Financial Aspect of Apple Inc.

Prepared for Principle of Finance Module

of
Master of Business Administration
in
Health Care Management
Geneva Business School
Yangon, Myanmar.
by
Dr. Zayar Naing
ID: 20JUN169MBA
 Financial Aspect of Apple Inc.

Background

Apple Inc. is a multinational company in America which specializes in software,

electronic devices, and subscription services on the internet. It has reached its value of 1 trillion
US dollars and become the first company that is worth more than $ 1 trillion. It is the biggest
company in the world with the highest market capital. Moreover, it is ranked number four in the
list of personal computer vendors by unit sales and second in the mobile manufacturers. It is
also one of the big five technology companies in America together with Amazon, Alphabet, Meta,
and Microsoft (Apple Inc., 2022).

It all began with the effort of creating the first apple personal computer by the three
founders, Steve Jobs, Steve Wozniak, and Ronald Wayne in early 1976. Apple Inc was then
founded in 1977. After Wayne leaving the trio partnership, Apple become a public company in
December 1980 at the rate of 22 USD for a share. The stock has split five times since the initial
public offering. Therefore, IPO share price was $.10 on a split adjusted basis (FAQ, 2022).

During the covid pandemic period (2020 and 2021), many businesses faced financial
problems and some of the giant corporations even went bankrupt. As one of the big five tech
companies in US, it is interesting to know how Apple is managing its business well after
recovering from this covid economic crisis. Therefore, current financial aspects of Apple Inc. in
the post-covid-pandemic era would be discussed by analyzing their financial statements and
comparing them with the pre-covid-pandemic period (2019).

Analysis of financial aspects is required to learn the stability and economic health of a
company. It allows us to understand the current financial position and future financial
requirements of a company. When we want to know the financial aspect or financial
performance of an organization, it is important to analyze different financial statements and key
financial ratios. These financial statements and key ratios serve to highlight upward and
downward trends of companies and help the investors while investing in the respective
company. By knowing the financial aspects, the future of the company can be predicted, and
future market trends can be forecasted. In this case study, financial aspects of Apple
Incorporation would be studied by analyzing its income statement, its profitability and leverage.
The ability of Apple Inc to turn their assets into cash in case there is an emergency would also be
discussed later on. Then, it would be followed by efficiency analysis, cash flow analysis and rate
of return analysis on Apple’s financial health because these analytics are very important for the
investors who are interesting in investing in Apple.

Income Statement and Profitability Analysis

First and most important of all, the profitability of Apple Inc would be analyzed by
studying their income statement. The most influential factors of Apple’s income statement are
the revenue, gross profit, net income, cost of goods sold, operating profit and earnings per share.
These reflect the overall financial aspects or profitability of the company. Apple’s income
statement would be analyzed both vertically and horizontally. Vertical analysis is intended to
know how much percentage of total revenue for each item in income statement and identify the
performance of the company by accessing the trends over the years. Horizontal analysis is to
compare the growth rate of the current year with two or more years to highlight the
opportunities or the problems.

Apple’s Total revenue have increased by 52% in 2022 from 2019. Earnings per share
value is also double in 2022 compared to the pre-pandemic period, 2019. It is also found out
that the cost of goods sold is surprisingly decreasing from 62% in 2019 to 57% in 2022 while its
value in US dollars is increasing. This means that Apple is handling procurement and
manufacturing processes efficiently. As the cost of sales is decreasing, gross profit margin of
Apple is rising from 38% in 2019 to 43% in 2022. It shows that Apple is making more profits
even after paying off the cost of its goods sold internationally. Moreover, there has been a
downward trend in SG&A expenses and total operating expenses from 7% and 75% in 2019 to
6% and 70% respectively in 2022. Therefore, there is an upward trend of operating profit
margin from 25% in 2019 to 30% in 2022. It means that Apple’s management operation is very
efficient. Along with the increased operating profit margin, Apple’s bottom line profitability, net
income or profit margin is also boosted from 21% in 2019 to 25% in 2022 (Apple income
statement 2009-2022: AAPL, 2022). Net profit margin is the percentage of profit Apple
produces per dollar of revenue gained after subtracting all of its expenses, including taxes and
interest payments.

