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Autor: anton 12 May 2011
Words: 1845 | Pages: 8
Apple, Inc. (formerly known as Apple Computer, Inc.) was incorporated in the State of California in 1977. Apple currently designs, manufactures, and markets a variety of computer and personal electronic products, including Macintosh computers, and the iPod digital music player. AppleÐ¥s key markets are consumers, creative professionals, educational institutions, and business users.
For nearly twenty years, Apple computers have been the industry standard for creative industries such as publishing, advertising, digital music and video editing, and graphic design. Apple computer and peripheral products include Macbook and Macbook Pro laptops, iMac and Mac Pro desktops, as well a line of flat-panel displays and the Macintosh OS X operating system. Apple is currently the only company manufacturing computers that use the OS X operating system. Apple currently manufactures several high-priced software products aimed at the professional user, including the Logic line of digital audio production software, and Final Cut Pro video editing software.
Apple is the market leader in portable digital music players with their line of iPod products. Apple is also a leader in third-party digital content sales with the iTunes store, which seamlessly integrates with iTunes software and iPod hardware.
In June of 2007, Apple released its newest product, the iPhone. The iPhone combines a wireless phone with digital music and wireless Internet capabilities. The iPhone is probably the fastest selling new product in the history of Apple, with sales estimates of the $600 phone as high as 700,000 (Goldman Sachs) units during the first weekend after its launch. AT&T Wireless is the sole service provider for the iPhone, and Apple reportedly gets a share of iPhone service revenues.
Apple sells its products worldwide through a variety of channels. In addition to selling itÐ¥s products directly to consumers thru their website, Apple utilizes third-party wholesalers, resellers, and value-added resellers. Apple also runs a retail division, with 165 retails stores in operation at the end of FY2006.
Key Financial Ratios FY2006
Company Industry Sector S&P 500
P/E Ratio 43.70 36.50 30.02 20.73
Beta 1.22 1.38 1.66 1.00
Quick Ratio (MRQ) 2.88 2.29 2.68 1.29
Current Ratio (MRQ) 2.92 2.75 3.23 1.82
LT Debt to Equity 0.00 0.04 0.21 0.51
Total Debt to Equity (MRQ) 0.00 0.05 0.25 0.77
Interest Coverage (TTM) NM 4.74 14.09 13.53
Gross Margin (TTM) 31.53 27.63 51.84 44.54
Net Profit Margin (TTM) 12.92 8.46 14.43 13.75
Return On Assets (TTM) 17.09 12.40 11.10 8.28
Return On Investment (TTM) 24.58 25.43 15.54 12.25
Return On Equity (TTM) 26.63 36.92 20.34 20.63
Receivable Turnover (TTM) 24.13 14.20 8.17 10.40
Inventory Turnover (TTM) 71.75 58.61 12.85 12.08
TTM: Trailing Twelve Month
MRQ: Most Recent Quarter
Financial Ratio Analysis
Valuation and Financial Strength Ratios
Apple, Inc. currently has a Price-to-Earnings ratio of 43.70, compared to the industry standard of 36.50, and the S&P 500 average of 20.73. This indicates that Apple has a lower amount of risk than other firms in the computer manufacturing industry and other firms in the S&P 500. A high P/E ratio indicates low risk and high growth prospects, and Apple is outperforming the average firm in this aspect.
AppleÐ¥s current ratio for the most recent quarter is 2.92, which is higher than the industry standard, and over double the S&P 500 average. This means that Apple has enough assets that can be converted into cash in less than 12-months to cover nearly three times. Since a portion of the assets covered in this ratio is inventory, a better indicator of financial strength would be the quick ratio, as it excludes inventories. The quick ratio is 2.88, which is not much different than the current ratio. This would lead us to assume that the amount of inventory on hand is usually smaller than the industry average, or exclusion of inventory of assets would have a greater effect on this ratio.
By examining the long-term debt to equity ratio, as well as the remaining debt ratios, we can assume that Apple carries a relatively small amount of debt, as do most firms in the industry. This means that Apple has a proportionately large equity base, and a high amount of unused borrowing capacity.
Apple has a gross profit margin ratio of 31.53, which is higher than the industry average of 27.63. This indicates that Apple is either more efficient at reducing production costs than the average firm in the industry, or has more efficient pricing policies and/or sale techniques than the average firm in the industry. The fact that Apple owns 165 retail stores may help increases this ratio by allowing more sales that arenÐ¥t discounted to wholesalers or distributors. This ratio is well below the S&P 500 average for both Apple and the entire industry.
AppleÐ¥s net profit margin is 12.92, compared to the industry average of 8.46. AppleÐ¥s computer products are priced higher than most in the industry, and a combination of these higher prices and efficient cost controls could be a factor.
AppleÐ¥s inventory turnover ratio is 71.75, while the industry average is 58.61. AppleÐ¥s high inventory turn can be attributed to a period of high growth and increasing sales during FY2006, which will be discussed in the next section. The higher than average receivables turnover is also a result of increases sales activity.
AppleÐ¥s return on investment and return on equity are both lower than the industry average, but higher than the S&P 500 average. This could be result of AppleÐ¥s generally high R&D costs, resulting in unrealized earnings that will likely be collected in the coming quarters. Since Apple releases new products more often than the average firm, I would expect this number to fluctuate somewhat.
