Apple Corporation

RATIO ANALYSIS ASSIGNMENT

Sir Asim Shaikh | Intro to Business Finance | Project Report

Group Members:

Zubair Ahmed Panhyar

Khadija Altaf
Aleeza Zaheer
Rizwana Memon
Introduction
Apple Computer, Inc. Designs, manufactures, and markets personal computers, software,
networking solutions, and peripherals, including a line of portable digital music players.
Apple’s product family includes the Macintosh line of desktop and notebook computers,
the iPod digital music player, the Mac OS X operating system, the iTunes Music Store,
the Xserve G5 server, and Xserve RAID storage products. The company’s products are,
through third-party wholesalers, and through its own chain of stores. The company
operates several hundred retail stores in several countries as well as the online store and
iTunes Store. Apple owns approximately 125 retail stores in the United States, as well as
stores in Canada, Japan, and the United Kingdom.

Origin
Established in Cupertino, California on April 1, 1976, co-founded by Steve Jobs and
Steve Wozniak, the company was called “Apple Computer, Inc.” For its first 30 years,
but dropped the word “Computer” on January 9, 2007, to reflect the company’s ongoing
expansion into the consumer electronics market. Through its philosophy of
comprehensive aesthetic design and its distinctive advertising campaigns, Apple Inc. Has
established a unique reputation in the consumer electronics industry. Apple has attracted
a customer base that is devoted to the company and its brand, particularly in the United
States.

History
In 1976, three men founded Apple: Steve Jobs, Steve Wozniak, and Ronald Wayne with
the intention of selling Wozniak’s hand-built Personal Computer named Apple 1. They
began their business together using Steve Jobs’ parents’ home in Los Altos, California.
Initial work took place in his bedroom and later moved to the home’s garage.

Apple was started in Steve Jobs’s parents’ home, with the first products handmade in
their garage. The Apple 1 was sold as a motherboard with CPU, RAM, and basic textual-
video chips. It then lacked a built-in keyboard, monitor, case, or any other Human
Interface Devices (which was later added in 1977). In July 1976, the Apple 1 went on
sale and was sold for $666.66. Steve Wozniak took a special liking for repeated numbers
and hence the fancy number as the price. However, Ronald Wayne decided to leave the
company only a couple of weeks after it was founded. The Apple Computer Inc. Was
incorporated on January 3rd, 1977. Mike Markkula, the multimillionaire who had taken
interest in the Apple-1 provided the company required funding and business expertise.
Mike Markkula was the 3rd employee with a one-third share in the company. He
suggested a man named Michael Scott be the company’s first president and CEO as he
thought Steve was too young and undisciplined to be the CEO.

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 It was in 1977 that the Apple II was introduced, also by Wozniak. VisiCalc (the world’s
first ‘killer-app’), a ground-breaking spreadsheet and calculating software helped the
Apple II computers to stand ahead of market leaders Tandy and Commodore PET.
VisiCalc gave users an additional reason to buy the Apple II because of its office
compatibility. With the introduction of color graphics, the Apple II was able to
revolutionize the computer industry.

By 1978, Apple had a real office with several employees and an Apple II production
line. In the years that followed, revenues grew exponentially for the Apple company
doubling every four months. Their yearly sales grew from $775,000 to $118 million
between September 1977 and September 1980 (average annual growth rate of 533%).

Jobs and several employees were allowed to visit the Xerox PARC lab in 1979. It is
world famous for the laser printer, mouse, ethernet networking and other technological
accomplishments. Jobs and his engineers visited the PARC campus in return for the
option to buy 100,000 shares of apple for $10 a share.

By the year 1980, the competition was growing difficult with IBM and Microsoft in the
market. Apple released Apple III in the same year to compete with these companies in the
corporate computing market. The Apple III was not as successful due to a design flaw.
To reduce noise, Jobs insisted computers not have fans or vents which however, Jobs had
been convinced from the visit to the Xerox PARC labs that all future computers required
to use a Graphical User Interface (GUI) like the ones used today. He immediately began
the development of a GUI for Apple’s next generation computer, Apple turn created
problems due to dangerous overheating. Thus, the Apple III lost to IBM computers.