Income Statement 2022 2021 2020 2019

$ $ $ $
Revenue
394,328.00 365,817.00 274,515.00 260,174.00
$ $ $ $
Cost of Goods Sold
223,546.00 212,981.00 169,559.00 161,782.00
$ $ $ $
Gross Profit
170,782.00 152,836.00 104,956.00 98,392.00
SG&A Expenses $ $ $ $
 25,094.00 21,973.00 19,916.00 18,245.00
$ $ $ $
R&D expenses
26,251.00 21,914.00 18,752.00 16,217.00
$ $ $ $
Operating Expenses
274,891.00 256,868.00 208,227.00 196,244.00
$ $ $ $
Operating Income
119,437.00 108,949.00 66,288.00 63,930.00
$ $ $ $
Net Income
99,803.00 94,680.00 57,411.00 55,256.00
$ $ $ $
EBITDA
130,541.00 120,233.00 77,344.00 76,477.00
$ $ $ $
EBIT
119,437.00 108,949.00 66,288.00 63,930.00
$ $ $ $
EPS-Earning Per Share
6.11 5.61 3.28 2.97
Table (1.1): A brief description of Apple’s income statement

Analysis of Income Statement 2022 2021 2020 2019 2022/2019

100
Revenue
100% 100% % 100% 52%
Cost of Goods Sold Margin 57% 58% 62% 62% 38%
Gross Profit Margin 43% 42% 38% 38% 74%
SG&A Expenses Margin 6% 6% 7% 7% 38%
R&D expenses Margin 7% 6% 7% 6% 62%
Operating Expenses 70% 70% 76% 75% 40%
Operating Profit Margin 30% 30% 24% 25% 87%
Net Income/Profit Margin 25% 26% 21% 21% 81%
EBITDA Margin 33% 33% 28% 29% 71%
EBIT Margin 30% 30% 24% 25% 87%
EPS-Earning Per Share         106%
Table (1.2): Analysis of Apple’s income statement

This is the unique performance of Apple incorporation that their cost of sales and
operating expenses are decreasing, while gross profit and net income/profit are increasing
although the other businesses are struggling in the post covid period. This may be the result of
its increased investments in research and development by 62% in 2022 comparing with 2019
(Apple income statement 2009-2022: AAPL, 2022). Apple’s good performance in sales makes a
good image in the public to raise its earnings per share. Table 1.1 is a brief description of Apple’s
income statement. All the figures are expressed in USD in millions except for the earnings per
share, which express the per share amount. Table 1.2 is the vertical and horizontal analysis of
that income statement.

Leverage Analysis

After we get to know about profitability, we know the leverage of the company. Analysis
of the company’s leverage is one of the most common methods of financial analysis to evaluate
the company’s financial aspect. Leverage ratios are used instead of using a single financial
metric to know the debt amount of a company comparing with the company’s total equity and
capital structure. The ratios used in leverage analysis are long-term debt to capital ratio and
debt to equity ratio. Long-term debt to capital ratio is calculated by dividing long-term debt with
the total capital to know the better idea of financial aspect of the company and whether the
company is fit to invest. The higher the long-term debt to capital ratio, the riskier the company
is. It is because the higher ratio, the more the company finances their operations with debt than
total capital, means that the higher risk of loan forfeit as the ability of repaying the debt is lesser
if the debt is funded more for the operations. Apple’s long-term debt to capital ratio is 0.66 in
2022 and there was only a slight difference comparing with 0.5 in 2019 (Apple financial ratios
for analysis 2009-2022: AAPL, 2022). So, Apple is still running its operations more on the
capital and it is still quite safe to make investment in Apple.

Debt to equity ratio (also known as risk ratio) is similar to long-term debt to capital ratio
but it calculates the weight of total debt against total equity of stockholders. Current debt to
equity ratio of Apple Inc is 2.36 in 2022 which is increased from 1.19 in 2019. In the case of
Apple, debt to equity ratio is higher than long-term debt to capital ratio because short term debt
of Apple is higher than its long-term debt. Although debt to equity ratio is high, Apple is getting
high equity returns by using its debt for operation (Apple financial ratios for analysis 2009-
2022: AAPL, 2022). Therefore, Apple is still repayable its debt. However, if the debt-to-equity
ratio continues to increase and sales decrease, there would be a risk for the company.

