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Apple Inc.

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Apple Inc.

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  1. Apple Inc. MBA 604 Financial Analysis Project By: Yasir Rashid, Omar Alaqeel, Ronald Davis, Laurie Davis, & Darren Southard

  2. Apple Inc. & History • Apple Inc. formally known as known as Apple Computer Inc. was founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne • Apple Inc. dropped the word computer in 2007 to reflect the company’s expansion into consumer electronics market in addition to its traditional focus personal computers • Apple Inc. is a American multinational corporation which manufactures and designs consumer electronics & software products • Apple Inc. sells its products worldwide through its online stores , its direct sales force, third party wholesalers ,and resellers • Hardware products include: Macintosh computers, iPod, iPhone • Software products include: Mac OS X Operating system, iTunes media, iLife creativity software products, iWork • Apple generated nearly 33 billion in revenue in 2008 • Apple competitors: Dell Inc., Hewlett-Packard Company, and Microsoft Corp.

  3. Competitor & History Are you a PC? • Microsoft corporation was founded in 1975 by Bill Gates and Paul Allen • Multinational computer technology corporation which develops, manufactures, licenses, and supports a wide range of products for computing devices. • Microsoft hardware products include: Xbox, Xbox 360, Mouse/keyboards and Zune. • Microsoft software products include: Microsoft windows, Microsoft Office (i.e. Excel, PowerPoint, Word, etc.), PC/Xbox software games • Microsoft generated 61.98 billion in revenue in 2008

  4. Ratio: EPS (Earnings Per Share) – Profitability MeasuresImportance: EPS is a measurement of the corporation’s per shares performance over a period of time • Earnings Per Share (EPS)=Net Income/No. of Shares outstanding • Q1 (12/2008) EPS: 1605.00/890.42 = $1.80 • Q4 (09/2008) EPS: 1136.00/888.33 = $1.28 • Annual EPS (09/2008): 4,834.00/888.33 = $5.44 • Q2 (12/2008) EPS: 4,174.00/8,889.00 = $0.47 • Q1 (09/2008) EPS: 4,373.00/8,977.00 = $0.49 • Annual EPS (06/2008): 17,681.00/9,151.00 = $1.93 Apple (Ticker: AAPL) Microsoft (Ticker: MSFT)

  5. Ratio: P/E (Price Earnings) – Overall Performance MeasuresImportance: The P/E ratio is the best indicator of how investors judge the firms future performance • Price Earnings Ratio=Market Price Per Share/Net Income Per Share • Q1 (12/2008) P/E: $85.35/1.81 = 47.2 times • Q4 (09/2008) P/E: $113.66/1.28 = 88.8 • Annual P/E (09/2008): $113.66/5.04 = 20.7 • Q2 (12/2008) P/E: $19.44/0.47 = 41.4 times • Q1 (09/2008) P/E: 26.29/0.48 = 54.8 • Annual P/E (06/2008): 19.44/1.87 = 10.4 Apple Microsoft

  6. Ratio: Book Value Per ShareImportance: Comparing the market value to the book value can indicate whether or not the stock value is overvalued or under valued, BV is considered to be the accounting value of each share • Book value Per Share=Total Shareholders Equity/Total outstanding shares • Q1 (12/2008) BVPS: 19,878.00/890.42 = $22.32 • Q4 (09/2008) BVPS: 21,030.00/888.33 = $23.67 • Annual BVPS (09/2008): 21,030.00/888.33 = $23.67 • Q2 (12/2008) BVPS: 34,478.00/8,889.00 = $3.88 • Q1 (09/2008) BVPS: 33,594.00/8,977.00 = $3.74 • Annual BVPS (06/2008): 36,286.00/9,151.00 = $3.97 Apple Microsoft

  7. Selling, General, & Administrative / SalesExpenses for salaries, commissions, advertising, promotions, travel, entertainment / revenue. Apple Microsoft • Sept. 2008 – Q1 • SG&A = (3,931.00 * 1,000,000) / • Revenue = (15,061.00 * 1,000,000) • = 0.2610 * 100 = 26.10% • Dec. 2008 – Q2 • SG&A = (4,493.00 * 1,000,000) / • Revenue = (16,629.00 * 1,000,000) • = 0.2702 * 100 = 27.02% • Year Ending June 2008 • SG&A = (18,166 * 1,000,000) / • Revenue = (60,420 * 1,000,000) • = 0.3007 * 100 = 30.07% • Sept. 2008 – Q4 • SG&A = (999.00 * 1,000,000) / • Revenue = (7,895.00 * 1,000,000) • = 0.1265 * 100 = 12.65% • Dec. 2008 – Q1 • SG&A = (1,091.00 * 1,000,000) / • Revenue = (10,167.00 * 1,000,000) • = 0.1073 * 100 = 10.73% • Year Ending Sept. 2008 • SG&A = (3,761 * 1,000,000) / • Revenue = (32,749 * 1,000,000) • = 0.1148 * 100 = 11.48%