Unfortunately, Jobs was removed from the Lisa team due to infighting and became a part
of the low-cost-computer project, the Macintosh. Lisa was released in 1983 and met with
disastrous sales due to its high price and limited software support.

Apple went public on December 12, 1980, at $22 per share. According to EDN Network,
Apple’s $4.6 million shares sold out immediately and generated more capital than any
other IPO (Initial Public Offering) since the Ford Motor Company in 1956. The IPO
created $217 million in wealth for Steve Jobs, the largest shareholder. The company’s
IPO also created 300 other millionaires instantly.

In 2007, Apple had kicked off the era of the touch screen smartphone with the invention
of first iPhone. This innovation has made a huge change in the smartphone market
because it caught the attention of the consumers. On 2010, again Apple unveiled the iPad
tablet computer and Apple has passed Microsoft as the largest US technology company in
term of market value in May.

In 2011, the co-founder Steve Jobs announced his resignation as Chief executive Officer
of Apple due to health problem and the Chief Operating Officer, Timothy D. Cook took

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over his place as the new Chief Executive Officer of Apple. In 2012 September, Apple
has introduced its new iPhone 5 which is the lighter, thinner, and more powerful of its
mobile devices. This new product captured the attention of the whole world by getting a
pre-order of 2 million and it is twice than the previous iPhone 4S In 2022 iPhone 14 and
iPhone 14 Plus. September 2022 - iPhone 14 Pro and iPhone Pro Max. September 2022 -
Air Pods Pro - Apple Watch Ultra. Are the latest inventions.

Today Apple is a successful Technology company that is thriving in today’s economy

with a Value of 700 billion Dollars, by selling product like” iPhone, iPad, iPod, Mac, and
Apple Watch They are coming out with new products every year that step up the
technology Standards for the market.

Conclusion
Apple Inc is a company that focuses on technology products. Steve Jobs was the
important person who led to the success of the company and currently replaced by Tim
Cook. For Steve Jobs, the mission of Apple Inc. Was his mission also. He planned to
come out with extraordinary smart phone or technology gadget that will meet or doing
better than the expectation of customers.

Managing an organization is a complex activity, effective manager must own many kinds
of skills, knowledge, and ability. Management is an unpredictable activity. Making the
right decision is difficult; even effective managers often take mistakes, but Steve Jobs
learn from their mistakes and continually find way to increase company’s performance.

Planning, organizing, leading, and controlling are essential parts of a manager’s job.
Performing these four activities successfully is important for effective management.
Management is important for a successful company, Steve Jobs’s leading had proven this.

Products
 Mac
 iPod
 iPhone
 iPad
 Apple Watch
 Apple TV
 OS X
 iOS
 life
 iWork
 Apple Store
 Online Apple Store

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  iTunes Store
 iOS App Store

Apple’s Organizational Structure Type and

Characteristics
Apple Inc. Has a hierarchical organizational structure, with notable divisional
characteristics and a weak functional matrix. The hierarchy is a traditional structural
feature in business organizations. The divisional characteristics refer to the product-based
grouping within Apple, such as for iOS and macOS. The weak functional matrix involves
inter-divisional collaboration, while the hierarchy is preserved. The following are the
main characteristics of Apple’s corporate structure:

Spoke-and-wheel hierarchy

Product-based divisions

Weak functional matrix

Spoke-and-Wheel Hierarchy. A bird’s-eye view of Apple’s organizational structure

shows a considerable hierarchy. In the past, everything went through Steve Jobs. Jobs
made all the major strategic management decisions. However, under Tim Cook’s
leadership, this hierarchy in Apple’s corporate structure has slightly changed. The
company now has more collaboration among various parts of the organization, such as
software teams and hardware teams.

