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Running Head: Financial Analysis Report – Apple Inc.

Financial Analysis Report – Apple Inc.

Krista Netzley

University of Redlands

BUSB 361

Professor Wingerd
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Overview

Ipod. Ibook. i___, you name it, Apple Inc. most likely makes it. If it doesn’t already exist,

there is a significant chance that it will exist in the near future. Apple has been the leader in

personal computer technology for some time now. Generations of technology users have at least

heard of the brand “Apple”. Have you ever wondered where the name "Apple Computer" came

from? Co-founder, Steve Jobs, came up with the name in early 1976. At the time, he was often

visiting and working on a small farm that friends of his owned. It is speculated that Jobs

probably was working on apple plantations or that he just wanted their startup to be in front of

Atari in the phone book. Apple aims for nothing short of a revolution, whether in personal

computing or digital media distribution. The company's desktop and laptop computers include its

Mac mini, iMac, and MacBook for the consumer and education markets, and more powerful Mac

Pro and MacBook Pro for high-end consumers and professionals involved in design and

publishing. (Yahoo Finance AAPL) Apple scored a runaway hit with its digital music players

(iPod) and online music store (iTunes). Other products include mobile phones (iPhone), servers

(Xserve), wireless networking equipment (AirPort), and publishing and multimedia software.

Apple gets more than half of its sales in the US. (Yahoo Finance AAPL)

While Apple Inc. remains a laggard in price performance regarding personal computers and

MP3 players, they remain the leader in market capitalization (5). Apple Inc. (AAPL) stock

continues to rise when new product and services become available. Started by Steve Jobs, Steve

Wozniak, and Ronald Wayne, Apple has expanded from computers to consumer electronics over

the last 30 years, officially changing their name from Apple Computer, Inc. to Apple, Inc. in

January 2007. Apple Inc. has locations across the globe with its corporate headquarters located in

Cupertino, California. Support for Apple consumers and businesses is available 24 hours a day
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and 7 days a week via the internet and their 1-800 support numbers. Apple Inc. has an aggressive

community outreach program as well as a strong environmental protection plan that continues to

reduce its carbon footprint on our environment through many outlets of its manufacturing,

transportation and logistics, including a recycling program.

Biographies

Steven Jobs – Chief Executive Officer, Director

Mr. Steven Jobs was reappointed as Chief Executive Officer, Director of Apple Inc in June 29,

2009. He has been a Director of Apple Inc. since 1997. He is one of Apple Inc.'s co-founders and

currently serves as its Chief Executive Officer. (2)

Peter Oppenheimer – Chief Financial Officer, Senior Vice President

Mr. Peter Oppenheimer is Chief Financial Officer, Senior Vice President of Apple Inc. He joined

the Company in July 1996. Mr. Oppenheimer also served the Company as Vice President and

Corporate Controller and as Senior Director of Finance for the Americas. Prior to joining the

Company, Mr. Oppenheimer was Chief Financial Officer of one of the four business units for

Automatic Data Processing, Inc. (“ADP”). (2)

Timothy Cook – Chief Operating Officer

Mr. Timothy D. Cook is Chief Operating Officer of Apple Inc. He joined the Company in March

1998. Mr. Cook also served as Executive Vice President, Worldwide Sales and Operations from

2002 to 2005. In 2004, his responsibilities were expanded to include the Company’s Macintosh

hardware engineering. From 2000 to 2002, Mr. Cook served as Senior Vice President,

Worldwide Operations, Sales, Service and Support. (2)

Bruce Sewell – Senior Vice President, General Counsel, Secretary

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Mr. Bruce Sewell is Senior Vice President, General Counsel, Secretary of Apple Inc. He joined

the Company in September 2009. (2)

Philip Schiller – Senior Vice President – Worldwide Product Marketing

Mr. Philip W. Schiller is Senior Vice President, Worldwide Product Marketing of Apple Inc. He

rejoined the Company in April 1997. Prior to rejoining the Company, Mr. Schiller was Vice

President of Product Marketing at Macromedia, Inc. from December 1995 to March 1997 and

Director of Product Marketing at FirePower Systems, Inc. from 1993 to December 1995. (2)

