Apple Capital Structure

Apple Inc.'s in-depth analysis of the capital structures over the past few years significantly shows

how the company can finance its investments as well as run day to day activities of the company.

This analysis defines how efficient the firm is in terms of the management of its debts and

equity.

As of September 2022, Apple Inc. had a net total capital of $97,960,740 The company

had total debt as of September 2022 was $82,598,959while leases amounted to $15,300,000. The

total equity was $64,849,000; the breakdown was Common stock and additional paid-in capital,

$0.00001 par value, 50,400,000 shares authorized; 15,943,425 and 16,426,786 shares issued and

outstanding, respectively. Apple's Weighted average cost of capital (WACC) was 8.6% which

signifies the amount in the percentage of what investors receive from the company due to their

investments.

A further breakdown of the company's capital structure indicates shows that the total debt

arising from bonds, commercial papers, leases, and other unidentified debt amounted to

$97,898,989 representing 54.8%. Relatively the cumulative equity accumulated to $64,849,000

as stated earlier representing 45.2 %.

Considering these figures, we can find out that the debt-to-equity ratio is 1.5 indicating

that Apple relies on external funding. The liquidity of the company is due to the 0.9 debt-to-

capital ratio thus the company is highly leveraged. The figures which are referred to in the above

capital structure explanation are shown in the 'Capital Structure' of the attached Excel File.

Dividend Policy
 Apple has a strong dividend policy that it pays out to its shareholders and investors every

quarter. The board of directors in the company decides the dividend payout ratio. This ratio

depends on the trajectory of the company as well as the dividends expenses attributed to the

payout. In addition, the company retains a percentage of the payout from specific shareholders.

Generally, the company has had a constant dividend payout due to its good performance. The

repurchase program is also part of Apple's dividend policy which has led to an increase in AAPL

shares and stocks.

Relationship between Capital structure, Cost of Capital and Risks

An analysis of Apple's capital structure displays a direct relationship with the company's

cost of capital. This can be seen due to the huge difference in the total equity and the total debt of

the company which is $64,849,000 to $97,898,989 respectively. It can be noted that Apple

operates mainly in the US where there are tax regulations that enable the WACC to low due to

the tax rate put in place thus the WACC of 8.6 was witnessed in the September quarter of

2022.According to (Miller&Modigliani,2012) the higher the level of debt in a capital structure

the lower the Weighted cost of capital.

In addition, there exists a direct relationship between Apple's risks and the cost of capital.

As per the 10K-200 Apple had predicted a myriad of financial risks such as a decline in net sales,

this was predicted to affect the dividends payout as well as increase the debt of the company to

increase its sales in the next quarter. Nevertheless, Apple has a lower cost of capital hence

indicates that the company is less risky hence a worthy investment.

Therefore, as outlined above it can be noted that the direct relationships between the three

variables are very significant in the company's decision. Apple should strive to lower its debt
levels to restructure its capital structure, this will lower both financial, market, and credit risks.

Consequently, these actions will lead to a reduction in the cost of capital hence leading to an

increase in the overall value of the company.

Valuation

Current Market Value

The main goal of a firm is to maximize profits and returns on investors. This is

achievable because the company should strive to make the cost of capital lower as compared to

the total equity to make the company more geared. Apple Inc.'s current market value when you

see the trend from the historical data available confirms that the company is currently valued at

$2,461,443,731. This is attributed to the new versions of products produced by the company

annually thus increasing their sales. And overall the net earnings. The projections expect these

numbers will rise in the next five years. Comparably the company is in a comfortable and

profitable position as compared to its competitors.

Assumptions

According to data from Fin Box, in the next five fiscal years, the average increase in

revenue will be an average of 445 billion dollars in the next 5 years. This translates to a 12%

annual increase for the next years. This assumption is taken into consideration for the Apple

scenario.

Interest expense is at a 6% rise annually this is according to historical data and the current rates

in the United States and European countries like the UK. The current US corporate rate is at 20%

and will remain constant. The operating margin is assumed to be an average of 29.8% for the
next five years. In addition, they assume Apple will not purchase any property and equipment in

the next five years and also no investing activities will take place.

Apple being a low-risk company, its Net Present Value discounted at 5% is $1,193,323. The IRR

is -14.2% which is lower than 1The Economic value added(EVA) is 102,193,279 in 2022 and

$440,060,460. The MIRR IS 14.1%

Reference

Miller, M. H., & Modigliani, F. (2012). Dividend policy, growth, and the valuation of shares. the

Journal of Business, 34(4), 411-433.

Fin Box 2023

https://finbox.com/NASDAQGS:AAPL/explorer/revenue_proj#:~:text=Analysis&text=Apple's

%20revenue%20forecast%20is%20expected,the%20next%205%20fiscal%20years.