FINANCIAL ANALYSIS OF APPLE INC.

FINANCIAL STATEMENTS FROM 2014-2017

PRESENTED FOR INVESTORS AND CREDITORS

PREPARED BY:
JIMS L. CEZAR
GABRIELLE D. FULLANTE
NICO A. OGARTE
MARYVIL O. REBANCOS

SUBMITTED TO:
IRALYN DE JESUS
Is it a good decision to invest in that company?

The financial analysis on the profitability, liquidity and earning power of the
company, shows good figures that will be favorable to future investors. For the past four
years, the company’s earnings are an optimum and the fluctuations are only at a meager
amount. Although the ratios show a slight dip, the actual figures in the financial reports
are still good. And when compared with the industrial averages, Apple Inc. is on the top
in terms of market shares followed only by Samsung Inc. The company is also the
number one in terms of profit and revenue.

Based on its earning power ratios, or its ability to generate profit from operations,
the company is at a good standing from the past three years. Notice that in 2015 and
2016, there is a decrease on its profit. This is due to the fact that two of its main
products, iPod and iPad were declining sales. But this was soon remedied with the
release of new versions of iPhone and a new product, the Apple watch. After these
events, Apple’s profit continues to soar and in 2018, it became the first 1 trillion
company. But in 2015, even though their profit had a slight dip, the company is still the
number one in terms of profit in its industry.

In addition, the analysis of the percentage growth (horizontal analysis) shows

progressive increase in its sales and profit as well as its shareholder’s equity. This
continuous growth shows a promising future

Is it a good company to join in terms of understanding its culture, and ethical ways of
doing business?
YES.
In terms of understanding culture:
Apple has a corporate culture that enables human resources to support various
strategic objectives. For example, the company’s cultural traits are aligned with the drive
for innovation, which is a major factor that determines business competitiveness in the
information technology, online services, and consumer electronics industries. Based on
the organizational culture, this business condition facilitates the fulfillment of Apple Inc.’s
corporate mission and vision statements. Through the leadership of Steve Jobs and,
now, through the leadership of Tim Cook, the company continues to enhance its cultural
characteristics to maximize human resource support for business relevance in various
markets around the world. Apple shapes its corporate culture and uses it as a tool for
strategic management and success.
In terms of ethical ways in doing business:
Apple has tried to ensure that its employees and those with which they work
display appropriate conduct in all situations. It bases its success on “creating innovative,
high-quality products and services and on demonstrating integrity in every business
interaction.” According to Apple, four main principles contribute to integrity: honesty,
respect, confidentiality, and compliance. To more thoroughly detail these principles,
Apple has drafted a code of business conduct that applies to all its operations, including
 those overseas. It has also made available on its website more specific policies
regarding corporate governance, director conflict of interest, and guidelines on reporting
questionable conduct. Additionally, Apple provides employees with a Business Conduct
Helpline that they can use to report misconduct to Apple’s Audit and Finance Committee.

Would it be a good decision to lend fund to the company?

Yes. Creditors can confidently lend funds to the company seeing that they can easily
meet obligations. The liquidity ratios show the sufficiency of the company’s assets to
support its current liabilities. It is reflected that, if liquidated, they can certainly pay their
liabilities with a ratio more that 1:1. Also, their cash ratio shows that they can pay with
cash and cash equivalents alone. The company is credit worthy if it will be based on the
liquidity ratios.
If ever, their liabilities are allotted mostly for development of new products which
generate sales more than any other companies in their industry. The company is
financially stable; its market shares are respectable and they continue to be the leading
brand internationally.
EARNING POWER OF APPLE INC.
2014 2015 2016 2017
FINANCIAL LEVERAGE RATIO 1.867 2.262 2.472 2.657
FINANCIAL LEVERAGE INDEX 1.991 2.568 1.517 1.770
TOTAL DEBT RATIO 0.519 0.589 0.601 0.643
DEBT TO EQUITY RATIO 1.078 1.434 1.508 1.800
DEBT TO TANGIBLE NET WORTH 1.170 1.551 1.617 1.914
TIMES-INTERESTS EARNED RATIO 139.271 98.936 42.034 27.625
OPERATING CASH FLOW TO TOTAL DEBT 0.496 0.349 0.309 0.247

Computation of Earning Power:

Formula: Earnings Before Income Taxes (EBIT)
Total Assets
(IN BILLIONS)

2014 2015 2016 2017

Earnings Before Income Taxes $ 53.48 $ 72.52 $ 61.37 $ 64.09
Divide: Total Assets $ 321.69 $ 290.48 $ 231.84 $ 207.00
Basic Earning Power 16.62% 24.97% 26.47% 30.96%

