Apple Inc. is a company which manufactures consumer electronics and is located in California. The company has seen consistent growth as well as goodwill. Though there have been some ups and downs in the business, the company has managed the consumer base as well as tried its best to meet the expectations of the consumers worldwide. Apple has many competitors which are arising globally but to maintain the loyalty of the customers as well as maintain the goodwill is a difficult task which has been maintained well by the company.
The company is into the business of manufacturing and selling mobile phones, personal computers, portable music players and the software related to the above. Its sales consists of retail stores, online stores, direct sales and collaboration with third party cellular network. The company recently launched the Iphone 6 and Iphone 6 Plus which has broken all records of sale and is very appreciated by the consumers. Apple has delivered a high quality product to consumers worldwide. Apple has stores all over the world, it also sells it products through various retailors. The services provided by the company is up to the mark and it intends to ensure an increasing customer base.
The company faces aggressive competition from various manufacturers. Due to rapid technological advances and changing preferences of the consumers, the company faces excessive competition from similar companies. The company has stiff competition from Samsung, Google and Microsoft. The company also faces the risk of inflation and interest rates. The competitors have adequate resources and may even be willing to provide their products at no profits, this could harm the sales of Apple and its various products. Potential competitors are also entering the market with an ambitious goal towards development and increasing revenue.
Global conditions is one major risk factor for the company, due to higher unemployment and tight credit situations, consumers tend to postpone the purchase. Such conditions have a global and economic influence on the company. The company sells its products in various countries, the economic conditions and policies could adversely effect the company. In the event of future financial turmoil, it would be difficult for the company to continue its sales in the same manner. Low liquidity, financial institution failures, unemployment and financial instability of the partners could be a huge risk factor for the company.
Another risk factor is the increasing competition faced by Apple. With growing demand of consumers and increasing technology, Apple will have to move at a fast pace to maintain the momentum. There are various emerging companies who provide products at a low cost, this is a huge factor for consumers. The companies also try to imitate the product features and create a look alike product at a low cost. Such competition is only going to increase day by day. Apple has to constantly innovate and be involved in research and development. To maintain the product pricing, the technology will need to be maintained at a high level with the same quality in the services.
The third risk factor is the risks associated with third party transactions. Apple buys its components from a third party, a lot of services provided by the company also depend on the performance of carriers. The performance of distributors, retailers and carriers impact the financial stability of the company. The retailers also try to maximize their profits which eventually affects the price of the product being sold. The company also invests in resellers but there is no guarantee for returns. The company sells many products through retailers and resellers at various levels. The performance of all the third parties have an impact on the company. The subsidies provided by a cellular network may cease at any point of time. This could lead to a fall in the sales of cell phones. Apple has to invest money in third party so as to maximize its reach across the world but the risks associated with it should also be dealt accordingly.
The current ratio is calculated by current assets / current liabilities, which is 57653/38542= 1.5 for 2012 and similarly 44988/ 27970 = 1.61 in 2011 which is higher than the minimum standard of 1. Quick ratio is calculated as quick assets / current liabilities, quick assets consist of current assets minus inventory. The same is 49613 / 38542 = 1.30 in 2012 and 39683 / 27970 = 1.42 which is higher than the industry standards. The higher the quick ratio, better the position of the company.
The receivables turnover ratio is calculated by sales / average accounts receivable which is 156508 / 8150 = 19.20 and for 2011 it is 108249 / 5370 = 20.16. As for payables turnover ratio the formula is total purchase divided by average accounts payable which can be calculated as 30370 / 7318 which is 4.15 in 2012 and 32208 / 7320 which equals to 4.40 in 2011. The payables turnover ratio is quite low as compared to the standards. The inventory turnover ratio can be calculated as sales / inventory. For 2012, it works out to be 197.8 by 156508 / 791 and for 2011 it is 108249 / 776 = 140. The inventory is kept very low as compared to the amount of sales. It is a good measure to maintain less inventory hence the ratio gives a good sign.
The average payment period can be measured by number of working days divided by creditor turnover ratio. The number of working days have been assumed to be 360 in the given case. Hence the average payment period is 360 / 4.15 = 86.74 days in 2012 and 75.48 days. As for average collection period the formula is number of days divided by the receivables turnover ratio which is 360 / 19.20 which is 18.75 days in 2012 and 360 / 20.16 which is 18 days in 2011. The average inventory can be similarly calculated by the formula number of days in a period divided by the inventory turnover ratio which is 360 / 197.8 which is 1.82 in 2012 and 360 / 140 which equals to 2.57 days in 2011.
The earnings per share of the company for 2012 is 44.64 calculated by net income divided by the number of shares which is 41733 / 934818 and for 2011 it is 28.05 calculated as 25922 / 924258. The gross profit can be calculated as gross margin divided by sales which is 44% in 2012 by 68662 / 156508 and for 2011 it is 43818 / 108249 which is 40%. Similarly the net profit margin can be calculated by net profit divided by sales. For 2012, it is 41733 / 156508 which is 27% and for 2011 it is 25922 / 108249 which is 24%. The net profit is substantially maintained over the years. The operating profit can be calculated as operating income divided by sales. As for 2012 it is 55241 / 156508 which is 35% and for 2011 it is 33790 / 108249 which amounts to 31%.
Lastly, the return on investment is the amount generated for the investors. This can be calculated by (return- investment) divided by investment. This can be calculated as 41733 / 130500 which is 32% for 2012 and 29.32% for 2011. The investment has not been marginally increased. For return on equity, the formula is net income divided by average stockholders equity. For 2012 it is 41733 / 119250 which is 35% and similarly for 2011, it works out to 34%.
(Note: The company did not have any long term debt in 2012 and 2011, hence the ratios are not applicable.)
The current ratio is above 1 which is higher the standard, similarly the quick ratio is also above 1 which is lower the standard because it should ideally be above 2. The payables and receivables turnover ratio is decreased in 2012 as compared to 2011 and the average collection period has increased. This meets the industry standards. The inventory turnover ratio has increased and the turnover period has fallen which is a side effect of an increase in the ratio. This is lower than the industry standards. The financial ratios show an increase in 2012 as compared to 2011 which show that the company is financially stable and doing well. The return on investment and return on equity has increased which are above the standards and shows that the company is prospering. The company is also capable of paying dividends to the shareholders. Earnings per share have almost doubled increasing the value of shares and benefitting the shareholders. The gross profit margin is more than 40% which shows a high profit and increasing profitability in the coming years. The operating profit is also maintained at a proper level which shows that the operating expenses are in control and the company is following the budget prepared by it. The return on equity is also maintained at a level of more than 30% which makes sure the shareholders gain their share from the investment. The company has a bright future and increasing goodwill in the coming years. Apart from the risk factors, the company has to manage its business as it has been doing for the past years. It only shows a bright future and higher profitability.
Bibliography
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Apple Inc. (2014). Retrieved from Morning Star: http://financials.morningstar.com/ratios/r.html?t=AAPL
Arnold, N. (2013, Aug 05). Who are Apple's 3 Biggest Competitors? Retrieved from The Cheat Sheet: http://investor.apple.com/secfiling.cfm?filingid=1193125-12-444068&cik=
Blodget, H. (2012, July 25). Apples Profit margin may be starting to decline. Retrieved from Business Insider: http://www.businessinsider.com/apple-profit-margin-2012-7
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