Ronald Johnson – Senior Vice President – Retail

Mr. Ronald B. Johnson is Senior Vice President - Retail of Apple Inc. He joined the Company in

January 2000. Prior to joining the Company, Mr. Johnson spent 16 years with Target Stores,

most recently as Senior Merchandising Executive. (2)

Bertrand Serlet – Senior Vice President – Software Engineering

Mr. Bertrand Serlet is Senior Vice President, Software Engineering of Apple Inc. He joined the

Company in February 1997 upon the Company’s acquisition of NeXT and also served the

Company as Vice President of Platform Technology. (2)

Scott Forstall – Senior Vice President – iPhone Software Engineering and Platform Experience

Mr. Scott Forstall is Senior Vice President of iPhone Software Engineering and Platform

Experience of Apple Inc. He joined the Company in February 1997 upon the Company’s

acquisition of NeXT. (2)

Robert Mansfield – Senior Vice President – Mac Hardware Engineering

Mr. Robert Mansfield is Senior Vice President - Mac Hardware Engineering of Apple Inc. He

joined the Company in November 1999 as Vice President of Development Engineering and

assumed his current position in May 2008. (2)

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There are many hands that have built the empire that is known today as Apple Inc.

biographies of the top executives were extracted from www.reuters.com where Apple Inc

provides an extensive company organizational chart outlining many of their top executives.

Recent Transactions

For more than 20 years, Apple has been working on ways to minimize the impact that their

company and products have on the environment. Apple developed and formulated the first

environmental policy in 1990, and every year since then, they’ve continued to make their

products more energy efficient, embracing renewable energy in their facilities. It is no secret that

Apple Inc. has continued to hold a high ranking in innovation regarding technology. From

laptops and digital media to MP3 players and internet servers; for the last decade Apple has

continued to provide consumers of both the professional level and business level an alternative to

the PC. Here are some of the most recent transactions that Apple Inc. has presented to us in the

past 5 years:

2005 - The Apple Supplier Code of Conduct is implemented.

2006 - Apple is the first computer manufacturer to entirely replace CRT displays with material-

efficient and energy-efficient LCDs. (6)

2007 – Apple introduces iphone. First products with bromine-free printed circuit board laminates

are introduced. First MacBook Pro with mercury-free LED-backlit display is announced and

Apple expands its employee commuter program to include fuel-efficient biodiesel commuter

coaches. (6)

2008 - Apple introduces the uni-body MacBook and MacBook Pro, made with recyclable

aluminum and glass enclosures with arsenic- and mercury-free displays and BFR- and PVC-free

internal components. MacBook Air is the first Mac to use mercury-free backlight technology
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with arsenic-free LCD display glass. iPhone 3G ships with PVC-free handset, headphones, and

USB cables; BFR-free printed circuit boards; and a mercury- and arsenic-free display.(6)

2009 - Apple reveals complete life cycle analysis of greenhouse gas emissions, setting a new

standard of full environmental disclosure. While other companies report on a fraction of their

emissions, Apple is the only company in the industry that considers the environmental footprint

of each of its products. All Mac notebook and desktop computers earn EPEAT Gold status.

The new Mac mini, iMac, and Mac Pro meet the ENERGY STAR 5.0 specification.

All products ship BFR-free and with mercury-free LED-backlit displays and arsenic-free display

glass. Apple introduces a new built-in battery with the MacBook Pro family that lasts nearly

three times longer than typical notebook batteries. (6)

2010 – Apple introduces the Ipad. A tablet computer available in multiple data capacity amounts

for all types of businesses and personal computer users. Apple introduces the new Mac mini, the

world’s most energy-efficient desktop computer. It can operate on just 10 watts of electricity,

which is less power than a single energy-efficient CFL light bulb. Apple introduces Beatles to

the iTunes library in November. (6)

Financials

Apple Inc. is a publicly traded company on the NASDAQ (AAPL), with 2010 sales thus far

measured at $65,225,000,000, Apple employs just under 50,000 associates company-wide. For

the month of December 2010 they have averaged a $321 dollar per share stock price. With the

high being $323.99 and the low being $318.12.