35.00%

30.00%

25.00%
2014
20.00%
2015
15.00% 2016

10.00% Series 4

5.00%

0.00%
Basic Earning Power

Earning Power ratio is a measure that calculates the earning power of a business before the
effect of the business’ income taxes and its financial leverage. It is calculated by dividing
earnings before interest and taxes. It is similar to return on assets ratio as both have the same
denominator i.e. total assets. However, unlike return on assets which measures the net earning
power, the basic earning power ratio calculated the operating earning power i.e. their
numerators are different.
When analysts look at earnings power, they typically look for long-term earnings power – that is,
the ability to survive for a long time. In this case, there’s an increasing trend in the earning
power of Apple which means, the company was able to generate profit from conducting its
operations.

RETURN ON ASSETS 2014 2015 2016 2017

Net Income $ 39.51 $ 53.39 $ 45.69 $ 48.35
Divide: Total Assets $ 321.69 $ 290.48 $ 231.84 $ 207.00
ROA 12.28% 18.38% 19.71% 23.36%

25.00%

20.00%

15.00% 2014
2015
10.00% 2016
2017
5.00%

0.00%
Return on Assets

The difference between the Earning Power ratio and Return on Asset ratio is equal to the
amount expensed out as interest expense and taxes.

It appears that Apple is better at converting its investment into profits. In 2017, the ROA is
23.36% meaning every dollar that the company invested in assets generated 23-cents of net
income.

Return on assets (ROA) is not the only way to measure earnings power. Earnings per share and
return on equity (ROE) are also popular measures.

It only makes sense that a higher ratio is more favorable to investors because it shows that the
company is more effectively managing its assets to produce greater amounts of net income. A
positive ROA ratio usually indicates an upward profit trend as well. Depending on the economy,
this can be a healthy return rate no matter what the investment is.
RETURN ON EQUITY 2014 2015 2016 2017
Net Income $ 39.51 $ 53.39 $ 45.69 $ 48.35
Divide: Total Shareholder's Equity $128.249 $119.355 $111.547 $123.549
ROE 30.81% 44.73% 40.96% 39.13%

50.00%
45.00%
40.00%
35.00%
30.00% 2014

25.00% 2015
20.00% 2016
15.00% 2017
10.00%
5.00%
0.00%
Return on Equity

2014 2015 2016 2017

BASIC EARNINGS PER SHARE 6.49 9.28 8.35 9.27
EPS Growth 13.49% 42.99% -10.02% 11.02%

50.00%

40.00%

30.00%
2014
20.00% 2015
2016
10.00%
2017
0.00%
Earnings Per Share Growth
-10.00%

-20.00%
PROFITABILITY RATIOS
Net profit margin
2014 2015 2016 2017
.217 .216 .231 .231

0.235 In the above given ratios, we can see

that that the net profit margin from
0.23 2014 to 2015 decreases by .001.
This means that the company is
0.225
2014
.001slightly less efficient at
converting sales to actual profit. With
0.22 2015 the given size of the previous income
2016 of the company, the said increase is
0.215 relatively high and material. While
2017
from 2015 to 2016, net profit margin
0.21 increases by .015, this also indicates
a higher conversion of sales to
0.205
revenue. It also entails how effective
Net Profit Margin
a company is at cost control.
Compared with industry average, it tells investors how well the management and operations of
a company are performing against its competitors. In 2016 and 2017 the net profit margin is
constant at .231 this means that they have maintained the performance on their operations.

Net Operating Profit Income to Sales

2014 2015 2016 2017

.294 .292 .314 .286

The Net Operating Profit Ratio is

used to calculate the percentage of 0.32
profit a company produces from its 0.315
operations, prior to subtracting
0.31
taxes and interest charges. In the
ratios presented above, the Net OP 0.305
from 2014 to 2015 decreased by 0.3 2014
.002 but increases by .022 by 0.295 2015
2016, this means that the company
0.29 2016
still shows a positive management
of the company’s operating 0.285 2017
expenses and well management of 0.28
operations leading to high rate of 0.275
income. But it also shows that it
0.27
decreases by .028 by 2017, it is
Net Operating Profit Income to Sales
due to the decrease in sales from
2016 to 2017.

