Apple Inc. is a public company that trades in the NASDAQ. The paper provides a business analysis of Apple Inc. conducted using a SWOT analysis. Both the external and internal factors that have influenced the company are discussed. Key challenges and strategies employed by the organization are also provided. From the trend analysis, conducted, profit generated has increase over a three-year period starting from 2009 to 2011. Apple 10-K financial statements were used for the analysis.
Introduction
Financial analysis provides crucial information to an investor especially when about to make huge investments in the various public company. One important form of financial analysis is business analysis, which involves a variety of methods. For this paper, the SWOT analysis will be used to analyze critical external and internal factors that have influenced Apple Inc. performance. Additionally, a review of the company’s financial statement should help guide you in understanding the company’s performance using trends analysis of the operating ratios for past three years.
Business Analysis
Key Strategic Challenges Facing Apple
Challenges in apple computers began because of disagreements between Jobs and Sculley. This was because of the differences on the best direction to take the company. Consequently, competition and technological changes in the computer industry created the main challenges for Apple. The technological changes proved to be a challenge to apple as it struggled to produce standardized software in the market. Various organizations, consumers and businesses, were demanding more operating systems that are compatible. In addition, Mac OS was not available for other computers and was used only on Macintosh. In an effort to improve their software products, Apple collaborated with Motorola and IBM to produce a power PC chip to run the PowerMacs. Despite this effort, losses in the company increased during 1996 and 1997.
While Apple was trying to market its products, a number of competitors emerged in the technological field. This was attributed to the rapid changing entertainment industry. An example of such a company is the Got Voice Company, which allows users to record and send voicemail messages in MP3 format to their email accounts, a free service, challenges Apple’s Visual Voicemail on the iPhone. Apples effort to expand its business to include more media and software is likely to face challenges. This is an effort to maintain its tech savvy image in the production of its products. The unique design in its products has established a large customer base, which will place more pressure on Apple’s design team.
Dimensions used to Measure Apple’s success.
Consequently, Apple’s success can be measured through the introductions of new products such as the iPad, Apple television, iPod, iPhone and iTunes. Furthermore, these new products indicate Apple’s advancement in technology and their efforts in research and development of fresh and innovative products. Moreover, Apples strategic agreements with various companies indicate that it has grown. These include agreements with Volkswagen, Nike, Burton Snowboards and Starbucks. These agreements include Apple’s iPhone product. This affiliation with different companies has increased customers confidence in Apple’s products.
Critical External and Internal Environment Factors
Strengths
Internal factors that have an impact on Apple’s future depend on the assets and competence within the company. Some of its strengths include its global presence, brand image, strong media content, and a synergistic portfolio. The iPod has penetrated about 70 percent of the digital music market and continues to grow due to its high sales in the portable digital music industry. Recent studies reveal that Apple has opened more than 200 retail stores worldwide. These retail stores have contributed an estimated $200 million. Apple’s ability to penetrate the global market has made it provide high tech products. These products have gained acceptance in different cultures across the world.
Apples brand image is another strength that provides aspects of future success. Its tech savvy design in its product has enabled it to develop a huge customer base. Such products as the iPad and the iPhone have enable Apple to make its mark in the technology market. Other products that have increased Apple’s brand image include iMac, iTunes and iPhotos.
Apple computer has a well-developed portfolio that incorporates different aspects in the design of its products. In addition to developing hardware, Apple Company has diversified into the design and marketing of media and software. Some of its products that enhance its portfolio include digital music, television shows (Sutherland, 2012). Consequently, the strong media content in its products has provided Apple with a competitive advantage among its rivals such as Napster. Users of iTunes can be able to access over six million songs. Apple’s goal was to provide a solution of reducing illegal pirating of music.
Weaknesses
Apple has recorded some low returns in its various products. In iTunes, Apples only makes 10 cents per download, which is because of payment of royalties. The main use of iTunes is to promote the sale of iPods. In addition, most of software produced by Apple was incompatible with most of the computers used by customers.
Another weakness is that Apple depends on IBM to supply its PowerPC chips, which serves its Power Mac. IBM experienced manufacturing problems in the production of the PowerPC chips that resulted in delaying shipments of products, in 2004. This was detrimental since the technology market depends on speed, which can affect Apple’s competitive advantage in the technology market. Another weakness is that some of the Apple TV features did not become popular among its customers. In addition, Apple’s success has relied heavily on the Steve Jobs vision and personality, which may affect its future performance in the technology market since sometimes Jobs has been too controlling.
Opportunities
Some of the opportunities that exist in Apple’s external environment include the brands exposure through its retail stores. Apple has been able to open more than 200 retail stores, which has helped it market its brand. After opening its first retail store in 2001, Apple recorded earnings of about $200 million, which was about 16 percent of its profit for the previous two years. Through the stores, Apple can be able to provide free workshops, direct assistance to Apple’s customers and personal training. Apple’s strategic partnerships with various organizations have helped it gain consumer confidence. This has been made possible due to Apple’s iPod product. In addition, Apple is using these agreements to promote its other products.
