due to Apple’s high price-to-earnings ratio, an investor would have to put up $21.84 before they could earn just $1 from the business.

2.4 Vertical Analysis

The value of the cost of revenue, operational expenses, and other income stood out in Apple’s income statement’s vertical analysis. This is because throughout the previous three financial quarters, the cost of revenue dramatically decreased, operating expenses fluctuated, and other income climbed. The current liabilities and shareholder’s equity stood out in the vertical examination of the company’s balance sheet since they have dramatically increased and decreased, respectively.

Due to an increase in profitability and a steady financial position, the vertical analysis of the company indicates that it is financially sound. The organization has efficient plans and structures to guarantee high returns and durability in its commercial activities in the eyes of possible investors.

2.5 Horizontal Analysis

Revenue, cost of revenue, and other income are the three categories that stood out in the company’s income statement’s horizontal examination. Long-term assets and shareholder equity stand out on the balance sheet’s horizontal analysis. The drop in the value of marketable securities is to blame for the considerable reduction in long-term assets.

According to the horizontal analysis, Apple has an excellent financial position and significant revenue, which suggests a successful sales strategy. Large net income, which denotes profitability. Due to its profitability and financial position, the horizontal analysis would indicate to investors that Apple is a good investment opportunity.

2.6 Benchmarks

Benchmarking is crucial because it delivers measurements that examine Apple’s performance per necessary standards, allows for comparisons between various businesses, and provides indicators for wise investment choices(Bhutta & Huq, 1999). One of Apple’s rivals, Microsoft Corporation, reported net income for the fiscal year ending in 2022 of $72.7 billion, significantly less than Apple’s $99.8 billion, indicating that Apple is far more profitable than Microsoft. The Apple financial statements are created in line with the necessary accounting standards to provide thorough, impartial, and accurate information to give stakeholders a good view of the business’s financial health.

3.0 Conclusion

Given that Apple’s financial analysis shows that the business is profitable, heavily leveraged, and potentially undervalued, it offers a feasible investment choice. It is wise to exercise a buy option. Competence, responsibility, objectivity, and integrity are the legal and ethical aspects that Apple can take into account to enhance its liquidity position and overall financial health.

REFERENCES

Bhutta, K. S., & Huq, F. (1999). Benchmarking–best practices: an integrated approach. Benchmarking: An International Journal, 6(3), 254–268.

Chowdhury, A., & Chowdhury, S. P. (2010). Impact of capital structure on firm’s value: Evidence from Bangladesh. Business & Economic Horizons, 3(3).

Enyi, E. P. (2019). Relational trend analysis: A simple and effective way to detect financial statements fraud. Enyi, E. P (2019). Relational Trend Analysis: A simple and effective way to detect financial statements fraud, International Journal of Scientific and Research Publications, 9(2), 538–546.

Fridson, M. S., & Alvarez, F. (2022). Financial statement analysis: a practitioner’s guide. John Wiley & Sons.

Saleem, Q., & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability. Interdisciplinary Journal of business research, 1(7), 95-98.

Sun, L. (2012). Information Content of P/E Ratio, Price-to-book Ratio, and Firm Size in Predicting Equity Returns. In International Conference on Innovation and Information Management (Vol. 36, pp. 262-267).