Apple Financial Analysis

Company Analysis - Apple

TABLE OF CONTENTS

COMPANY OVERVIEW 5 Introduction 5

Brief History & Current Happenings 5

Apple Products & Services 7

Business Strategy 9

INDUSTRY ANALYSIS 10

SWOT Analysis 10

Industry Overview 13

FINANCIAL ANALYSIS 16

Short-Term Liquidity Analysis 16

Current ratio 16

Acid Test (or Quick Test Ratio) 16

Accounts Receivable Turnover 17

Inventory Turnover 17

Days in Sales Receivables 17

Days in Inventory 18

Days Purchases in Account Payable 18

Average Net Trade Cycle 18

Cash provided by operations to average current liabilities 18

CAPITAL STRUCTURE AND SOLVENCY RATIOS ANALYSIS 19

Long term debt to assets 19

Debt Ratio 19

Earnings to Fixed charges 20

Cash flow to fixed charges 20

Financial leverage index 20

Altman Z score 20

PROFIT MARGIN RATIOS ANALYSIS 21

Gross profit Margin 21

Net Profit Margin 21

Operating Profit Margin 22

RETURN ON INVESTMENT RATIOS ANALYSIS 22

Return on Assets 23

Return on Common Equity 23

Equity Growth Rate 23

Disaggregation of Return on Common Equity 23

ASSET UTILIZATION RATIOS ANALYSIS 24

Accounts Receivables Turnover 25

Inventory Utilization 25

Fixed Asset Turnover 26

Other Asset Turnover 26

Total Asset Turnover 26

FINAL RECOMMENDATION 27

BIBLIOGRAPHY 28

APPENDICES 29

Executive Summary

This report serves as an analysis of a leading company in the computer manufacturing industry. Apple is presently within the top five positions for being one of the top computer manufacturing companies in the world. Currently, it holds 5.8% of the market share and leads the market in fourth place. The company is making strides toward achieving success in the industry, more specifically in the consumer electronics market with the creation of the new iPhone.

In this report, Apple's financials are analyzed for the years 2002 through 2006. These figures are compared to their main competitor, Hewlett Packard, which is the industry's top leader. In addition, also included in this report is an in-depth look at the computer manufacturing industry: trends, changes and innovations that are affecting Apple and its competitors.

With consolidation becoming the latest development in the computer manufacturing industry, competition to Apple's 4th place position is intensifying. Apple hopes to become a larger entity and lessen the risks of a homogeneous product offering to consumers by diversifying its product lines.

By the end of this report, an insightful perspective on the financial performance of Apple and their future success or failure in their industry will have been provided.

Introduction

Apple is one of the largest suppliers of computers - holding 5.8% of the market. Although computers are still an important part of its product mix, music-related products are currently at the top of Apple's playlist. The company scored a runaway hit with its digital music players (iPod) and online music store (iTunes).

Brief History and Current Happenings

Apple was founded on April 1, 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. The first computer manufactured by Apple, Apple I, was hand-built by Steve Wozniak in the living room of Job's parent's home. It was sold as a mother board equipped with a CPU, RAM and basic textual-video chips.

On April 16, 1977, Apple II was introduced at the First West Coast Computer Faire. Despite a price higher than competitors, it quickly surpassed its two main rivals, the TRS-80 and Commodore PET, to become the market leader. Apple's market advantage stemmed from its color graphics, high build quality and the introduction of a 5ј inch floppy disk drive and interface, Disk II.

By the end of the 1970s, Jobs and his partners had a staff of computer designers and a production line. The Apple II was succeeded by the Apple III in May 1980 as the company struggled to compete against IBM and Microsoft in the lucrative business and corporate computing market.

In the 1980s, IBM and Microsoft continued to gain market share at Apple's expense in the personal computer industry. However, Apple was able to sustain its growth during this time because of its leadership in the education sector. The drive into education was accentuated in California with the donation of one Apple II and one Apple LOGO software package to each public school in the state.

In 1983, Apple introduced the first personal computer, the Lisa, to be sold