Product-based Divisions. The upper and lower tiers of Apple’s corporate structure have
product-based divisions, which is an element derived from the divisional type of
organizational structure. There are senior vice presidents and vice presidents for different
outputs or products. For example, Apple has a Senior Vice President for Software
Engineering (iOS and macOS), a Senior Vice President for Hardware Engineering (Mac,
iPhone, and iPad), and a Senior Vice President for Hardware Technologies (hardware
components).

Weak Functional Matrix. Apple Inc.’s weak functional matrix refers to the collaborative
interactions among various components of the business. In a weak functional matrix, top
management determines project direction, while project heads have limited authority and
control. For example, the corporate structure allows hardware teams to collaborate with
software team.

Apple Inc.’s Corporate Structure – Advantages, Disadvantages, Recommendations

Strong Corporate Control, Limited Organizational Flexibility

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 Ratio Analysis of Apple
Ratio analysis is a quantitative method of gaining insight into a company's liquidity,
operational efficiency, and profitability by studying its financial statements such as the
balance sheet and income statement.

Liquidity Ratio
A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay
its short-term debt obligations. The metric helps determine if a company can use its
current, or liquid, assets to cover its current liabilities.

current assets 134,836

 Current Ratios: current liabilities 125,481
=1.07 x

Industry average is 1x

Interpretation: The current ratio of a firm measures the ability to pay its current or
short-term liabilities with its current or short-term assets. Apple can pay only one time for
its current liabilities with the help of its current assets.

current assets−inventories 134,836−6580

 Quick Ratios: =
current liabilities 125,481

1.01x

Industry average is 1.05x

Interpretation: The quick ratio will assess a company’s marketable

securities, receivables, and cash against its liabilities. This gives you an idea about
the company’s ability to pay for its current obligations. In this case Apple
incorporation can only pay almost one time for its current liabilities.

Asset Management Ratios

Asset management ratios are the key to analyzing how effectively and efficiently your
small business is managing its assets to produce sales.

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 sales 212,981
 Inventory Turnover: inventories 6580
=32.37x

Industry Average is 11.22x

Interpretation: Inventory turnover ratio (ITR) is an activity ratio which evaluates

the liquidity of a company’s inventory. It measures how many times a company has sold
and replaced its inventory during a certain period. Inventory turnover ratio of Apple is
32.37 which means apple has sold 32.37 times its inventory during the period which is
very good as compared to industry average. Liquidity of inventory is particularly good.

Receivables 26,278
 Days Sales Outstanding: 45.0 Days
annual sales /365 212,981 /365

Industry Average is 52 Days

Interpretation: Days Sales Outstanding (DSO) is the average number of days

taken by a firm to collect payment from their customers after the completion of a sale. So,
Apple corporation takes 45 days to collect cash from the credit customers.

Sales 365,817
 Fixed Asset Turnover: asssets ¿ =9.28 x
Net ¿ 39,440

Industry Average is 4.54x

Interpretation: Fixed asset turnover measures how efficient a company is in

generating sales from its fixed assets – property, plant, and equipment. Apple is utilizing
its fixed assets almost 9 times to generate revenue. And if we compare it with industry
average then Apple is utilizing its fixed assets better than its competitors.

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 Sales 365,817
 Total Asset Turnover: x
Total assets 351,002+ ¿=1.04 ¿

Industry Average is 0.59x

Interpretation: The asset turnover ratio, also known as the total asset turnover
ratio, measures the efficiency with which a company uses its assets to produce sales. The
total asset turnover ratio calculates as a percentage of assets to show how many sales are
generated from each dollar of company assets. Apple’s assts turnover ratio is 1.04 in
other words, the company is generating 1.04 dollar of sales for every dollar invested in
assets. and industry average is 0.59 which is low as compared to Apple. It is using its
assets efficiently.

DEBT MANAGEMENT RATIOS

A ratio of a company's debt to its total financing. The debt management ratio measures h
ow much of a company's operations comes from debt instead of other forms of financing,
such as stock or personal
savings.The debt management ratio is one measure among many of a company's risk and
likelihood of default.

