Foreign Trade University Faculty of Banking and Finance

2010
Apple financial statement analysis

Lecturer: Class:

Nguyn Quyn Corporate Finance

Students name and ID:

Phm c Phng (0852050035) Trn Phng Tho (0852050037) Nguyn Mai Trang (0852050048) Nguyn Thu Trang (0852050050)
Myp2p

Apple financial statement analysis 2010

Executive summary
Any successful business owner is constantly evaluating the performance of his or her company, comparing it with the company's historical figures, with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of a company's effectiveness, however, you need to look at more than just easily attainable numbers like sales, profits, and total assets. You must be able to read between the lines of the financial statements and make the seemingly inconsequential numbers accessible and comprehensible. This massive data overload could seem staggering. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify your companys strengths and weaknesses, evaluate its financial position, and understand the risks you may be taking. Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Ratio analysis is primarily used to compare a companys financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses, both in and out of your industry. So, in this report we analyze Apples financial ratios in three continuous years, and compare these figures with those of HP and IBM the two giant competitors of Apple. The first part is an overview of Apple Inc. which includes the year of establishment, the main products, and the innovative and sales development in recent years.

Apple financial statement analysis 2010

The second part is the financial ratios analysis, in which we calculate the ratios of three companies mentioned in three recent years and comment about these figures. It includes four kinds of ratios. The first is liquidity ratios, contains current ratio and quick ratio. The second is leverage ratios, contains debt ratio, long term debt to total capitalization ratio, and time interest earned ratio. The third is operating efficiency ratios which include inventory turnover ratio, days sales outstanding (DSO), the fixed assets turnover ratio, and the total assets turnover ratio. The last kind of ratios is profitability which contains profit margin on sales, basic earning power (BEP), return on total assets (ROA), and return on common equity (ROE). The third, also the last part is some specific recommendations about the financial conditions of Apple compared with IBM and HP in the three years.

Apple financial statement analysis 2010

Table of content
Executive summary ............................................................................................... 1 IOverview of Apple Inc. ............................................................................... 4 1. Liquidity Ratios............................................................................................. 5 a. b. a. b. c. d. a. b. c. a. b. c. d. Current Ratio ........................................................................................ 5 Quick Ratio ........................................................................................... 6 Inventory turnover ratio ....................................................................... 7 Days sales outstanding (DSO) ............................................................. 8 The fixed assets turnover ratio........................................................... 10 The total assets turnover ratio ........................................................... 11 Debt ratio ............................................................................................ 12 Long term Debt to Total Capitalization ratio .................................... 13 Time interest earned ratio ................................................................ 14 Profit margin on sales ........................................................................ 15 Basic earning power (BEP) ............................................................... 17 Return on total assets (ROA) ............................................................. 18 Return on common equity (ROE) ...................................................... 19 II- Financial Ratios Analysis: .......................................................................... 5

2. Asset Management Ratios/ Operating efficiency ratios: .............................. 7

3. Leverage ratios ............................................................................................ 12

4. Profitability: ................................................................................................ 15

Conclusion and recommendations ...................................................................... 21 References ........................................................................................................... 26 Appendix: Apple, HP and IBM Financial Statement ......................................... 27

Apple financial statement analysis 2010

I-

Overview of Apple Inc.

Apple was originally founded as a computer company in 1977 but has evolved

into a personal electronics solution. The company's products include the Macintosh (Mac) family of personal computers, the iconic iPod portable music player, the iPhone mobile handsets, and, the iPad tablet device. Additionally, Apple sells a variety accessories and peripherals including application software, printers, storage devices, speakers, and headphones. Under the leadership of Steve Jobs, Apple's co-founder who returned to head the company in 1996, Apple has demonstrated considerable acumen in implementing high-technology in product design and marketing, generating sustained enthusiasm and substantial growth. In the past several years, Apple has been at the forefront of innovation within consumer electronics, launching key products geared towards the high-end mobile market (the iPhone) and the home entertainment industry (Apple TV). On June 9, 2008, Apple announced the iPhone 3G, which featured increased speed, improved design, and lower pricing. The iPod has grown faster than any other music player in consumer electronics history, accounting for half of the company's revenue from the sales of hardware and content. Its rising brand equity has generated a "halo effect" contributing to increases in sales of Mac desktops and laptops and the opportunity to penetrate existing markets. In fact, its popularity among consumers has turned the tech company into one of the highest revenue per square foot retailers in the world. Apple reported $15.7 billion in revenue in 3Q10, a 61% increase over the previous year's quarter, as well as a 78% surge in its quarterly profit, buoyed by strong iPad and iPhone 4 demands. The company reported that the iPhone 4's antenna problems, a highly publicized signal algorithm glitch on the device, did not have a significant impact on demand. Additionally, it stated that the newly-released iPad, thought of as an ancillary competitor to the Macintosh computer, did not result in cannibalization, as Mac sales rose 33% quarter-over-quarter.

