Course Project

Horizontal Analysis

Mauricio Nieto

DeVry University

Finance 382

Instructor: Kimberly Bankston-Bradshaw

3/13/2013

I. General information about the Industry and companies.

For my course project I chose to compare Apple Inc. (ticker symbol, AAPL) and its

competitor Microsoft Corporation (ticker symbol, MSFT) from the Personal Computer Industry

and Technology Sector. The computer industry consists of hardware, software, service and an
endless array of products our group chose to narrow the research to PC’s. The computer industry

is mature and here to stay. In the US, computers are found in most homes with access to the

Internet. Students are taught to use computers in school at a young age and competency is only

going to increase.

Apple Inc. designs, manufactures, and markets personal computers, mobile

communication devices, and portable digital music and video players and sells a variety of

related software, services, peripherals, and network devices. Its best-known hardware products

are the Mac line of computers (Formally Macintosh), the iPod music player, the iPhone, and the

iPad tablet computer. Apple is the world's second-largest information technology company by

revenue after Samsung, and the world's third-largest mobile phone maker after Samsung and

Nokia. According to the Daily Telegraph, Apple is the second-largest publicly traded corporation

in the world by market capitalization, with an estimated value of US$414 billion as of January

2013. As of September 29, 2012, Apple maintains 394 retail stores in fourteen countries and

approximately 75,000 permanent employees worldwide. Its worldwide annual revenue in 2012

totaled $156 billion.

In its fiscal year ending in September 2011, Apple Inc. reported a total of $108 billion in

annual revenues, a significant increase from its 2010 revenues of $65 billion and nearly $82

billion in cash reserves. Apple achieved these results while losing market share in certain product

categories. On March 19, 2012, Apple announced plans for a $2.65 per share dividend beginning

in fourth quarter of 2012, per approval by their board of directors. On August 20, 2012, Apple

closed at a record share price of $665.15. With 936,596,000 outstanding shares (as of June 30,

2012), it had a market capitalization of $622.98 billion. At the time, this was the highest nominal
market capitalization ever reached by a publicly traded company, surpassing a record set by

Microsoft in 1999.

Microsoft Corporation develops, licenses, and supports software products and services;

and designs and sells hardware worldwide. The company’s Windows & Windows Live division

offers PC operating system that primarily includes Windows 7 and 8 operating systems,

Windows live suite of applications and Web services, and PC hardware products. Microsoft is

the world's largest software maker measured by revenues. It is also one of the world's most

valuable companies according to Softwaretop100.org. As of 2013, Microsoft is market dominant

in both the PC operating system and office software including Microsoft Office. The company

also produces a wide range of software for desktops and servers, and is active in areas including

internet search (with Bing), the video game industry with Xbox 360 consoles, and mobile phones

(via the Windows Phone OS).

II. Current Events

Apple is a regular in the major market headlines, as consumer appetite for its products

seems to be nearly insatiable. People around the world will gladly stand in line for hours, even

days, to be among the first to get their hands on the next generation of products. Apple has seen

its share price drop 44% from a high of $705 on September 2012 after announcing that iPhone 5

sales were lackluster and that the company would be scaling back orders. The latest quarter,

however, has seen a slight upward movement attributed to many factors, including an

announcement to increase dividends and stock buyback funds, as well as the news that the

iPhone is still considered the top smartphone in the US. According to market research firm
Kantar, the iPhone commands more than half of the U.S. smartphone market for the first time

ever! The iPhone now boasts 53.3% market share while Android's market share fell to 41.9%.

This is significant because the iPhone remains a strong growth driver for Apple—despite

the regular upgrades, U.S. consumers still can’t get enough of this premium smartphone. Some

analysts forecast that Apple sold nearly 51 million iPhones last quarter, a 43% jump over the

same quarter last year.

In June 2012, Microsoft announced that it would be entering the PC vendor market for

the first time, with the launch of the Microsoft Surface tablet computer. On October 26,

Microsoft launched Windows 8 and Windows Phone 8 operating systems. Standard and Poor's

and Moody's have both given a AAA rating to Microsoft, whose assets were valued at $41 billion

as compared to only $8.5 billion in unsecured debt. On July 20, 2012, Microsoft posted its first

quarterly loss ever, despite earning record revenues for the quarter and fiscal year. On July 31,

2012, Microsoft launched the Outlook.com webmail service to compete with Gmail. On

September 4, Microsoft released Windows Server 2012.

The Windows Division posted revenue of $5.88 billion, a 24% increase from the prior

year period. Adjusting for the net deferral of revenue for the Windows Upgrade Offer and the

recognition of the previously deferred revenue from Windows 8 Pre-sales, Windows Division

non-GAAP revenue increased 11% for the second quarter. Microsoft has sold over 60 million

Windows 8 licenses to date. The European Union has fined Microsoft Corporation 561 million

euros, or $731 million, for showing favoritism to its Internet Explorer program. The software

giant reportedly failed to promote other alternatives for web browsing within Windows 7.

III. Relevant Ratios

 The following chart shows my choice of ratios:

Ratio Apple Inc Microsoft

Debt Ratio
Return on Investments
Gross Profit Margin
Debt/Equity Ratio
Current Ratio
Inventory Turnover
Accounts Receivable Turnover
Percentage of Earning Retained
Dividend Payout
Operating Cash Flow Per Share

I chose these ratios because I believe that they are some of the most important ratios to

use when comparing two competing companies. I think that these ratios can be used to compare

companies in any industry. The key is to realize that what is normal for one industry may be

very high or very low for another. This is why it is important that you do not compare

companies from different industries to one another.

IV. Spreadsheets

I have completed the input spreadsheets for both Apple Inc. and Microsoft Corporation.
 V. Bibliography

GEO*Trailblazer 1. (2008, January 28). Apple inc - cupertino, ca. Retrieved from

http://www.waymarking.com/waymarks/WM3289

Rushton, K. (01, 2013 25). Exxon overtakes apple as biggest public company. Retrieved from

http://www.telegraph.co.uk/finance/9827795/Exxon-overtakes-Apple-as-biggest-public-

company.html

Apple inc, - annual report. (2012, 10 31). Retrieved from

http://investor.apple.com/secfiling.cfm?filingID=1193125-12-444068

Ycharts.com. (2013, Februar 08). Retrieved from http://ycharts.com/rankings/market_cap

Wikipedia. (2012, March 06). Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Microsoft

Gibson, C. (2013). Financial Reporting and Analysis. (13th ed.).