Part A: Financial Ratios for Apple for Five Past Years
Current Ratio = Current Asset/Current Liabilities (Liquidity ratio that measures the ability of the company to pay its short-term debts)
Return on Assets = Net Income/Average Assets (A measurement of management’s efficiency to generate profits from investment in assets)
Asset Turnover = Sales/Average Assets (The measurement of company’s efficiency to turn assets to sales)
Debt to Asset Ratio = Total Liabilities/Total Assets (The measurement of financial leverage as it tells what % age of total assets is financed by creditors)
Dividend Yield = Cash Dividend Per Share/Market Value Per Share (The measurement of % age of cash dividend that is given to the shareholders relative to market value per share)
Part B: Review of Business Strategy and Financial Position of Apple, Inc.
The current ratio of 1.10 times of the company indicates that the company was able to run its operations effectively on cash basis and the ratio was higher than 2014, but lower than 2013, 2012 and 2011. Moreover, ROA (20.45%) specifies that the company’s management was efficient to use its assets to generate earnings. In addition, asset turnover (0.89 times), debt/asset (59%), and dividend yield (1.75%) provide a notion that the company used its assets efficiently to generate revenue, 59% assets were financed with debt and investment in stocks provided returns. The company’s financial position in 2015 was more stable than previous years as current ratio in 2015 was higher than previous years, ROA was higher than 2013 and 2014, and asset turnover was higher than 2014. However, debt to asset ratio was higher than previous years and dividend yield was lower than 2014 and 2013. The results are similar to strategy of the Apple in 2015 and its competitive position. It can be ascertained by the fact that the competitive advantages of the company included brand appeal (Sun, 2015), differentiation and premium prices (Nielson, 2014), eco-system and strong cash position (Lowensohn, 2015).
In 2014, the strategy of the company was revolved around the expansion of assets and providing innovative products and services. In addition, the business strategy included focus on R & D to reach customers and to provide high quality sales experience. Moreover, the competitive advantage of the company was differentiation and premium pricing (Nielson, 2014). The company’s ratios in 2014 provide an overview of successful implementation of the strategy. The current ratio of the company was 1.08 times that means it had enough cash to pay its short-term debts. However, the ratio was lower than 2013, 2012 and 2011. The ROA was 18.01% that indicates the return of 18.01% on the investment in assets that was lower than 2013, 2012, and 2011. The asset turnover, debt to asset, and dividend yield were 0.83 times, 52% and 1.81% respectively. It means the company was able to turn its assets 0.83 times into sales and 52% assets of the company were financed by creditors. In addition, 1.81% cash dividend was given to shareholders relative to market value per share.
In 2013, the strategy of the company was to offer high-end premium line for the prosperous customers as well as a scaled-down product line at low prices for other customers. The strategy was to offer high-end Apple iPhone 5S in gold, silver, and platinum to affluent customers and low prices iPhone 5C in fun plastic colors to other customers (Basulto, 2012). The strategy was to increase sales and make profits from investing in assets and to provide innovative products. It can be understood by the financial ratios of the company as the current ratio was 1.68 times (higher than 2012 and 2011), ROA was 19.35% less than 2015, 2012 and 2011, asset turnover was 0.89 times (less than 2012 and 2011), debt/total assets ratio was 40% and dividend yield was 2.37% (higher than 2012 and 2011). It means the company through implementation of its strategy, earned enough cash to pay short-term debts, converted 19.35% of assets into income, generated sales by using assets, funded 40% assets by creditors, and gave 2.37% cash dividend to shareholders relative to market value per share. The results also identified that the company’s profits were higher by selling iPhones, but return on assets was low. Moreover, due to high profits the company paid high cash dividend to shareholders relative to market value per share.