Liquidity Analysis

When we talk about the leverage of the company, we also need to know how the company
can transform their assets or resources into cash form in case of an emergency. It is a kind of
financial analysis focusing particularly on the balance sheet. It can show the company’s ability to
meet its short-term liabilities which would be due in less than a year. In liquidity analysis,
current ratio and acid test ratio would be analyzed. The current ratio, which is also known as the
working capital ratio, highlights the weight of total current assets against total current liabilities.
It helps to know the financial ability of the company to maximize the liquidity of its current
assets for settling its debt and payables. Apple currently has a relatively low current ratio of 0.88
in 2022 which is lowered from 1.54 in 2019 (Apple Balance Sheet 2009-2022: AAPL, 2022). It
may be because of the increasing trend of short-term debt (current liabilities). In the total
current assets, inventory cannot be easily convertible into cash as they can often be slow
moving. Therefore, inventory is excluded from total current assets in another liquidity ratio
called acid-test ratio. Apple’s current acid-test ratio is also relatively low at 0.85 in 2022 which
is dropped from 1.5 in 2019. However, the relatively low current ratio and acid-test ratio are less
significant for a highly profitable business-like Apple because they can easily settle their short-
term loans anytime if it is necessary.

Efficiency Analysis

If we want to know the ability of a company in managing and using its resources
profitably, efficiency ratios would be analyzed. Asset turnover ratio measures how efficiently a
company uses its assets to generate revenue. The higher the ratio, the more effectively a
company uses its assets. Apple’s assets turnover ratio is 1.12 in 2022 and 0.77 in 2019 (Apple
financial ratios for analysis 2009-2022: AAPL, 2022) and it means that Apple generated more
revenue in post covid days of 2022 for every dollar in total assets.

Inventory turnover ratio is used to determine how efficiently a company manages its
inventory. Apple sold 45.2 times of its inventory in 2022 while 39.4 times in 2019 (Apple
financial ratios for analysis 2009-2022: AAPL, 2022). It implies that Apple can more efficiently
sell the inventory it buys in 2022 even after a recent economic crisis. So, Apple can reduce the
storage and other holding costs for its products.

Cashflow Analysis

Cashflow within the business is also an important parameter when we are analyzing the
financial aspects of that company. To analyze how much cash flow a company generates
compared to its net profit, cash conversion ratio is calculated to analyze. The cash conversion
ratio of Apple Inc is 1.22 in 2022 and 1.25 in 2019 (Apple cash flow statement 2009-2022:
AAPL, 2022) which are not very different to each other. It indicates that Apple possessed
excellent liquidity and excess cash flow comparing with net profit. It can also imply that there
would be a solid return per share if the company is generating enough cash flow with high cash
conversion ratio. Cash flow of a company is very important as cash is the king of finance and a
company needs to have efficiency in generating cash flow. That’s why cash conversion ratio is
analyzed.

Rates of Return Analysis

The last not the least, analysis of different measures of rate of return would help the
investors to invest in a company. Return on equity represents the ability of a company to
transform investments into profits. In another way, it identifies the profits made for each dollar
of the equity of stockholders. Return on investment determines the ability of a company to
generate profit from the investments it makes in the fixed or current assets. Similarly, return on
assets is a kind of return of investment measure which identifies the profitability of a company
in relation to its total assets.

Apple’s return on equity is an upward trend from 2019 to 2022. Its return of investment
and return on assets metrics are also increased from pre pandemic to post pandemic period
(Apple financial ratios for analysis 2009-2022: AAPL, 2022). It means that Apple is generating
very good shareholder value by investing wisely to increase growth, productivity, and profits. It
can also be assumed that Apple is efficiently utilizing its economic resources.

Conclusion

2022 is quite a financially successful year for Apple after recovering from the covid
pandemic crisis. Most of all financial parameters are in an upward trend from 2019 to 2022.
However, it is recommended to reduce short-term debts and continue to invest in research and
development.

References

Apple Inc. (2022) Wikipedia. Wikimedia Foundation. Available at:

https://en.wikipedia.org/wiki/Apple_Inc. (Accessed: November 2, 2022).

FAQ (2022) Apple. Available at: https://investor.apple.com/faq/default.aspx (Accessed:

November 2, 2022).
Apple income statement 2009-2022: AAPL (2022) Macrotrends. Available at:
https://www.macrotrends.net/stocks/charts/AAPL/apple/income-statement
(Accessed: November 3, 2022).

Apple financial ratios for analysis 2009-2022: AAPL (2022) Macrotrends. Available at:
https://www.macrotrends.net/stocks/charts/AAPL/apple/financial-ratios
(Accessed: November 4, 2022).

Apple Balance Sheet 2009-2022: AAPL (2022) Macrotrends. Available at:

https://www.macrotrends.net/stocks/charts/AAPL/apple/balance-sheet
(Accessed: November 4, 2022).

Apple cash flow statement 2009-2022: AAPL (2022) Macrotrends. Available at:
https://www.macrotrends.net/stocks/charts/AAPL/apple/cash-flow-statement
(Accessed: November 4, 2022).