Total debt 125,567

 Total Debt to Total Asset: =0. 36 %
Total asssets 351,002

Industry Average is 0.30%

Interpretation: The debt to total assets ratio is an indicator of a

company's financial leverage. It tells you the percentage of a company's total assets that
were financed by creditors. This indicates 36% of the Apple 's assets are being financed
by the creditors, and the owners are providing 64% of the assets' cost. The higher the debt
to total assets ratio, the greater the financial leverage and the greater the risk. Apple’s
total debt to total assets ratio is higher than the industry average this is due to Apple’s
total debt is higher than its competitors.

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 EBIT 111,852
 Times Interest Earned: = 42.3x
Interest charges 2645

Industry Average is 36x

Interpretation: Times Interest Earned Ratio is a solvency ratio that evaluates the
ability of a firm to repay its interest on the debt or the borrowing it has made. The ratio is
commonly used by lenders. Apple can pay almost thirty-two times its interest payments
on the debt. Apple has high TIE means that it likely has a lower probability of defaulting
on its loans.

Profitability Ratios
Profitability ratios are a class of financial metrics that are used to assess a
business's ability to generate earnings relative to its revenue, operating costs,
balance sheet assets, or shareholders' equity over time, using data from a specific
point in time.

EBIT 108,949
 Operating margin: = 29.78%
SALES 365,817

Industry average is 29.90%

Interpretation: Operating Profit Margin is the profitability ratio used to determine

the percentage of the profit the company generates from its operations before deducting
the taxes and the interest. Apple profit margin is 29.78% and industry average is almost
same.

Net income 94,680

 Profit margin: = 25.88%
SALES 365,817

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 Industry average is 26.42%

Interpretation: Profit margin is the ratio of profit remaining from sales after all
expenses have been paid. You can calculate profit margin ratio by subtracting total.
expenses from total revenue. Apple profit margin is 25.88% which is less than industry
average which is 26.42%. This could be because of Apple has to pay more interest
payments or it pay more taxes.

Net income 94,680

 Return on total assets: = 26.97%
Total assets 351,002

Industry average is 15.48%

Interpretation: The return on total assets is a profitability ratio that measures the
net income produced by total assets during a period. In other words, the return on assets
ratio or ROA measures how efficiently a company can manage its assets to produce
profits during a period. Return on assets also indicates the amount of money earned per
dollar of assets. Apple ROA is 26.97% which higher than industry average which is
15.48%. It means Apple is using its assts efficiently.

Net income 94,680

 Return on common equity: = 150.07%
Commonequity 63,090

Industry average is 42.30%

Interpretation: The return on common equity ratio measures how much money
common shareholders receive from a company compared with how much they invested
originally. This ratio tells investors how much they will earn on their investments. Apple
ROE is 150.07% which is greater than industry average which is 42.30%. This will
attract investors to invest in Apple rather than in other corporation cause here they get
more return on their investments.

EBIT (1−T ) 108,949(1−13.3 % )

 Return on invested capital: = 29.16%
Total invested 323,888

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 Industry average is 25%

Interpretation: Return on Invested Capital (ROIC) measures the percentage return

of profitability earned by a company using the capital invested by equity and debt
providers. Apple ROIC is 29.16% which is higher than industry average (25%). Because
Apple is using its total invested capital efficiently than its competitors.

EBIT 108,949
 Basic earning power: = 31.03%
Total assets 351,002

Industry average is 27.06%

Interpretation: Basic earning power (BEP) ratio is a measure that calculates the
earning power of a business before the effect of the business' income taxes and its
financial leverage. Apple BEP is 31.03% and industry BEP is 27.06%. This because
Apple operating cost is less than its competitors that’s why its EBIT is higher and also it
uses its assets efficiently.

Market Value Ratios

Market value ratios are financial metrics that measure and analyze stock prices and compare
market prices with those of competitors and against other facts and figures. These ratios track
the financial performance of public companies to understand their position in the market.
Price per share 140.48
 Price/earnings: =
Earning per share 5.61

25.04x

Industry average is 28.4x

Interpretation: The price to earnings ratio tells the investors how many rupees
they are paying for every rupee in earnings that the company presently has. Apple
price/earnings ratio is 25.04 then investors are paying almost $25 to get a stream of

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earnings of $1 per year till perpetuity. And industry average is $28 which means their
EPS is less or their PPS is higher than Apple corporation.