In 2012 and 2011, the business strategies of the company were innovation, differentiation and provision of high quality products and services. The company successfully implemented the strategies as the current ratio in 2012 and 2011 was 1.50 times and 1.61 times. It indicates a healthy cash inflow to meet daily need of cash to run operations by selling products. In addition, the ROA in 2012 and 2011 was 28.54% and 27.06% that provide a notion about efficiency of management to generate income through investment in assets like new stores and buildings. The asset turnover in 2012 and 2011 was 1.07 times and 1.13 times that specifies the efficiency of the company to turn assets into sales. Debt to assets ratio in 2012 and 2011 was 33% and 34%. On the other side, dividend yield was 0.40 % in 2012 and 0% in 2011. It provides an overview that the company funded less % age of assets through creditors, but do not paid enough cash dividend relative to market value per share.
The overall mean value of current ratio for five years is 1.394 times that means company has enough cash to run its operations by selling of products and services and effective pricing strategy as indicated by Kalb (2012) and Lowensohn (2015). The average RAO of five years is 22.68% and asset turnover is 0.962 times. It provides a notion that the company’s management is efficient to generate income through assets’ use and the company is efficient to turn assets into sales (refers to Appendix B). Furthermore, average debt to asset ratio of five years is 44% and dividend yield is 1.27%. It means about half of assets are funded by the company through creditors and the company paid 1.27% cash dividend to shareholders relative to market value of share. The results are associated to overall strategy of the company i.e. differentiation, innovation, ecosystem and brand appeal, and distribution channels, etc. However, the company’s focus on funding assets by creditors is not good. The company requires to change its strategy and should relay on the equity instead of debt to fund assets.
References
Apple, Inc. (2011). Annual Report. Retrieved from: http://files.shareholder.com/downloads/AAPL/1648374627x0xS1193125-11-282113/320193/filing.pdf
Apple, Inc. (2012). Annual Report. Retrieved from: http://files.shareholder.com/downloads/AAPL/1648374627x0xS1193125-12-444068/320193/filing.pdf
Apple, Inc. (2013). Annual Report. Retrieved from: http://files.shareholder.com/downloads/AAPL/1648374627x0x701402/A406AD58-6BDE-4190-96A1-4CC2D0D67986/AAPL_FY13_10K_10.30.13.pdf
Apple, Inc. (2014). Annual Report. Retrieved from: http://files.shareholder.com/downloads/AAPL/1648374627x0x789040/ED3853DA-2E3F-448D-ADB4-34816C375F5D/2014_Form_10_K_As_Filed.PDF
Apple, Inc. (2015). Annual Report. Retrieved from: http://files.shareholder.com/downloads/AAPL/1648374627x0x861262/2601797E-6590-4CAA-86C9-962348440FFC/2015_Form_10-K_As-filed_.pdf
Basulto, D. (2013). Apple’s new strategy: Trickle-down innovation. Retrieved from: https://www.washingtonpost.com/news/innovations/wp/2013/09/11/apples-new-strategy-trickle-down-innovation/
Kalb, I. (2012). Apple's Success Wasn't Just About Platform Control, Design or Management. Retrieved from: http://www.businessinsider.com/pundits-give-the-wrong-reasons-for-apples-success-2012-6
Lowensohn, J. (2015). Apple posts $18 billion profit, the largest in its history. Retrieved from: http://www.theverge.com/2015/1/27/7923461/apple-q1-2015-earnings
Nielson, S. (2014). Apple’s premium pricing strategy and product differentiation. Retrieved from: http://marketrealist.com/2014/02/apples-premium-pricing-strategy-product-differentiation/
Sun, L. (2015). Apple Inc.'s Sustainable Competitive Advantages. Retrieved from: http://www.fool.com/investing/general/2015/05/18/apple-incs-sustainable-competitive-advantages.aspx
Appendices
Appendix A
Data from Income Statements and Balance Sheets of Apple for Past Five Years
Source: Apple, Inc. (2015), Apple, Inc. (2014), Apple, Inc. (2013), Apple, Inc. (2012), and Apple, Inc. (2011)
Appendix B
Source: Sun (2015)