Return on Investment
2014 2015 2016 2017
.169 .180 .243 .208

0.3

0.25

0.2
2014

0.15 2015
2016
0.1
2017

0.05

0
Return on Investment

The return on investment ratio (ROI), also known as the return on assets ratio, is a profitability
measure that evaluates the performance or potential return from a business or investment. In
2015, the company’s ROI increased by .011. Also, from 2015 to 2016 it increased by .063, this
is an indicator that there is a relative gain on the company’s investments, meaning the
investment’s gains compare favourably to its cost. On 2017, the company’s ROI drops from .243
to .208, having a decrease of .035 which possibly means that the company ineffectively utilizes
the investments.

Marginal Return on Common Equity

2014 2015 2016 2017

.021 .118 .066 .023
 0.14

0.12

0.1
2014
0.08
2015
0.06 2016

0.04 2017

0.02

0
Marginal Return on Common Equity

The company’s marginal return on common equity shows an increase of .097 from 2014 to 2015
which indicates that the company effectively gains return from shareholder’s investment. This is
beneficial because it allows companies and investors alike to see what sort of return the
voting shareholders are getting if preferred and other types of shares are not counted. But it has
a relative decrease of an average of .0475 by 2016 and 2017, which is quite a negative thing for
the company especially to its investors but as compared to its industry’s average, it still shows a
positive overall marginal return on common equity.

Marginal Profitability Rate

2014 2015 2016 2017

.277 1.586 -0.929 .227

Return on Common Equity

2014 2015 2016 2017

.336 .462 .369 ..369

Return on Total Equity

2014 2015 2016 2017

.315 .342 .431 .348
 2

1.5

0.5

0
Marginal Profitability Rate Return on Common Equity Return on Total Equity
-0.5

-1

-1.5

2014 2015 2016 2017

LIQUIDITY RATIOS

2014 2015 2016 2017

CURRENT RATIO 1.570 1.409 1.326 1.628
QUICK RATIO 1.421 1.347 1.365 1.616
CASH TO CURRENT ASSETS 0.366 0.465 0.628 0.577
CASH RATIO (Cash to Current Liabilities) 0.574 0.656 0.833 0.939
CASH FLOW RATIO 1.368 0.941 0.741 0.756

Current Ratio

1.8
1.6
1.4
1.2
2014
1
2015
0.8
2016
0.6 2017
0.4
0.2
0
Current Ratio

This ratio reflects the number of times short-term assets cover short-term liabilities and is a fairly
accurate indication of a company's ability to service its current obligations. A higher number is
preferred because it indicates a strong ability to service short-term obligations. The composition
of current assets is a key factor in the evaluation of this ratio. Depending on the type of business
or industry, current assets may include slow-moving inventories that could potentially affect
analysis of a company's liquidity how long could it potentially take to convert raw materials and
inventory into finished products?
The current ratio above indicates a decrease in the times short-term assets can cover its short
term liabilities. But this does not mean that they cannot anymore their liabilities. This might
mean that they need money to fund projects, research or development of new technology. Still,
the figures show a strong ability to meet is current obligations.
Quick Ratio

1.65

1.6

1.55

1.5
2014
1.45
2015
1.4
2016
1.35 2017
1.3

1.25

1.2
Quick Ratio

This ratio, also known as the acid test ratio, measures immediate liquidity - the number of times
cash, accounts receivable, and marketable securities cover short-term obligations. A higher
number is preferred because it suggests a company has a strong ability to service short-term
obligations. This ratio is a more reliable variation of the Current ratio because inventory, prepaid
expenses, and other less liquid current assets are removed from the calculation.
Taking out the inventories, the quick ratio shows that Apple remains strong and stable when it
comes to paying off its current obligations using only its cash, receivables and marketable
securities for the past five years. This means that they do not rely on inventories, non-quick
asset, in meeting their obligations. These shows that Apple’s current operations are making
enough profits to pay off current liabilities.
The remaining ratios are variations of the quick ratio analysis. The first one, cash to current
assets ratio shows the liquidity of the current assets. It is a sign that the cash to current ratio is
high because this means that cash represents a big portion of the current assets and is readily
available to pay the current liabilities.
In quick ratio analysis, the receivables are included in the computation. However, it is not good
to rely too much on receivables because they are not easily convertible to cash at all times. The
cash ratio shows the how cash and marketable securities can easily settle the current liabilities.
The cash ratio figure provides the most conservative insight into a company’s liquidity since
only cash and cash equivalents are taken into consideration.
Lastly, the cash flow ratio indicates that the net cash inflow from operating activities can pay
the current liabilities of the company. From the figures above, it shows that Apple Inc., in the
past four years of operations can pay their liabilities using the cash component of their operating
profit.
Liquidity ratios are used to determine a company’s ability to meet its short-term debt obligations.
Since a company that is consistently having trouble meeting its short-term debt is at a higher
risk of bankruptcy, liquidity ratios are a good measure of whether a company will be able to
comfortably continue as a going concern. The figures above show that the company can easily
pay off liabilities with its current assets. Investors therefore can presume that their operations
are thriving.
Creditors on the other hand can confidently lend funds to the company seeing that they can
easily meet obligations. The liquidity ratios show the sufficiency of the company’s assets to
support its current liabilities.