  8. Asset TurnoverEfficiency of corporate assets in generating revenue – Sales / Average Quarterly Assets. Higher the number the better. Measures pricing strategy – low profit margins, high ATO (inverse). Apple Microsoft • Sept. 2008 – Q1 • Revenues = (15,061 * 1,000,000) / • Avg. Quarterly Assets = ((65,117 * 1,000,000) + (72,793 * 1,000,000)) / 2 • = 68,955,000,000 • Asset Turnover = 0.22 • Dec. 2008 – Q2 • Revenues = (16,629 * 1,000,000) / • Avg. Quarterly Assets = ((65,786 * 1,000,000) + (65,117 * 1,000,000)) / 2 • = 65,451,500,000 • Asset Turnover = 0.25 • Sept. 2008 – Q4 • Revenues = (7,895 * 1,000,000) / • Avg. Quarterly Assets = ((39,572 * 1,000,000) + (31,709 * 1,000,000)) / 2 • = 35,640,500,000 • Asset Turnover = 0.22 • Dec. 2008 – Q1 • Revenues = (10,167 * 1,000,000) / • Avg. Quarterly Assets = ((42,787 * 1,000,000) + (39,572 * 1,000,000)) / 2 • = 41,179,500,000 • Asset Turnover = 0.25

  9. Inventory TurnoverHow many times a company’s inventory is sold and replaced.Low ITO, poor sales, excess inventory levels. High ITO, strong sales, too low of inventory levels. Apple Microsoft • Sept. 2008 – Q1 • Cost of sales = (2,263 * 1,000,000) / • Avg. Quarterly Inventory = ((1,640 * 1,000,000) + (985 * 1,000,000)) / 2 • = 1,312,500,000 • Inventory Turnover = 1.72 • Dec. 2008 – Q2 • Cost of sales = (3,275 * 1,000,000) / • Avg. Quarterly Inventory = ((968 * 1,000,000) + (1640 * 1,000,000)) / 2 • = 1,304,000,000 • Inventory Turnover = 2.51 • Sept. 2008 – Q4 • Cost of sales = (5,022 * 1,000,000) / • Avg. Quarterly Inventory = ((509 * 1,000,000) + (545 * 1,000,000)) / 2 • = 527,000,000 • Inventory Turnover = 9.53 • Dec. 2008 – Q1 • Cost of sales = (6,477 * 1,000,000) / • Avg. Quarterly Inventory = ((396 * 1,000,000) + (509 * 1,000,000)) / 2 • = 452,500,000 • Inventory Turnover = 14.31

  10. Current RatioA measure of liquidity comparing current assets / current liabilitiesHigher ratio = current liabilities more than likely to be paid to creditors Apple Microsoft • Sept. 2008 – Q1 • Current Assets = (37,202 * 1,000,000) / • Current Liabilities = (24,383 * 1,000,000) • = 1.53 • Dec. 2008 – Q2 • Current Assets = (37,730 * 1,000,000) / • Current Liabilities = (23,710 * 1,000,000) • = 1.59 • Year Ending June 2008 • Current Assets = (43,242 * 1,000,000) / • Current Liabilities = (29,886 * 1,000,000) • = 1.45 • Sept. 2008 – Q4 • Current Assets = (34,690 * 1,000,000) / • Current Liabilities = (14,092 * 1,000,000) • = 2.46 • Dec. 2008 – Q1 • Current Assets = (35,163 * 1,000,000) / • Current Liabilities = (14,757 * 1,000,000) • = 2.38 • Year Ending Sept. 2008 • Current Assets = (34,690 * 1,000,000) / • Current Liabilities = (14,092 * 1,000,000) • = 2.46

  11. Ratio Comparisons – December 2008 Importance: Profit Margin – Is an overall ratio for profitabilityReturn on Assets – Reflects how much a firm has earned on the investment of all the financial resources committed to the firm Profit margin of 36%: Gross margin(3,690) / Net sales revenues (10,167)= 0.362 Return on assets of 3.75%: Net income (1,605) + interest (1-.30) / Total assets (42,787) = 1,605+(1-.30)/42,787= .0375 Profit margin of 80%: Gross margin / Net sales revenues 13354 / 16629 = 0.803 Return on assets of 13%: Net income (8547) + interest (1-Tax rate) / Total assets (65,786) = 8547 + 195.00(mil)(1-0.26) / 65,787= 0.13 Apple (Q1) Microsoft (Q2)