Apple financial statement analysis 2010

In this quarter, Apple sold 3.47 million Macintosh computers (33% QoQ increase), 8.4 million iPhones (61% QoQ increase), 9.41 million iPods (8% QoQ decline), and 3.27 million iPads. With these good figures and booming sales of Apple through new innovative products in 2010, whether Apple is a stable growing company to invest in or not? We will solve this question through analysis of Apple financial statement in 2007, 2008, 2009, in comparison with its two other giant competitors, IBM and HP.

II- Financial Ratios Analysis:

1. Liquidity Ratios a. Current Ratio The current ratio is calculated by dividing current assets by current liabilities: Current ratio = Apple Company: = = = = 2.36 times = 2.46 times = 2.74 times

In 2007: Current ratio = In 2008: Current ratio = In 2009: Current ratio = Hewlett-Packard Company:

In 2007: Current ratio = In 2008: Current ratio = In 2009: Current ratio = IBM:

= = =

= 1.21 times = 0.98 times = 1.22 times

In 2007: Current ratio =

= 1.20 times

Apple financial statement analysis 2010

In 2008: Current ratio = In 2009: Current ratio = = = = 1.15 times = 1.36 times

The current ratio of Apple has kept increasing since 2007. It means that, current asset of Apple increased faster than current liabilities. From 2007 to 2009, the current ratios of Apple are also always higher and more stability than its competitors, HP and IBM. We can see that current ratios of HP were down in 2008 comparing to the previous year and even lower than 1 (current ratio of HP 2008 is about 0.977). And current ratios of IBM decreased in 2009, although they are still higher than 1. These falls show that current liabilities increased faster than current asset; perhaps these two companies have met some financial troubles. In 2009, Apple has a very strong current ratio of 2.74 times to cover its shortterm obligations. With a current ratio of 2.74, Apple could liquidate its current assets at only 37 percent of book value and still pay off current creditors in full. The analysis of current ratios of Apple shows that Apple has strong and reliable capability to meet short-term obligations. b. Quick Ratio Inventories often is typically the least liquid of a companys current assets, the quick ratio (acid-test ratio) measures the companys ability to pay off short-term obligations without relying on the sale of inventories. The quick ratio is calculated by deducting inventories from current assets and then dividing the remainder by current liabilities: Quick Ratio = Apple: = = = = 2.32 times = 2.42 times = 2.70 times

In 2007: Acid Test Ratio = In 2008: Acid Test Ratio = In 2009: Acid Test Ratio =

Apple financial statement analysis 2010

Hewlett-Packard Company: = = = = 1.10 times = 0.83 times = 1.08 times

In 2007: Acid Test Ratio = In 2008: Acid Test Ratio = In 2009: Acid Test Ratio = IBM:

In 2007: Acid Test Ratio = In 2008: Acid Test Ratio = In 2009: Acid Test Ratio =

= = =

= 1.14 times = 1.09 times = 1.29 times

The quick ratios of Apple are also strong, from 2007 to 2009, they are always above 2. It means that the firm can fully meet its short-term obligation without having to liquid inventories. The quick ratio of Apple is much better than HP and IBM. Quick ratios of HP and IBM are just about 1, HP quick ratios in 2007, 2008 are even lower than 1. It means that HP must liquid inventories to pay off full debts for creditors. The comparison of quick ratios among Apple, HP and IBM shows that Apple has a stronger and stability financial position and more credits in investors eyes than these others. 2. Asset Management Ratios/ Operating efficiency ratios: a. Inventory turnover ratio The inventory turnover ratio is defined as sales divided by inventories: Inventory turnover ratio =

Apple Company: = = 69.38 times

In 2007: Inventory turnover ratio =

Apple financial statement analysis 2010

In 2008: Inventory turnover ratio = In 2009: Inventory turnover ratio = Hewlett-Packard Company: = = = = 12.98 times = 15.02 times = 18.69 times = = = 63.81 times = 94.30 times

In 2007: Inventory turnover ratio = In 2008: Inventory turnover ratio = In 2009: Inventory turnover ratio = IBM Company:

In 2007: Inventory turnover ratio = In 2008: Inventory turnover ratio = In 2009: Inventory turnover ratio =

= = =

= 37.08 times = 38.37 times = 38.40 times

In 2009, as a rough approximation, each item of Apples inventory is sold out and restocked, or turned over, 94.30 times. Besides, Hewlett-Packard Companys turnover is 18.69 times; IBM Company is 38.40 times. After analyzing the inventory turnover ratio between these companies in 3 years (2007, 2008, 2009) above, we can see that Apples turnover is much higher than remaining companies. Moreover, within the last 3 years, the inventory turnover ratio is increasing. This suggests that Apple is holding small inventories. This ratio is, of course, effective, and it represents an investment with a high rate of return.

b. Days sales outstanding (DSO)

Days sales outstanding also called the average collection period (ACP), is used to appraise accounts receivable, and it is calculated by dividing accounts receivable by average daily sales to find the number of days sales that are tied up in receivables. Thus, the DSO represents the average length of time that the firm must wait after making a sale before receiving cash, which is the average collection period. DSO = =

