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Financing Structure of AAPL, RIMM & CSR

Financing Structure of AAPL, RIMM & CSR

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Published by Mark Regan
Compare the financing structure of AAPL, RIMM and CSR
Compare the financing structure of AAPL, RIMM and CSR

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Published by: Mark Regan on Jul 24, 2009
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05/24/2012

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 Apple Inc. (NASDAQ: AAPL)
Financing Policy 
Current Assets > Current Liabilities (
34,690 > 14,092)
NCA < NCL + Equity
(4,882 < 4450 +
21030
 )
Short Term Liquidity 
Current Ratio = 34,690 / 14,092 = 2.46Quick Ratio = 26,912 / 14,092 = 1.91
Leverage
Gearing Ratio (%) = (Non-Current Liabilities / CapitalEmployed)*100 =
4450 / 20,598 = 21%Debt to Asset = Total Liabilities / Total Assets
18,542 / 39,572 = 46.9%Debt to Equity = Total Liabilities / Shareholders Equity
18,542 / 21,030 = 88.2%Given the above calculations, Apple have adopted a
defensive
financing position. Although, equity financing isgenerally more expensive than debt financing, a greater proportion of equity provides a cushion and is seen as ameasure of financial strength
1
. Apple is in a healthy position in terms of liquidity. Both Current and quick ratiosindicate that they can easily pay their short term debt obligations without needing additional financing. Apple’s success over the pastsix years has enabled them to accumulate $24.49 billion in cash, cashequivalents and short term investments as of 2008; a 59% increase YOY. Upon further analysis, short terminvestments increased 109% YOY to $12.615 billion; representing the main driver behind their defensivefinancing position. In particular, Apple’s investments in US Treasury and Agency Securities increased from 1.028million to 9.934 billion in 2008
(pg 65).
 As US Treasury Securities are backed by the full faith and credit of theU.S. Government, they are generally seen to be risk free. However, Agency securities are not, and hence carryadditional risk. In summary, Apple has decided to invest the majority of it’s 2007 retained earnings in low risk investments. This may be a reflection of the volatility of the markets during this economic crisis.Despite Apple having a relatively high Debt to Equity Ratio, Apple has zero debt (no loans). This has been thecase since 2004. Their total liabilities consists entirely of accounts payable and accrued expenses. In reflectionof this, their payables payment period is 94 days. Apple’s market dominance has enabled them to demand veryattractive payment terms from their component suppliers. Although some investors have criticised Apple for “not doing anything” with the $24.49 billion in cash, cashequivalents and short term investments, I believe their defensive strategy is well chosen. Apple has positioneditself to take advantage of any acquisition opportunities that may offer long term strategic advantages. Forexample, the acquisition of P.A Semiconductors $268 million in 2008 has offered Apple a significant strategicadvantage in the mobile communications industry. During an economic downturn, that level of cash creates"extraordinary opportunities," according to CEO Steve Jobs.
Mark Regan - MIB 5 - 090291
1
1
Investopedia,
Gearing Ratio
, 21 June 2009, http://www.investopedia.com/terms/g/gearingratio.asp
 
Financial Information from(millions)Annual Report
Current Assets$
34,690Cash & Cash Equivalents$
11,875Marketable Securities$
12,615Account Receivables$
2,422Non-Current Assets$
4,882Current Liabilities$
14,092Non-Current Liabilities$
4,450Shareholders Equity$
21,030
Source: Apple - Annual Report 2008 (pg 54)
 
