About the Company (Timeline)
- On April 1, 1976, Apple Inc. (APPL) is the largest information technology company founded by Steve Jobs, Steve Wosniak and Ronald Wayne on April 1, 1976.
- On January 3, 1977, they were incorporated as Apple Computer, Inc., renamed as Apple Inc. on January 9. 2007, to reflect their new focus toward consumer electronics. Apple makes personal computers, portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.
- In 2013 Apple bought Wi-Fi Slam (Silicon Valley) in March, then Locationary Inc., Hopstop.com Inc. in July, Algo Trim AB (a Malmo-based developer of prepackaged software) in August, Prime Sense Ltd. in November, and Topsy Labs Inc in December.
- In February 2014, Apple Inc. buys Burstly Inc., then Novauris Technologies Ltd. in April and Beats Electronics LLC (Beats) in August.
AAPL a multinational American corporation in Cupertino, California has changed the world’s information technology. Apple has a staff of computer designers and a diversified production line to successfully compete with IBM and Microsoft in the enterprise of computing market which started in the late 1970s.
Today, Apple’s market capitalization is more than these two companies, about $640.49B; IBM is 162.65B and MSFT is $391.21B. Despite this, Apple continues to buy more small and medium size companies that would help them in line with their products and services.
How do they make money?
Apple Inc. develops, designs, manufactures, sells iPhone, iPad, Mac, iPod, iTunes, Mac App Store, iCloud, Operating System Software, Application Software and Other Application Software. They deliver digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. Apple sells globally, through online and retail stores. They also conduct business through direct sales force and with third-party cellular network carriers including, retailers and resellers.
Apple is the company to look forward to, they are into bigger phones and phablets. Samsung is getting the smartphone market. Apple is into high market while low costing Chinese smartphone with Original Equipment manufacturer (OEMs) continue to capture the middle and low-end share.
Touch screens had been created and marketed before, but it was Apple that first adopted the user interface and made it a huge market. Lately, they achieved widespread success with their new iPhone 6 an innovation in mobile phones.
Apple increased its brand value by 21 percent to $118.9B still first place. Next in line is Google, the brand is valued at $107.43B increased by 15 percent. The Information came from Interbrand’s Best Global Brands ranking report as the world’s most valuable brand out of the top 100.
Who is running the business and what is their background?
Mr. Timothy D. Cook is Chief Executive Officer and Director of Apple Inc. in August 24, 2011. He started in March 1998 as Senior Vice President for Worldwide Operations, Sales, Service and Support until 2002. In October 2005, he became the Chief Operating Officer. Before that, he was Executive Vice President of Worldwide Sales and Operations. He also was the Director of NIKE, Inc. and The National Football Foundation & College Hall of Fame, Inc. Mr. Cooks served as Vice President of Corporate Materials at Compaq Computer Corporation (‘Compaq’) from 1997 to 1998 and as Chief Operating Officer of the Reseller Division of Intelligent Electronics. And his 12 years with IBM’s Personal Computer Company in North and Latin America, working as Director of North American Fulfillment.
Mr. Cook was a Fuqua Scholar when he studied with Duke University for his MBA. And he graduated from Auburn University with a Bachelor of science degree in Industrial Engineering.
Mr. Luca Maestri was Chief Financial Officer, Senior Vice President, and Principal Accounting Officer of Apple. He was appointed and served these positions basing on his more than 25 years of dedicated work experience in finance globally. He had a bachelor’s degree in Economics from Luiss University in Rome and a master’s degree in Science of Management from Boston University. Mr. Maestri has worked and lived in foreign places with excellent achievements internationally.
In March 2013, he joined Apple where he works with senior management for its financial role. Before this, he started his finance and working experience with General Motors for 20 years with important positions in expanding its business. He was also Chief Financial Officer of Nokia Siemens Networks and Xerox.
Apple Value Investing
The Current ratio declined in 2014 so as quick ratio. Cash and cash equivalent and short-term investment declined 38 percent while current liabilities increased 45 percent. Apple has short and long-term debt in 2013 and 2014 less than its net income and depreciation & amortization. Debt to equity ratio increased in 2014.
AAPL liquidity was good in 2010 to 2013 except in 2014. They introduced iPad air in its fifth generation with retina display and the launching of iPhone 6 and 6 Plus, iOS 8, Apple pay and Apple watch. They also had various business acquisitions like Beats Music, LLC., and Beats Electronics, LLC. Latest quarter current and quick ratio increase 1.47 and 1.18.
In 2014 they issued $12.0B of long-term debt with varying maturities through 2044 and launched a commercial paper program, with $6.3B outstanding as of September 27, 2014. Debt to equity ratio increased and reduced solvency ratio.
Cash conversion cycle (CCC) shows longer time in paying their obligations to creditors than days sales outstanding and days inventory. In 2014 payable period increased 15 percent or more than 85 days for payables to be paid. Day sales outstanding increased by 19 percent or 31 days before it is sold or paid, and days inventory increased by 44 percent or 6 days before inventory is sold.
They have a low receivable turnover. AAPL has a problem in extending credit or collecting debts. Inventory turnover is high showing fast inventory sold and replaced.