Apple financial statement analysis 2010

Apple Company:

In 2007: DSO = In 2008: DSO = In 2009: DSO = -

= = =

= 79.00 days = 77.95 days = 46.24 days

Hewlett-Packard Company:

In 2007: DSO = In 2008: DSO = In 2009: DSO = IBM Company:

= = =

= 101.50 days = 91.34 days = 62.96 days

In 2007: DSO = In 2008: DSO = In 2009: DSO =

= = =

= 117.81 days = 101.52 days = 100.60 days

(Note that in this calculation we assumed a 365-day year). In 2007, the day sales outstanding of Apple Company are 79 days. Up to 2009, this figure dropped to 46 days. The trend in DSO over the past few years has been rising. However, the DSO of H-P Company and IBM Company are always much higher. So, these figures are outstanding indicates that customers of Apple Company, on the average, are paying their bills on time. This is effective for Apple of funds that it could use to invest in productive assets. Conversely, the fact that customers of two remaining companies are paying late may signal that the customers is in financial trouble, in which case these companies may have a hard time ever collecting the receivable. In conclusion, this ratio is, again, indicating the effective action of Apple Company.

Apple financial statement analysis 2010

c. The fixed assets turnover ratio
The fixed assets turnover ratio measures how effectively the firm uses its plant and equipment. It is the ratio of sales to net fixed assets: Fixed assets turnover ratio = Apple Company: = = = = 13.10 times = 13.23 times = 14.52 times

In 2007: Fixed assets turnover ratio = In 2008: Fixed assets turnover ratio = In 2009: Fixed assets turnover ratio = Hewlett-Packard Company:

In 2007: Fixed assets turnover ratio = In 2008: Fixed assets turnover ratio = In 2009: Fixed assets turnover ratio = IBM Company:

= = =

= 13.37 times = 10.92 times = 10.17 times

In 2007: Fixed assets turnover ratio = In 2008: Fixed assets turnover ratio = In 2009: Fixed assets turnover ratio =

= = =

= 6.65 times = 7.24 times = 6.76 times

In 1997, the inventory turnover ratio of Apple is lower than H-P Company. This suggests that Apple is not reasonable to invest in fixed assets such as HP. However, in the following years, this ratio increases rapidly and surpasses H-P and IBM Company. (In 2009, the inventory turnover ratio of Apple is 14.52 times; meanwhile this ratio of H-P is 10.17 and IBM is 6.76). So, these numbers indicating that the firm is using its fixed assets more intensively than are other firms in its

10

Apple financial statement analysis 2010

industry. In conclusion, Apple Company is quite reasonable in investment in its fixed assets.

d. The total assets turnover ratio

The final asset management ratio, the total assets turnover ratio, measures the turnover of the entire firms assets; it is calculated by dividing sales by total assets: Total assets turnover ratio = Apple Company: = = = = 0.95 times = 0.82 times = 0.90 times

In 2007: Total assets turnover ratio = In 2008: Total assets turnover ratio = In 2009: Total assets turnover ratio = Hewlett-Packard Company:

In 2007: Total assets turnover ratio = In 2008: Total assets turnover ratio = In 2009: Total assets turnover ratio = IBM Company:

= = =

= 1.18 times = 1.04 times = 0.99 times

In 2007: Total assets turnover ratio = In 2008: Total assets turnover ratio = In 2009: Total assets turnover ratio =

= = =

= 0.82 times = 0.95 times = 0.88 times

In 2008, the total assets turnover ratio of Apple Company is lower than two remaining companies H-P Company and IBM Company. These figures maybe suggest that Apples ratio is somewhat below the industry average, indicating that the company is not generating a sufficient volume of business given its total asset investment. Sales should be increased, some assets should be sold, or a combination of

11

Apple financial statement analysis 2010

these steps should be taken. However, in 2009, this rate is different. The total assets turnover ratio of Apple is 0.90 times. This ratio is between the ratio of IBM is 0.88 and the ratio of H-P is 0.99. So, this suggests that the average assets of Apple generated more revenue than the previous years. However, Apple Company should still pay more attention in using assets effectively. Sales should be increased, some assets should be sold, or a combination of these steps should be taken. 3. Leverage ratios In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Leverage ratios are any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. a. Debt ratio The ratio of total liabilities to total assets is called the debt ratio, or sometimes the total debt ratio. It measures the percentage of funds provided by sources other than equity: Debt ratio = Apple Company: = = = = 42.67% = 46.86% = 33.39%