Common equity 63,090

Book value per share: Outstanding shares 16430
= $ 3.84x

Industry average is 3.5x

Interpretation: Book value per common share is a method to calculate the per-
share book value of a company based on common shareholders' equity in the company.
Apple book value per share is $3.84 and industry average are $3.5. It shows that Apple
stock is little bit expensive than other corporation in industry.

The DuPont Equation

DuPont analysis is a useful technique used to decompose the different drivers of
return on equity for a business. This allows an investor to determine what
financial activities are contributing the most to the changes in ROE. An investor
can use an analysis like this to compare the operational efficiency of two similar
firms.
 ROE= ROA * Equity multiplier
 ROE= Profit margin * total asset turnover * equity multiplier
 ROE= Net income/sales * sales/ total assets * total assets/total common equity
94,680 365,817 351,002
 ROE= * *
365,817 351,002 63,090
 ROE= 25.88% * 1.04 times * 5.56 times
 ROE= 150.07%

Industry average is 42.30%

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 Ratios Table

Ratio Name: Company Ratio Industry Average

Current Ratios 1.07 x 1x

Quick Ratios 1.01x 1.05x

Inventory Turnover 32.37x 11.22 x

Days Sales Outstanding 45.0 Days 52 Days

Fixed Asset Turnover 9.28 x 4.54x

Total Asset Turnover 1.04 x 0.59x

Total Debt to Total Asset 0.36 % 0.30%

Times Interest Earned 42.3x 36x

Operating margin 29.78% 29.90%

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 Profit margin 25.88% 26.42%

Return on total assets 26.97% 15.48%

Return on common equity 150.07% 42.30%

Return on invested capital 29.16% 25%

Basic earning power 31.03% 27.06%

Price/earnings 25.04x 28.4x

Book value per share 3.84x 3.5x

DuPont Equation 150.07% 42.30%

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 Conclusions

Apple Inc. is a company that has established itself as a market leader since its formation.
The achievements of the company are evident in the ratio analysis performed. The
liquidity ratios indicate that Apple is financially stable and healthy. The current and quick
ratios performed indicate that the company can repay its short-term liabilities with ease.
This is an indication of positive financial health and a company that can handle its
operations with ease. The debt ratios performed also indicate a company that is not
heavily reliant on debts for operations. A company that heavily relies on debt for daily
operations can encounter problems with rising operational costs. The higher operational
costs arise due to the interest expenses that the debt could attract. The result of the
increasing operational costs is reduced profits in the long run. Apple has achieved a good
mix of use of both equity and debt to meet the operational costs of running the company.
Apple also used its assets to generate profit in an efficient manner. Since 2017, Apple has
recorded a constantly rising assets turnover ratio. This means that as the company grew,
its efficiency in terms of using its assets to generate sales or revenue was improving.
Apple used its assets efficiently to generate revenue for the company. In general, Apple
is a company that is financially healthy and uses its resources efficiently. The company
also generates significant income for the investors. Investors, therefore, should consider
adding Apple's stocks to their investment portfolios. In the long run, Apple's stocks could
gain significant value in the stock market due to its high potential of performing well in
terms of sales and profit generation.

In a nut, Apple incorporation has outstanding performance. It’s percentage of the profit
from its operations is 29.78% almost same as industry average, also looking at it’s ROA
we come to know that it generates 11.49% higher return on assets than industry average
means it uses and manage its assets efficiently to produce profit during a period. Apple

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 incorporation attracts investors to invest in an Apple rather than in any corporation by
providing more return on equity. By comparing its ROE, which is 107.77% greater than
the industry average, signifies that more investors will invest, and the company will grow
in the long term. The Duo point analysis clarified that Apple incorporation is generating
optimal and substantial returns for their shareholders that attract them to invest in such a
stable company.

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