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Apple Inc. Cash flow for the past 3 years:

Net financing cash flow for Apple Inc. in 2006 was $324.0 million each year and has not

necessarily held a continuous pattern of growth, it declines in both 2007 and 2009 but when it

did increase the amount was significant and it is currently at $1.26 billion. This pattern remains

true for the majority of Apple Inc. cash flow. Although the recession dinged them slightly, Apple

was able to recover in a better position than it began.

Apple Inc. Common-sized income statement & balance sheet:

Apple Inc. Income Statement & Balance Sheet

% of
2010 2008 2010 2008 Change
65,225.0 32,479.0 100.0 100.0
Revenue 0 0 % % 0.0%
39,541.0 21,334.0 60.6 65.7
Cost of Goods Sold 0 0 % % -5.1%
25,684.0 11,145.0 39.4 34.3
Gross Profit 0 0 % % 5.1%
Gross Profit Margin 39.40% 34.30% 0.0% 0.0% 0.0%
11.6
SG&A Expense 5,517.00 3,761.00 8.5% % -3.1%
Depreciation &
Amortization 1,027.00 473 1.6% 1.5% 0.1%
18,385.0 28.2 19.3
Operating Income 0 6,275.00 % % 8.9%
Operating Margin 28.20% 19.30% 0.0% 0.0% 0.0%
Non operating Income -156 620 -0.2% 1.9% -2.1%
Non operating Expenses 311 -- 0.5% 0.0% 0.5%
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18,540.0 28.4 21.2

Income Before Taxes 0 6,895.00 % % 7.2%
Income Taxes 4,527.00 2,061.00 6.9% 6.3% 0.6%
14,013.0 21.5 14.9
Net Income After Taxes 0 4,834.00 % % 6.6%
14,013.0 21.5 14.9
Continuing Operations 0 4,834.00 % % 6.6%
Discontinued Operations -- -- 0.0% 0.0% 0.0%
14,013.0 21.5 14.9
Total Operations 0 4,834.00 % % 6.6%
14,013.0 21.5 14.9
Total Net Income 0 4,834.00 % % 6.6%
Net Profit Margin 21.50% 14.90% 0.0% 0.0% 0.0%
Diluted EPS from Total
Net Income 15.15 5.36 0.0% 0.0% 0.0%
Dividends per Share 0 0 0.0% 0.0% 0.0%

% of
Assets 2010 2008 2010 2008 Change
Current Assets
11,261. 11,875. 30.0
Cash 00 00 15.0% % -15.0%
9,924.0 4,704.0 11.9
Net Receivables 0 0 13.2% % 1.3%
1,051.0
Inventories 0 509 1.4% 1.3% 0.1%
19,442. 17,602. 44.5
Other Current Assets 00 00 25.9% % -18.6%
41,678. 34,690. 87.7
Total Current Assets 00 00 55.4% % -32.2%
4,768.0 2,455.0
Net Fixed Assets 0 0 6.3% 6.2% 0.1%
28,737. 2,427.0
Other Noncurrent Assets 00 0 38.2% 6.1% 32.1%
75,183. 39,572. 100.0
Total Assets 00 00 100.0% % 0.0%

Apple has seen a 15% decrease in cash on hand and a decrease of 18.6% of current assets since

2008. This gives them more than a 305 decrease in total assets in the last 2 years. Although

Apple Inc. continues to grow, and maintain profitability certain areas of their financials have

suffered and then recovered in the midst of the strains on our economy.
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Liabilities and % of
Shareholder's Equity 2010 2008 2010 2008 Change
Current Liabilities
12,015. 5,520.0 29.8
Accounts Payable 00 0 43.9% % 14.1%
Short-Term Debt -- -- 0.0% 0.0% 0.0%
8,707.0 8,572.0 46.2
Other Current Liabilities 0 0 31.8% % -14.4%
20,722. 14,092. 76.0
Total Current Liabilities 00 00 75.6% % -0.4%
Long-Term Debt -- -- 0.0% 0.0% 0.0%
Other Noncurrent 6,670.0 4,450.0 24.0
Liabilities 0 0 24.4% % 0.4%
27,392. 18,542. 10.0
Total Liabilities 00 00 10.0% % 0.0%
Shareholder's Equity
Preferred Stock Equity -- --
47,791. 21,030. 100.0
Common Stock Equity 00 00 100.0% % 0.0%
47,791. 21,030. 100.0
Total Equity 00 00 100.0% % 0.0%
Apple Inc. invests in securities that are reported at fair value. Unrealized gains and losses

related to changes in these fair value of investments are included in accumulated other

comprehensive income, net of tax, as reported in the Company's Condensed Consolidated