In 2007: Debt ratio = In 2008: Debt ratio = In 2009: Debt ratio = -

Hewlett-Packard Company: = = = 56.57% = 65.64%

In 2007: Debt ratio = In 2008: Debt ratio =

12

Apple financial statement analysis 2010

In 2009: Debt ratio = IBM Company: = = = = 76.36% = 87.70% = 79.24% = = 64.71%

In 2007: Debt ratio = In 2008: Debt ratio = In 2009: Debt ratio =

Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditors losses in the event of liquidation. Stockholders, on the other hand, may want more leverage because it magnifies expected earnings. Apples debt ratios in the last three years were all smaller than 50 percent, which means that its creditors have supplied less than half the total financing. While the debt ratios of HP and IBM was all higher than 50 percent. All the three companies here have the trend of debt ratio increase in 2008 and lightly decrease in 2009. The reason for this trend, with Apple and HP, is because of total assets increase. But in the case of IBM, the main reason is the change of total liabilities. According to these figures, we can see that IBM has the highest leverage, and Apple is the lowest among the three companies. This means that expected earnings of HP and IBM is higher than that of Apple. But its also riskier for stockholders who invested in HP and IBM in comparison with Apple. b. Long term Debt to Total Capitalization ratio A ratio showing the financial leverage of a firm, calculated by dividing longterm liabilities by the amount of capital available: L/T Debt to Total Capitalization ratio = Apple Company: = 10.43% = 21.16% = 13.76%

In 2007: L/T Debt to Total Capitalization ratio = In 2008: L/T Debt to Total Capitalization ratio = In 2009: L/T Debt to Total Capitalization ratio =

13

Apple financial statement analysis 2010

Hewlett-Packard Company: = 25.07% = 46.01% = 57.40%

In 2007: L/T Debt to Total Capitalization ratio = In 2008: L/T Debt to Total Capitalization ratio = In 2009: L/T Debt to Total Capitalization ratio = IBM Company:

In 2007: L/T Debt to Total Capitalization ratio = In 2008: L/T Debt to Total Capitalization ratio = In 2009: L/T Debt to Total Capitalization ratio =

= 91.56% = 145.49% = 113.04%

A variation of the traditional debt-to-equity ratio, this value computes the proportion of a company's long-term liabilities compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via liabilities are considered riskier than those with lower leverage ratios. As we can see above, Apple always has the lowest portion of long term debt to total capitalization ratio in comparison with HP and IBM. So, we can conclude that Apples activities are much safer than HPs and IBMs. c. Time interest earned ratio The times-interest-earned (TIE) ratio is determined by dividing earnings before interest and taxes (EBIT) by the interest charges: Time interest earned ratio = Apple Company: Cant calculate time interest earned ratio because theres no value of annual interest expense.

14

Apple financial statement analysis 2010

Hewlett-Packard Company: = = = 32.75 times = 32.83 times

In 2007: Time interest earned ratio = In 2008: Time interest earned ratio =

In 2009: Cant calculate time interest earned ratio because theres no value of annual interest expense. IBM Company: = = = = 24.71 times = 25.84 times = 46.12 times

In 2007: Time interest earned ratio = In 2008: Time interest earned ratio = In 2009: Time interest earned ratio =

Times Interest Earned or Interest Coverage is a great tool when measuring a company's ability to meet its debt obligations. When the interest coverage ratio is smaller than 1, the company is not generating enough cash from its operations EBIT to meet its interest obligations. The Company would then have to either use cash on hand to make up the difference or borrow funds. Typically it is a warning sign when interest coverage falls below 2.5. So, all the three companies here are at good ratio of times interest earned. Especially, Apple had no long term debt, then no annual interest expense. It means that they dont have to worry about paying debts like HP and IBM. And all their earnings would be used for further business activities or shared among the stockholders. 4. Profitability: a. Profit margin on sales The profit margin on sales, calculated by dividing net income by sales, gives the profit per dollar of sales: Profit margin on sales =

15

Apple financial statement analysis 2010

Apple Company: = = = = 14.56% = 14.88% = 19.19%

In 2007: Profit margin on sales = In 2008: Profit margin on sales = In 2009: Profit margin on sales = Hewlett-Packard Company:

In 2007: Profit margin on sales = In 2008: Profit margin on sales = In 2009: Profit margin on sales = IBM Company:

= = =

= 6.97% = 7.04% = 6.69%

In 2007: Profit margin on sales = In 2008: Profit margin on sales = In 2009: Profit margin on sales =

= = =

= 10.55% = 11.90% = 14.02%

Apples profit margin on sales is higher than HP and IBM. Besides, it increases from 14.56% in 2007 to 19.19% in 2009. This result has been occurred because costs of Apple are very low. Net income is also called income after tax and interest. Therefore, interest charges will pull net income down, and since sales are constant, the result will be a relatively low profit margin. In such a case, the high profit margin would not indicate an operating problem rather it would indicate a difference in financing strategies. Thus, Apple uses a higher rate of return on its stockholders investment than use of financial leverage. Apples profit margin o sales in 2009 is 19.19 percent higher than 6.69 percent of Hp and 14.02 percent of IBM, it means that if Apple, HP and IBM have $100 on revenue, Apple will earn $19.19, HP will earn $6.69 and IBM will earn $14.02 on profit. And $100 on revenue of Apple in 2008 earns $14.88. Therefore, $100 on