Research in Motion Ltd.(NASDAQ: RIMM)
Financing Policy 
Current Assets > Current Liabilities (
4,842 > 2,115)
NCA < NCL + Equity
(3,260 < 112 +
5,874
 )
Short Term Liquidity 
Current Ratio = (
4,842
 / 
 2,115
) = 2.29Quick Ratio = 3,789 / 2,115 = 1.79
Leverage
Gearing Ratio (%) = (Non-Current Liabilities / CapitalEmployed)*100
[(111,893 / 2,726,235)]*100 = 4.1%Debt to Asset = Total Liabilities / Total Assets
2,227,244 / 8,101,372 = 27.5%Debt to Equity = Total Liabilities / ShareholdersEquity
2,227,244 / 5,874,128 = 37.9%Similar to Apple, Research in Motion (RIMM) haveadopted a defensive financing position. Both theircurrent and quick ratios are inline with Apple’s;reflecting their ability to pay their short term obligationswithout the need for additional financing.One notable difference between RIMM and AAPL is thegearing ratios. RIMM leverages very little debt financing incomparison to AAPL. As debt financing is generally cheaper than equity financing, RIMM should considerleveraging more debt financing as it would lower their WACC. Fig 1 illustrates how RIMM has been leveragingmore debt financing since 2003. However, RIMM leverages considerably less debt financing compared to Apple(AAPL).In contrast to AAPL, RIMM had long term debt of 7.259 million in 2008. However, RIMM paid off all long termdebt obligations in 2009
(Annual Report, pg 49).
During periods of economic uncertainty, maintaining a debt freebalance sheet is a good survival tactic. The company has a $100 million revolving credit facility, of which it has utilised only $6.5 million. RIMM use thisfacility to “support and secure operating and financing requirements”. The excess credit facility will offer RIMM areasonable amount of cushioning in the event of liquidity issues.
(Annual Report 2009, pg 43)
Mark Regan - MIB 5 - 090291
2
 
Financial Information from(millions)Annual Report
Current Assets$
4,841.59Cash & Cash Equivalents$
835.55Marketable Securities$
682.67Account Receivables$
2,269.85Non-Current Assets$
3,259.79Current Liabilities$
2,115.35Non-Current Liabilities$
111.89Shareholders Equity$
5,874.13
Source: RIMM - Annual Reort 2009 (pg 49)
0%20%40%60%80%100%20052008
Fig1: Debt to Equity (2005 - 2008)RIMMAAPL
Historical data provided by www.allfactors.com.Graph created by Mark Regan
 
CSR Plc: Financing Structure
Financing Policy 
Current Assets > Current Liabilities (409.91
>
102.1
 )
NCA < NCL + Equity
181.77
<
22.84
+
466.75
 )
Short Term Liquidity 
Current Ratio = (409.91
 
 / 102.10) = 4.01Quick Ratio = (Cash + Marketable Securities + AccountsReceivables) / Current Liabilities
343.71 / 102.10 = 3.37
Leverage
Gearing Ratio (%) = (Non-CurrentLiabilities / Capital Employed)*100
(22.84 / 307.81)*100 = 7.42%Debt to Asset = Total Liabilities / Total Assets
124.94 / 591.68 = 21.12%Debt to Equity = Total Liabilities / Shareholders Equity
124.94 / 466.75 = 26.77%Similar to AAPL and RIMM, CSR has adopted adefensive financing position. Moreimpressively, CSR has excellent liquiditywith Current and Quick ratios of 4.01 and3.37 respectively. 2009 has been aparticularly difficult year for CSR with profitbefore tax falling from £150 million tonegative 6.5 million. Fortunately, CSR havegenerated a sizeable balance of cash, cashequivalents and short term investments inrecent years. Their strong balance sheet and goodliquidity enabled them to survive the past year.Fig 2 & Fig 3 clearly illustrate the leveraging and liquiditydifferences between AAPL, RIMM and CSR. Apple isleveraging far more debt financing in comparison to both RIMM and CSR. This is mainly due to Apple’s longpayables payment period of 94 days.CSR have a policy of leasing some of its equipment under finance leases and purchase certain softwarelicences under agreements containing deferred payment terms. The average lease term is 2.0 years and interestrates are fixed at the contract date. Current lease obligations have a present value of $1.35 million, however it isdenominated in Sterling. All other obligations are denominated in US dollars.
(Annual Report, pg 87)
Mark Regan - MIB 5 - 090291
3
 
Financial Information from(millions)Annual Report
Current AssetsGBP
409.91Cash & Cash EquivalentsGBP
180.90Marketable SecuritiesGBP
81.00Account ReceivablesGBP
81.81Non-Current AssetsGBP
181.77Current LiabilitiesGBP
102.10Non-Current LiabilitiesGBP
22.84Shareholders EquityGBP
466.75
Source: CSR - Annual Rep rt 2009 (pg 65)
GearingDebt to AssetsDebt to Equity0%20%40%60%80%100%
Fig 2: Leverage ComparisonCSRRIMMAAPL
Current RatioQuick Ratio012345
Fig 3: Liquidity ComparisonCSRRIMMAAPL
Historical data provided by www.allfactors.com.Graphs created by Mark Regan

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