  12. Ratio Comparisons – December 2008Importance: Return on Common Equity – Is useful for comparing the profitability of a company to that of other firms in the same industry Cost of Goods Sold – The direct cost attributed to the production of the goods sold by the company Return on common equity Of 7%: Net income (1,605) / Shareholders’ equity (22,909) = 0.07006 Cost of goods sold (6,477)/ sales (10,167) = 0.637061 (64%) Return on common equity of 12%: Net income (8,547) / Shareholders’ equity (34,478) = 0.1214 Cost of goods sold (3,275)/ sales (16,629) = 0.196945 (20%) Apple (Q1) Microsoft (Q2)

  13. Ratio Comparisons Annual 2008 Apple Microsoft Profit margin of 35%: Net Income(11618) / Net sales (32479)= .35 Return on assets of 29%: Net income (11618) + interest (1-Tax Rate <.30>=0.74) / Total assets (39572) = 0.29 Profit margin of 84%: Net Income (50878) / Net sales (60420) = .84 Return on assets of 24% : Net income (17681) + interest 195 (1-Tax rate<.26>=0.74) / Total assets (72793) =0.24

  14. Ratio Comparisons Annual 2008 Return on common equity Of 23%: Net income (4834) / Shareholders’ equity (21030) = 0.229 Cost of goods sold (20861)/ sales (32479) = .642 or 64% Return on common equity Of 49%: Net income (17681) / Shareholders’ equity (36286) = 0.487 Cost of goods sold (9542)/ sales (60420) = 0.157 or 16% Apple Microsoft

  15. Items as percent of net sales (in millions)

  16. Items as percent of net sales (in millions)

  17. Tests of Financial Condition • Q1=19,878.00 /42,787.00=0.46 Q4=18,542.00 /39,572.00=0.47 Q1=19,878.00/22,909.00=0.86 Q4=18,542.00/21,030.00=0.88 1.Liabilities/assets =Total Liabilities/Total Assets. Q2=31,308.00/65,786.00 =0.47 Q1=31,523.00/65,117.00=0.48 Q2=31,308.00/34,478.00=0.90 Q1=31,523.00/33,594.00=0.94 2.Dept/Equity =Total Liabilities/Shareholders’ equity. 3.Long Term Debt/Assets ratio.

  18. Tests of Investment Utilization 1.Acid-test (Quick) =(Current Assets - Inventory)/Current Liabilities. Q2=(37,730.00-968.00)/23,710.00=1.55 Q1=(37,202.00-1,640.00)/24,383.00=1.45 Q1=(35,163.00-396)/14,757.00=2.36 Q4=(34,690.00-509)/14,092.00=2.42 2.Days’ Receivables =Accounts Receivable/(Sales/365). Q1=2,196.00/(10,167.00/365)=78 Q4=2,422.00/(7,895.00/365)=111 Q2=10,953.00/(16,629.00/365)=240 Q1=9,535.00/(15,061.00/365)=231

  19. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Depreciation Method: • Apple & Microsoft both utilize straight linemethod of depreciation. Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets. Inventory Method: • Inventories are stated at the lower of cost, computed using the first-in, first-out method, or market. If the cost of the inventories exceeds their market value, provisions are made currently for the difference between the cost and the market value. The Company’s inventories consist primarily of finished goods for all periods presented.

  20. Auditors’ Opinion • Apple 10K report revealed that the auditors (KPMG) opinion is Unqualified opinion on the consolidated financial statements.

  21. Conclusion • Microsoft • SG&A = 30.7% • Asset Turnover (Q1)= 0.25 • Inventory T/O= 2.51 (Q2) • Current Ratio = 1.45 • (Earnings Per Share = $1.93) • P/E = 10.4 • Apple • SG&A = 11.48% • Asset Turnover (Q1)= 0.25 • Inventory T/O = 14.31 (Q1) • Current Ratio = 2.46 • (Earnings Per Share = $5.44) • P/E = 20.7

  22. References • Apple, Inc. References: • Apple, Inc., Annual Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report=2&freq=1 • Apple, Inc., Annual Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report=1&freq=1 • Apple, Inc., Quarterly Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report=1&freq=2 • Apple, Inc., Quarterly Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report=2&freq=2

  23. References • Microsoft, Inc. References: • Microsoft, Inc., Annual Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&report=2&freq=1 • Microsoft, Inc., Annual Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&report=1&freq=1 • Microsoft, Inc., Quarterly Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&report=1&freq=2 • Microsoft, Inc., Quarterly Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&report=2&freq=2

  24. References • Ratio Definitions: • Selling, General & Administrative Expense, Retrieved May 9, 2009, from http://www.investopdeia.com/terms/s/sga.asp • Asset Turnover, Retrieved May 9, 2009, from http://www.investopedia.com/terms/a/assetturnover.asp • Inventory Turnover, Retrieved May 9, 2009, from http://www.investopedia.com/terms/i/inventoryturnover.asp • Current Ratio, Retrieved May 9, 2009, from http://www.investopedia.com/terms/c/currentratio.asp