16

Apple financial statement analysis 2010

revenue of Apple in 2009 will earn more than in 2008 and remaining companies in 2009. It shows that Apple has managed costs efficiency and effectiveness. b. Basic earning power (BEP) The basic earning power (BEP) ratio is calculated by dividing earnings before interest and taxes (EBIT) by total assets: Basic earning power ratio = Apple Company: = = = = 19.76% = 17.42% = 25.40%

In 2007: Basic earning power ratio = In 2008: Basic earning power ratio = In 2009: Basic earning power ratio = Hewlett-Packard Company:

In 2007: Basic earning power ratio = In 2008: Basic earning power ratio = In 2009: Basic earning power ratio = IBM Company:

= = =

= 10.67% = 9.53% = 8.20%

In 2007: Basic earning power ratio = In 2008: Basic earning power ratio = In 2009: Basic earning power ratio =

= = =

= 12.54% = 15.86% = 17.01%

This ratio shows the raw earning power of the firms assets, before the influence of taxes and leverage, and it is useful for comparing firms with different tax situations and different degrees of financial leverage. Apple is also with higher ratio than remaining companies.

17

Apple financial statement analysis 2010

In 2009, Apples BEP is 25.40% higher than 17.42 percent in 2008 and remaining companies. It means that if Apple invests $100 on assets for operating, it will earn $25.40 on EBIT. In 2008, it earns $17.42. In 2009, Apples BEP increases by 7.98 percent and the causing of EBIT from operating increase highly, and the rate of EBITs growth is higher than the rate of revenues growth. In 2009, Apple runs operation more effective than last year. c. Return on total assets (ROA) The ratio of net income to total assets measures the return on total assets (ROA) after interest and taxes: Return on total assets (ROA) = Apple Company: = = = = 13.79% = 12.22% = 27.34%

In 2007: Return on total assets (ROA) = In 2008: Return on total assets (ROA) = In 2009: Return on total assets (ROA) = Hewlett-Packard Company:

In 2007: Return on total assets (ROA) = In 2008: Return on total assets (ROA) = In 2009: Return on total assets (ROA) = IBM Company:

= = =

= 8.19% = 7.35% = 6.67%

In 2007: Return on total assets (ROA) = In 2008: Return on total assets (ROA) = In 2009: Return on total assets (ROA) =

= = =

= 8.65% = 11.26% = 12.31%

18

Apple financial statement analysis 2010

In 2009, the return on total assets of Apple is 27.34%, while 6.67 percent of HP, and 12.31 percent of IBM. This ratio measures the performance of the company without regard to financial structure. This high return results from (1) the companys high basic earning power plus (2) low interest costs resulting from its above-average use of debt, both of which cause its net income to be relatively high than remaining companies. Company. d. Return on common equity (ROE) Ultimately, the most important, or bottom line, accounting ratio is the ratio of net income to common equity, which measures the return on common equity (ROE): Return on common equity (ROE) = Apple: = = = = 24.06% = 22.99% = 26.31% So, this ratio is, again, indicating effective operations of Apple

In 2007: Return on common equity (ROE) = In 2008: Return on common equity (ROE) = In 2009: Return on common equity (ROE) = Hewlett-Packard Company:

In 2007: Return on common equity (ROE) = In 2008: Return on common equity (ROE) = In 2009: Return on common equity (ROE) = IBM Company:

= = =

= 18.85% = 21.39% = 18.91%

In 2007: Return on common equity (ROE) = In 2008: Return on common equity (ROE) = In 2009: Return on common equity (ROE) =

= = =

= 36.59% = 91.59% = 59.31%

19

Apple financial statement analysis 2010

Stockholders invest to get a return on their money, and this ratio tells how well they are doing in an accounting sense. In 2009, Apples 26.31 percent return is below the 59.31 percent of IBM and higher than 18.91 percent of HP. It means that if having $100 on common share invests in operating; Apple will receive $26.31 on net income and its higher than $22.99 earnings in 2008. This causing is that the rate of net incomes growth is higher than the rate of common equitys growth.

20

Apple financial statement analysis 2010

Conclusion and recommendations

Financial Ratios 1. Liquidity Ratios a. Current ratio (times) b. Quick ratio (times) 2. Asset management a. Inventory turnover ratio (times) b. c. DSO (days) Fixed assets turnover ratio (times) d. Total assets turnover ratio (times) 3. Leverage Ratios a. Debt ratio (%) 42.67 46.86 33.39 56.57 65.64 64.71 76.36 87.70 79.24 0.95 0.82 0.90 1.18 1.04 0.99 0.82 0.95 0.88 79.00 77.95 46.24 101.5 91.34 62.96 117.8 101.5 100.6 Good 13.10 13.23 14.52 13.37 10.92 10.17 6.65 7.24 6.76 69.38 63.81 94.30 12.98 15.02 18.69 37.08 38.37 38.40 Good 2.32 2.42 2.70 1.10 0.83 1.08 1.14 1.09 1.29 Good 2.36 2.46 2.74 1.21 0.98 1.22 1.20 1.15 1.36 Good Apple 2007 2008 2009 HP 2007 2008 2009 IBM 2007 2008 2009 Asses sment