Balance Sheets. Changes in the fair value of these investments impact Apple Inc.’s net income

only when the investments are sold. Apple Inc. regularly reviews its investment portfolio to

determine if any investment is other-than-temporarily impaired due to changes in credit risk or

other potential valuation concerns. Apple Inc.’s assessment on whether an investment is other-

than-temporarily impaired or not, could change in the future due to new developments or

changes in assumptions related to any particular investment.

Apple Inc.’s net sales consist primarily of revenue from the sale of their hardware, software,

digital content and applications, peripherals, and service and support contracts. Apple Inc.

recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred,

the sales price is fixed or determinable, and collection is probable. Product is considered
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delivered to the customer once it has been shipped and title and risk of loss have been

transferred. For most of Apple Inc.’s product sales, these criteria are met at the time the product

is shipped. Online sales to customers is only considered transferred once the product is delivered

as Apple Inc. assumes some risk involved in transit of the product. (www.apple.com)

Suggestions

Apple Inc.’s operations and performance depends significantly on worldwide economic

conditions. Uncertainty about current global economic conditions poses a risk as consumers and

businesses may continue to postpone spending in response to tighter credit, unemployment,

negative financial news and declines in income, which could have a negative effect on demand

for Apple Inc.’s products and services. Demand could differ materially from Apple Inc.’s

expectations since they generally raise prices on goods and services sold outside the U.S. to

offset the effect of strengthening the U.S. dollar. Global markets for Apple Inc.’s products and

services are highly competitive and subject to rapid technological change. If Apple is unable to

compete effectively in these markets, its financial condition and operating results could be

adversely affected. In order for Apple Inc. to continue its path of success it will have to compete

in the global market as well as domestically in the United States. Aggressive price cutting,

frequent introduction of new products and services as well as short product life cycles will make

a significant impact on their success and would keep them one foot ahead of their competition.

(4) Both Dell and Compaq offer similar products and services; however, they are not as preferred

as the “Apple” brand. Apple Inc. continues to hold an advantage over their competition by

holding many patents and copyrights as well as holding the design rights to many of their

hardware products, such as the iphone, Ipad and ipod.(3) Apple Inc.’s competition will struggle
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with these roadblocks and may only have the primary defense of aggressive pricing in order to

make their products more attainable to consumers.

Conclusion

Both the consensus recommendation and the detailed analyst recommendation for Apple Inc.

stock states that it is a “strong buy”. Apple Inc. has remained a well managed company for the

past 30 years. Predictions for the stock continue in an upward movement as Apple Inc. plans to

release the Ipad 2 in February of 2011, making its appearance right before the release of

Google’s personal computer, which will challenge Apple Inc. as well as Microsoft in mid-2011.

Apple Inc. should continue to remain one of the top 5 companies in the computer hardware

industry. Apple Inc. has had year-over-year sales growth of 66.7% during the last quarter. The

company has reported $65.2 billion in sales over the past 12 months and is expected to report

$101.1 billion in sales in the next fiscal year. Overall, Apple Inc. is a great company to associate

your investments with and will remain a leader in the industry if history does in fact repeat itself.

(4)
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References

1. Ross, Westerfield & Jordan (2007). Essentials of Corporate Finance. (6e) McGraw-Hill

Irwin Publishing.

2. Executive Biographies. (2010, Dec). Retrieved from

http://www.reuters.com/finance/stocks/companyOfficers?symbol=AAPL.O

3. Yahoo Business AAPL. (2010, Dec). Retrieved from

http://biz.yahoo.com/ic/12/12644.html

4. Yahoo Finance AAPL. (2010, Dec). Retrieved from

http://finance.yahoo.com/q?s=AAPL

5. Hoovers, AAPL. (2010, Dec). Retrieved from

http://www.hoovers.com/company/Apple_Inc/rtjcci-1-1njdap.html

6. Apple (2010, Dec). Retrieved from

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http://www.apple.com