Financial Statements and Sales Performance
(all amounts in millions except share amounts)
March 31, 2007 September 30, 2006
Cash and cash equivalents $7,095 $6,392
Short-term investments 5,482 3,718
Accounts receivable, less allowances 928 1,252
of $48 and $52, respectively
Inventories 208 270
Deferred tax assets 640 607
Other current assets 1,676 2,270
Total current assets 16,029 14,509
Property, plant and equipment, net 1,409 1,281
Goodwill 38 38
Acquired intangible assets, net 240 139
Other assets 995 1,238
Total assets $18,711 $17,205
LIABILITIES AND SHAREHOLDERS EQUITY:
Accounts payable $2,403 $3,390
Accrued expenses 3,082 3,081
Total current liabilities 5,485 6,471
Non-current liabilities 965 750
Total liabilities 6,450 7,221
Commitments and contingencies
Common stock, no par value; 1,800,000,000 4,848 4,355
shares authorized; 864,693,091 and 855,262,568
shares issued and outstanding, respectively
Retained earnings 7,381 5,607
Accumulated other comprehensive income 32 22
Total shareholders equity 12,261 9,984
Total liabilities and shareholders equity $18,711 $17,205
Examination of the balance sheet shows Apple to be fairly strong financially, with cash and cash equivalents increasing $703 million during the six months that include the holiday shopping season, as well as an increase in short term investments, and a decrease in accounts receivable that is much less than the change in cash-based assets. There was also a sharp decrease in current liabilities, and an increase in retained earnings of $1.77 billion. This indicates that the company is in a strong growth period, and can be verified by examining the follow sales figures in the companyÐ¥s annual report:
Ð¢Net sales during 2006 increased 39% or $5.4 billion from 2005. This increase was due in part to the fact that 2006 spanned 53 weeks while 2005 spanned 52 weeks. Several other factors contributed to these increases including the following:
Ò Net sales of iPods increased $3.1 billion, or 69% in 2006 compared to 2005. Unit sales of iPods totaled 39,4 in 2006.
Ò Macintosh net sales increased $1.1 billion or 18% during 2006 compared to 2005. Macintosh unit sales increased by 769,000 units or 17% during 2006 compared to 2005.
Ò Other music related products and services consists of sales associated with the iTunes Store and iPod services and accessories. Net sales of other music related products and services increased $986 million or 110% during 2006 compared to 2005.
Ò Net sales of software, service, and other sales increased $188 million or 17% during 2006 compared to 2005.Ð£
With the introduction of the iPhone, and the rumored introduction of a next-generation iPod before the holiday shopping season, I expect this trend to continue as Apple gains valuable market exposure, which will ultimately lead to increased sales of Macintosh computers for consumers looking for seamless integration between the iPhone and their PC.
The two main systematic risk factors faced by Apple are interest rate risk, and foreign currency risk. Changes in interest rates could negatively affect the amount of interest earned on the companyÐ¥s cash, cash-equivalents, and short-term investments. Apple also has portfolio of long-term, non-capital investments that would be at risk if interest rates fluctuated. The company has evaluated this level of risk, and it was determined that a hypothetical increase of 100 basis points across all maturities held by the company would result in a $15.2 million decline in the fair market value of the companyÐ¥s portfolio. In addition, Apple sells itÐ¥s products worldwide, and is a receiver of foreign currency, and a strengthening of the U.S. Dollar and the resulting exchange rates would negatively affect the companyÐ¥s income from foreign markets.
There are many risk factors unique to Apple that would not affect the industry as a whole. These factors include:
Ò Litigation. Apple is currently involved in several lawsuits, and large monetary judgments against the company could affect the bottom line.
Ò Competition. Since the market for computers and computer peripherals is highly competitive, Apple must continuously introduce new and innovative products.
Ò Supply Chain. The production of AppleÐ¥s products is highly dependant on components manufactured by other companies. Shortages of components could effect the companyÐ¥s ability to produce inventory
Ò Inventory Risk. Since components must be ordered in advance of consumer orders, the company faces inventory risk if it canÐ¥t effectively estimate consumer demand.
Ò Distribution. The company relies heavily on third-party resellers and wholesalers that generally run on low margins and can be economically unstable.
Ò Digital Content. Apple relies on third-party firms to provide digital content for resale in the iTunes store. If these parties become unable or unwilling to provide this content, AppleÐ¥s profit would be negatively affected.
Final Analysis and Summary
I would invest in Apple, Inc. I feel this is strong company with innovative products, and with the introduction of the iPhone, it is in a period of strong growth. AppleÐ¥s stock is up 136.81% over the last 52 weeks, compared to the S&P 500, which is up only 24.23%. I feel Apple is a unique company with nearly unprecedented brand loyalty, and I expect this loyalty to extend to new users of the iPhone. My original analysis called for a correction that would pull the stock below $120, before reaching $160 in twelve months. I now feel that it should reach $160 by October. A lot of this will depend on the results of the Q2 earnings report, due to be released June 25th. If earnings are above AppleÐ¥s previous forecasts, it may reach $160 sooner. Apple is known for purposely underestimating earnings, so it seems to be generally accepted that they will beat the forecasts. I feel that most of my points in my original analysis hold true, and the iPhone has had a huge impact on the price of the stock. I think it will take something pretty serious to stop AppleÐ¥s momentum, assuming there are new products being introduced for the holidays and the earnings reports are favorable. If there is a new iPod and a lower-cost version of the iPhone introduced in time for the shopping season, it will be the biggest year yet for Steve Jobs and Apple.