21

Apple financial statement analysis 2010

b. L/T Debt to total capitalization ratio (%) c. Time interest earned ratio (times) 4. Profitability Ratios a. Profit margin on sales (%) b. c. BEP (%) Return on total assets (%) d. Return on common equity 24.06 22.99 26.31 18.85 21.39 18.91 36.59 91.59 59.31 19.76 17.42 25.40 10.67 9.53 13.79 12.22 27.34 8.19 7.35 8.20 6.67 12.54 15.86 17.01 8.65 11.26 23.31 14.56 14.88 19.19 6.97 7.04 6.69 10.55 11.90 14.02 32.75 32.83 24.71 25.84 46.12 10.43 21.16 13.67 25.07 46.01 57.40 91.56 145.4 113.0 9 4

Apples liquidity ratios are better than remaining companies, and increasing from 2007 to 2009 with high rate. It means that Apple run business and use resources effectiveness. The analysis of current ratio and quick ratio of Apple shows that Apple has strong and reliable capability to meet short-term obligations, has a stronger and stability financial position and more credits in investors eyes than these others. After analyzing the Asset Management Ratios/Operating efficiency

ratios between these companies in 3 years (2007, 2008, 2009), we can see that Apples ratio is more effective than remaining companies. Moreover, within the last 3 years, these ratios continue to increase. So, it shows that Apple Company is quite reasonable in investment in its assets and effective in its business.

22

Apple financial statement analysis 2010

However, Apple Company should still pay a little attention in using assets more effectively in future. Sales should be increased, some assets should be sold, or a combination of these steps should be taken. Leverage allows a financial institution to increase the potential gains or losses on a position or investment beyond what would be possible through a direct investment of its own funds. The most obvious risk of leverage is that it multiplies losses. A corporation that borrows too much money might face bankruptcy during a business downturn, while a less-levered corporation might survive. For instance, an investor who buys a stock on 50% margin will lose 40% of his money if the stock declines 20%. So, in this case of Apple, its very safe for the shareholders to invest in Apples stocks. At least, in the last three years, Apple had no debt, no annual interest expense, but an increasing total assets, which assure the investors profit. We have results from http://ycharts.com/companies/AAPL/eps#zoom=5 Index 2008 Apple 2009 Change

EPS=

$1.78

$3.67

206.18%

15.83 P/E ratio = Price to book value (P/BV) = 3.31

25.79 (Average) 5.33 (Average)

162.92%

161.03%

We can see that all Apples financial ratios are very good for investors, with finance stability and high rate of net income growth. Besides, we can see the statistics of Apples market ratios from table above. With EPS increased from

23

Apple financial statement analysis 2010

2008 with $1.78 to $3.67 in 2009, it means that operation of Apple in 2009 is more effective than in 2008. Moreover, P/E and P/BV increased, it means that, in 2008, shareholders have to invest more money in order to earn the same profit in 2009. With the result from analyzing financial statement and the statistics of Apple above, it shows that Apple is the one of most successful corporation within its industry has a sustained growth and low risky. And the stock of Apple is high rate of growth, sustained, and attractive in investors. In our opinions, the investor should invest more money in Apple.

24

Apple financial statement analysis 2010

25

Apple financial statement analysis 2010

References
Apples Price to Book Value: http://ycharts.com/companies/AAPL/price_to_book_value#zoom=5 P/B Ratio http://en.wikipedia.org/wiki/P/B_ratio Financial Ratios http://en.wikipedia.org/wiki/Financial_ratios Principles of Corporate Finance 7th Edition. Apples Finance Information and Financial Statement http://finance.yahoo.com/q?s=AAPL HPs Finance Information and Financial Statement http://finance.yahoo.com/q?s=HP IBMs Finance Information and Financial Statement http://finance.yahoo.com/q?s=IBM Apples Stock quota and company profile http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticke r=AAPL:US

26

Apple financial statement analysis 2010

Appendix: Apple, HP and IBM Financial Statement

Apple

Income Statement
View: Annual Data
Period Ending All numbers in thousands

Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares

Sep 26, 2009 Sep 27, 2008 Sep 29, 2007 42,905,000 32,479,000 24,006,000 25,683,000 21,334,000 15,852,000 17,222,000 1,333,000 4,149,000 11,740,000 326,000 12,066,000 12,066,000 3,831,000 8,235,000 8,235,000 $8,235,000 11,145,000 1,109,000 3,761,000 6,275,000 620,000 6,895,000 6,895,000 2,061,000 4,834,000 4,834,000 $4,834,000 8,154,000 782,000 2,963,000 4,409,000 599,000 5,008,000 5,008,000 1,512,000 3,496,000 3,496,000 $3,496,000