1.6
1.4
1.2
1 2014
0.8 2015
0.6 2016
0.4 2017
0.2
0
CASH TO CURRENT CASH RATIO CASH FLOW RATIO
ASSETS
Horizontal Analysis

2013-2014 2014-2015 2015-2016 2016-2017 AVE.

TREND
-
Sales/Revenue 0.07 0.26 0.07 0.07 0.08
Cost of Goods Sold -
(COGS) incl. D&A 0.05 0.26 0.08 0.08 0.08
COGS excluding -
D&A 0.04 0.25 0.08 0.09 0.08
Depreciation & - -
Amortization Expense 0.18 0.42 0.07 0.03 0.12
- -
Depreciation
0.18 0.46 0.10 0.01 0.13
Amortization of -
Intangibles 0.13 0.16 0.18 0.18 0.07
-
Gross Income 0.11 0.26 0.07 0.05 0.09

SG&A Expense 0.18 0.24 0.08 0.11 0.15

Research &
Development 0.35 0.34 0.25 0.15 0.27
-
Other SG&A
0.11 0.20 0.01 0.08 0.09
Other Operating
Expense
- - -
Unusual Expense 1.00 1.00 1.00
EIT after Unusual - - -
Expense 1.00 1.00 1.00
Non Operating - - - - -
Income/Expense 1.90 7.32 1.05 6.90 4.29
Non-Operating -
Interest Income 0.11 0.62 0.86 12.00 2.97
Equity in Affiliates
(Pretax)

Interest Expense 1.82 0.91 0.99 0.59 1.08

Gross Interest
Expense 1.82 0.91 0.99 0.59 1.08
Interest Capitalized
-
Pretax Income 0.07 0.36 0.15 0.04 0.08
-
Income Tax 0.06 0.37 0.18 0.00 0.06
Income Tax - Current - - - -
Domestic 0.09 0.37 0.34 0.06 0.03
Income Tax - Current - -
Foreign 0.38 1.20 0.55 0.21 0.20
Income Tax -
Deferred Domestic 0.92 0.06 0.54 0.22 0.43
Income Tax - - - -
Deferred Foreign 0.54 1.75 1.02 1.48 0.05
Income Tax Credits

Equity in Affiliates
Other After Tax
Income (Expense)
Consolidated Net -
Income 0.07 0.35 0.14 0.06 0.08
Minority Interest
Expense
-
Net Income 0.07 0.35 0.14 0.06 0.08
Net Income After -
Extraordinaries 0.07 0.35 0.14 0.06 0.08
Preferred Dividends
Net Income -
Available to 0.07 0.35 0.14 0.06 0.08
Common
-
EPS (Basic) 0.13 0.43 0.10 0.11 0.14
Basic Shares - - - - -
Outstanding 0.06 0.06 0.05 0.05 0.05
-
EPS (Diluted) 0.14 0.43 0.10 0.11 0.14
Diluted Shares - - - - -
Outstanding 0.06 0.05 0.05 0.05 0.05
-
EBITDA 0.10 0.29 0.11 0.02 0.07

This analysis and interpretation of income statement by way of horizontal analysis will involve
the following:
1. The increase or decrease in sales should be compared with the increase or decrease in
cost of goods sold.
2. To study the operating profits.
3. The increase or decrease in net profit is calculated that will give an idea about the
overall profitability of the concern.
The comparative income statement given shows that there has been an AVERAGE
INCREASE in sales of 8% from 2013 to 2017. The minimal percentage increase was due to the
decline of -7% in the year 205-2016. The cost of goods sold has AVERAGELY increased by
8%. Although it was clear that there was a significant decline on sales a year ago, still it has
resulted in an average increase of gross profit by 9%.
 Operating expenses have an average increase by 17%. The increase in gross profit is
sufficient to cover the operating expenses. There is also an average increase in net profit after
tax from 2013 to 2017 of 8%.
It is concluded from the above analysis that despite of the significant decline from 2015-
2016, there is sufficient progress in the performance of the company and the overall profitability
of the company is good.