Fixed asset turnover declined from 2011 meaning net sales is lower as a percentage of fixed asset investment. Apple was not as efficient in generating sales from their assets as the company asset grew.
Apple has a negative cash conversion cycle with high payable period. They are having problems in paying their creditors and suppliers.
Apple Income Statement
In 2013, Apple declined in gross and net margins at the peak of the successful introduction of the fourth generation of iPad and iPad and iPad mini, a new MacBook Pro with Retina display, a new iPod touch, a new iMac, and expanded of iPhone 5 is dismay in expectation. The 11 percent declined in operating income and increased in other income of 148 percent and interest expense resulted to decrease net margin.
Dupont Analysis (Expanded Five Step Method)
Return on equity using the DuPont Analysis is computed by breaking down the following into five measures. First is the pre-interest pretax margin declines down in 2013 and 2014 because of operating income and expenses. Second, asset turnover increases 0.93 times in 2014 more than in recent years. The low turnover resulted in not investing in their asset. Third, the interest burden of long-term debt incurred in 2013 and 2014. Managing efficiently to maintain their tax efficiency as the fourth step. And the fifth step is equity multiplier increases in 2014 to 3.52 to increase in asset and decrease in equity. Thus, multiplying the results of the five steps will get the return on equity.
The bulk of the five parts of return on equity (ROE) comes from either net profit margin before its interest burden and tax efficiency, asset turnover and leverage. The case of AAPL a return on equity coming from their sales in operations except in 2014. Increased in ROE comes from high leverage or an equity multiplier of 3.52, resulting to a high ROE of 68.4 percent.
Cash Flow Statement
Cash Flow Analysis
Net cash provided by operation has a growth of 102, 36, 6 and 11 percent. In 2013 operation decreases for net income and depreciation & amortization and abrupt increase in other working capital. Net cash used for investing show declined in 2013 and 2014 because of investment in plant, property & equipment, purchases in investments, sales/maturities in investments, and purchases of intangibles. Net cash in financing was provided by in 2010 and 2011 from common stock issued and other financing activities. And it was used for 2012 to 2014 common stock repurchases, the dividend paid and other financing activities despite common stock issued and debt issued. Thus, resulted in a net change in cash trending up in 2013 but declined down in 2014.
AAPL five-year operation shows that net cash was used heavily in investments in 2011 and 2012. Their effort garnered net cash from operations in 2012, 2013 and 2014 but in 2013 and 2014 they need to increase net cash through debt issued for common stocks was no longer enough to increase in dividend payments and common stock repurchase.
Cash flow margin declines in 2012 because of an abrupt, increase in operating cash flow and net sales. Free cash flow margin peak in 2010, but abruptly decreased in 2011, an increase in free cash flow over operating cash flow. Free cash flow remains sufficient despite growth in 2013 and 2014 of 8 and 12 percent.
AAPL has good margins in cash flow and free cash flow.
Apple Investment Valuation
The Totem method uses the financial calculator to compute the target price.
Apple has a 28 percent growth based on its present book value per share of $1.28 and future value of $19.02. It has a return on equity of 31.7 percent and their 5 years P/E ratio is 15.2. The return on the book in 5 years is $20.56 and the price in 5 years will be $312.51. The present value of the stock is $135.11 and as computed it resulted to after margin of safety (MOS) of $81.06. They have a dividend yield of 1.73 percent, thus the total value of dividend of $12.57. Adding the two values, price after MOS and the total value of dividend resulted in $93.64 as the target price or total value of the enterprise.
The current market price as of November 7, 2014, is $109.01 per share, more than the computed target price or the total value of $93.64. Indeed, an overvalued company and the current market price increase daily because of the coming Christmas season.
The following research on Apple Inc., shows both financial operations, management, and business strategies surpass immediate problems with their cash account. The products and services offered is the number one in the A & B markets categories are expensive. The reason sales growth was 9 and 7 percent in 2013 and 2014 despite the successful launching of their newest products in the market.
Apple is a good company to invest in. The management shows a strong personality to overcome today concerns. The current market price of $109.10 as of 11/7/2014 is valued more than the target price of $93.64. The company would merit a buy, but for now, will hold on until the target price achieves better profit.
Apple Inc. http://en.wikipedia.org/wiki/Apple_Inc.
Company background http://google.brand.edgar-online.com/DisplayFiling.aspx?TabIndex=2&FilingID=10264100&companyid=2035&ppu=%252fdefault.aspx%253fsym%253dAAPL
Business Organization http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10255004-19999-22848&type=sect&TabIndex=2&companyid=2035&ppu=%252fdefault.aspx%253fsym%253dAAPL
Timothy D. Cooks http://www.reuters.com/finance/stocks/officerProfile?symbol=AAPL.O&officerId=2486890
Luca Maestri http://www.reuters.com/finance/stocks/officerProfile?symbol=AAPL.O&officerId=88090
Key ratios http://financials.morningstar.com/ratios/r.html?t=AAPL®ion=usa&culture=en-US
Researched and Written by: Nellyt