27

Apple financial statement analysis 2010

Balance Sheet
View: Annual Data
Period Ending All numbers in thousands

Sep 26, 2009

Sep 27, 2008

Sep 29, 2007

Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets

5,263,000 18,201,000 4,496,000 455,000 3,140,000 31,555,000 10,528,000 2,954,000 206,000 247,000 2,011,000 1,727,000 47,501,000

11,875,000 12,615,000 6,151,000 509,000 3,540,000 34,690,000 2,455,000 207,000 352,000 641,000 1,227,000 39,572,000

9,352,000 6,034,000 4,811,000 346,000 1,413,000 21,956,000 1,832,000 38,000 382,000 1,051,000 88,000 25,347,000

9,453,000 2,053,000 11,506,000 3,502,000 853,000 15,861,000 8,210,000 23,353,000 77,000 31,640,000 $31,187,000

8,558,000 5,534,000 14,092,000 746,000 3,704,000 18,542,000 7,177,000 13,845,000 8,000 21,030,000 $20,471,000

6,230,000 3,069,000 9,299,000 67,000 1,449,000 10,815,000 5,368,000 9,101,000 63,000 14,532,000 $14,112,000

28

Apple financial statement analysis 2010

Cash Flow
View: Annual Data
Period Ending All numbers in thousands

Sep 26, 2009 Sep 27, 2008 Sep 29, 2007 Net Income 8,235,000 4,834,000 3,496,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 734,000 473,000 317,000 Adjustments To Net Income 1,776,000 170,000 332,000 Changes In Accounts Receivables (939,000) (785,000) (385,000) Changes In Liabilities 452,000 7,517,000 3,245,000 Changes In Inventories 54,000 (163,000) (76,000) Changes In Other Operating Activities (153,000) (2,450,000) (1,459,000) Total Cash Flow From Operating Activities 10,159,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (1,144,000) Investments (16,147,000) Other Cash flows from Investing Activities (143,000) Total Cash Flows From Investing Activities (17,434,000) Financing Activities, Cash Flows Provided By or Used In Dividends Paid Sale Purchase of Stock 475,000 Net Borrowings Other Cash Flows from Financing Activities (82,000) Total Cash Flows From Financing Activities Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents 663,000 9,596,000 (1,091,000) (6,760,000) (338,000) (8,189,000) 483,000 633,000 1,116,000 5,470,000 (735,000) (2,312,000) (202,000) (3,249,000) 362,000 377,000 739,000 $2,960,000

($6,612,000) $2,523,000

29

Apple financial statement analysis 2010 HP

Income Statement
View: Annual Data
Period Ending All numbers in thousands

Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares

Oct 31, 2009 Oct 31, 2008 Oct 31, 2007 114,552,000 118,364,000 104,286,000 87,524,000 89,592,000 78,598,000 27,028,000 2,819,000 11,613,000 889,000 1,571,000 16,892,000 10,136,000 9,415,000 9,415,000 1,755,000 7,660,000 7,660,000 $7,660,000 28,772,000 3,543,000 13,104,000 356,000 967,000 17,970,000 10,802,000 10,802,000 329,000 10,473,000 2,144,000 8,329,000 8,329,000 $8,329,000 25,688,000 3,611,000 12,226,000 60,000 783,000 16,680,000 9,008,000 458,000 9,466,000 289,000 9,177,000 1,913,000 7,264,000 7,264,000 $7,264,000

30

Apple financial statement analysis 2010

Balance Sheet
View: Annual Data
Period Ending All numbers in thousands

Oct 31, 2009

Oct 31, 2008

Oct 31, 2007

Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets

13,279,000 55,000 19,212,000 6,128,000 13,865,000 52,539,000 11,289,000 11,262,000 33,109,000 6,600,000 114,799,000

10,153,000 93,000 29,359,000 7,879,000 4,244,000 51,728,000 2,722,000 10,838,000 32,335,000 7,962,000 6,954,000 792,000 113,331,000

11,293,000 152,000 26,191,000 8,033,000 1,733,000 47,402,000 2,778,000 7,798,000 21,773,000 4,079,000 3,908,000 961,000 88,699,000

33,862,000 1,850,000 7,291,000 43,003,000 13,980,000 17,299,000 74,282,000 24,000 29,936,000 13,804,000 (3,247,000) 40,517,000 $808,000

32,317,000 10,176,000 10,446,000 52,939,000 7,676,000 7,460,000 6,314,000 74,389,000 24,000 24,971,000 14,012,000 (65,000) 38,942,000 ($1,355,000)

25,822,000 3,186,000 10,252,000 39,260,000 4,997,000 3,457,000 2,459,000 50,173,000 26,000 21,560,000 16,381,000 559,000 38,526,000 $12,674,000