Another opportunity that is available for Apple Inc. is the use of a new digital platform. This platform can combine iTunes music video content to the television screens of its customers and other portable devices. According to Datamonitor (2006), incorporation of such a digital platform could prove to be beneficial to Apple’s business in the end.
Threats
The major threat that Apple faces is the strong competition from other industry players. For instance, in the iTunes market Wal-mart is the number one online music retailer in the U.S. Datamonitor (2006) indicates that, Apple faced most of its competition from companies that sell Windows-based personal computers. This lowered their prices largely. In addition, Apple faces competition from Got Voice, a Web-based company that allows its user’s free subscription for recording voicemail messages challenges Apple’s Visual Voicemail service. Consequently, certain companies have expressed frustration when working with Apple because of the lack of clarity on visions expressed by Jobs.
Apple’s Strategy against Industry Rivalry
Apple’s strategy against other rivals is based on its unique design of its products. Marketing of products has been an area that Apple has used to be a step ahead of other industry players. In its approach, Apple markets its products to the mainstream customers rather than focusing on the well-informed technical individuals. In its design of products, Apple focuses on meeting the needs of the different cultures of its customers (Schein, 2009).
Furthermore, Apple offers one-on-one services to its customers. Customers can be able to interact with Apple’s experts to attend to their technical problems concerning Apple products. Further, a shopping assistant assists customers to schedule appointments and select the right equipment for their Apple product.
Combined Income and Cash Flow Statement
Both the net income amounts and the cash flow amounts are the same ($25,922,000,000). As per the cash flow statement, the change in cash and cash equivalents is reported as $1,446,000,000 (Apple 10-K, 2012). The cash and cash equivalents recorded in the balance sheet, as at September 25, 2010 is $11,261,000,000, whereas the cash and cash equivalents as at September 24, 2011 is $9,815,000,000, which gives a difference of $1,446,000,000.
Huge difference in net income amount and cash flow amount shows that there is some discrepancy in the way the amounts were calculated. This is especially true since it is easier to manipulate net income amounts compared to cash flow amounts. Further, if the cash flows are low compared to the net income amounts, one can be able to know that the company is experiencing financial problems and it would not be wise to invest a company that cannot be able to support its daily operational activities. According to Ingram and Albright (2007), companies with a low cash amount do not have a long business future. Use of technology in financial analysis can help in reducing such huge differences since it allows for easier detection and correction of such huge differences. According to Shim and Siegel (2005), having an accounting system will greatly assist in the management of financial records that will be able to detect any anomalies in the financial statements.
Income statement for 2011
Currency in USD
Period Ending
September 23,2011
Total Revenue
Cost of Revenue
Gross Profit
Operating Expenses
Research Development
Selling General and Administrative
Non Recurring
Others
Total Operating Expenses
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Minority Interest
Net Income From Continuing Ops
Non-recurring Events
Discontinued Operations
Extraordinary Items
Effect Of Accounting Changes
Other Items
Net Income
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares
Cash flow statement for 2011
Currency in USD
Period ending
September 23,2011
Net income
Operating Activities, Cash flows provided by or used in
Depreciation
1,814,000,000
Adjustments to Net Income
4,036,000,000
Changes in accounts receivables
(1,791,000,000)
Changes in liabilities
8,664,000,000
Changes in inventories
275,000,000
Changes in other operating activities
(1,391,000,000)
Total Cash flow from operating activities
Investing Activities, Cash flows provided by or used in
Capital expenditures
(4,260,000,000)
Investments
(32,464,000,000)
Other cash flows from investing activities
(3,695,000,000)
Total Cash flow from investing activities
Financing activities, cash flows provided or used in
Dividends paid
Sale Purchase of Stock
831,000,000
Net borrowings
Other cash flows from financing activities
(520,000,000)
Total cash flows from financing activities
1,444,000,000
Effect of exchange rate changes
Change in cash and cash equivalents
(1,446,000,000)
Trend Analysis of Operating Ratios for 3 years (Currency in USD)
Bishop (2010) notes that operating ratios provide a good measure of how the efficient a company or a business is in conducting its business activities. A smaller value of the operating ratio shows the capability of the company to be able to generate profit. From the trend analysis of the operating ratios, the value has dropped from 2009 from 0.13 to 0.09 indicating that profits for Apple Inc. have increased over the span of 3 years.
Operating expenses
Net sales
Operating Ratios
Based on the analysis conducted in the above document, it would be beneficial to invest in Apple Inc. Firstly, as a company Apple Inc. focuses on improving their unique products, which acts a s key input in improving their financial performance. Additionally, the data from the trend analysis provides clear evidence of the capability of the company to make profits, thus an investment in this company will be profitable.
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