31

Apple financial statement analysis 2010

Cash Flow
View: Annual Data
Period Ending All numbers in thousands

Oct 31, 2009 Oct 31, 2008 Oct 31, 2007 Net Income 7,660,000 8,329,000 7,264,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 4,773,000 3,356,000 2,705,000 Adjustments To Net Income 2,011,000 2,121,000 932,000 Changes In Accounts Receivables (549,000) (261,000) (2,808,000) Changes In Liabilities 580,000 1,587,000 (450,000) Changes In Inventories 1,532,000 89,000 (633,000) Changes In Other Operating Activities (2,628,000) (630,000) 2,605,000 Total Cash Flow From Operating Activities 13,379,000 14,591,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (3,695,000) (2,990,000) Investments 11,000 102,000 Other Cash flows from Investing Activities 104,000 (10,823,000) Total Cash Flows From Investing Activities (3,580,000) (13,711,000) Financing Activities, Cash Flows Provided By or Used In Dividends Paid (766,000) (796,000) Sale Purchase of Stock (3,303,000) (7,810,000) Net Borrowings (2,766,000) 6,293,000 Other Cash Flows from Financing Activities 293,000 Total Cash Flows From Financing Activities Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents (6,673,000) $3,126,000 (2,020,000) 9,615,000 (3,040,000) 142,000 (6,225,000) (9,123,000) (846,000) (7,784,000) 2,550,000 481,000 (5,599,000) -

($1,140,000) ($5,107,000)

32

Apple financial statement analysis 2010 IBM

Income Statement:
View: Annual Data Period Ending Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments All numbers in thousands Dec 31, 2009 Dec 31, 2008 Dec 31, 2007 95,758,000 103,630,000 98,786,000 51,973,000 57,969,000 57,057,000 43,785,000 5,820,000 19,775,000 18,190,000 351,000 18,540,000 402,000 18,138,000 4,713,000 13,425,000 13,425,000 45,661,000 6,337,000 23,386,000 (1,153,000) 17,091,000 297,000 17,388,000 673,000 16,715,000 4,381,000 12,334,000 12,334,000 41,729,000 6,153,000 22,060,000 13,516,000 1,584,000 15,100,000 611,000 14,489,000 4,071,000 10,418,000 10,418,000 $10,418,000

Net Income Applicable To Common Shares $13,425,000 $12,334,000

33

Apple financial statement analysis 2010

Balance Sheet

View: Annual Data Period Ending Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets

Dec 31, 2009

All numbers in thousands Dec 31, 2008 Dec 31, 2007

12,183,000 1,791,000 28,523,000 2,494,000 3,946,000 48,935,000 16,023,000 14,165,000 20,190,000 2,513,000 3,001,000 4,195,000 109,022,000

12,741,000 166,000 29,097,000 2,701,000 4,299,000 49,004,000 12,757,000 14,305,000 18,226,000 2,878,000 3,536,000 8,818,000 109,524,000

14,991,000 1,155,000 30,476,000 2,664,000 3,891,000 53,177,000 13,543,000 15,081,000 14,285,000 2,107,000 19,250,000 2,988,000 120,431,000

20,990,000 4,168,000 10,845,000 36,002,000 21,932,000 24,772,000 3,562,000 118,000 86,385,000 41,810,000 80,900,000 (81,243,000) (18,830,000) 22,637,000 ($66,000)

20,960,000 11,236,000 10,239,000 42,435,000 23,391,000 26,791,000 3,441,000 96,058,000 39,129,000 70,353,000 (74,171,000) (21,845,000) 13,466,000 ($7,638,000)

22,273,000 12,235,000 9,802,000 44,310,000 23,573,000 19,954,000 4,124,000 91,961,000 35,188,000 60,641,000 (63,945,000) (3,414,000) 28,470,000 $12,078,000

34

Apple financial statement analysis 2010

Cash Flow
View: Annual Data Period Ending Dec 31, 2009 Net Income 13,425,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 4,994,000 Adjustments To Net Income 1,936,000 Changes In Accounts Receivables 2,131,000 Changes In Liabilities 170,000 Changes In Inventories 263,000 Changes In Other Operating Activities (2,146,000) Total Cash Flow From Operating Activities 20,773,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (3,447,000) Investments (2,189,000) Other Cash flows from Investing Activities (1,094,000) Total Cash Flows From Investing Activities (6,729,000) Financing Activities, Cash Flows Provided By or Used In Dividends Paid (2,860,000) Sale Purchase of Stock (4,377,000) Net Borrowings (7,463,000) Other Cash Flows from Financing Activities Total Cash Flows From Financing Activities Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents All numbers in thousands Dec 31, 2008 Dec 31, 2007 12,334,000 10,418,000 5,450,000 2,221,000 274,000 (2,633,000) (102,000) 1,268,000 18,812,000 (4,171,000) 1,494,000 (6,608,000) (9,285,000) (2,585,000) (6,804,000) (2,445,000) 5,201,000 1,364,000 (1,408,000) (142,000) 182,000 474,000 16,089,000 (4,630,000) 992,000 (1,037,000) (4,675,000) (2,147,000) (14,705,000) 12,112,000 -

(14,700,000) (11,834,000) (4,740,000) 98,000 57,000 294,000 ($558,000) ($2,250,000) $6,968,000

35