Apple

STUDENT MANAGED INVESTMENT FUND

Katherine Gonzalez Zachary Schwager Carlos Valcarcel Special Thanks to: John Neumann

Company Overview II. Product line-up III. Geographical Sales IV. Apple 10 yr Stock chart V. Industry Overview VI. Current Events VII. Fundamental Analysis VIII. DuPont Analysis IX. Market Share X. Pro Forma Income Statement XI. Relative Valuation XII. Absolute Valuation XIII. Recommendations
I.

Agenda

Apple Inc. was founded by Steve Jobs and Steve Wozniak in 1976. Apple Computer, Inc., is an American multinational corporation with a focus on designing and manufacturing consumer electronics and closely related software products As of September 2007, the company operates 194 retail stores in the United States, and more in the United Kingdom, Japan, Canada, and Italy For a variety of reasons, ranging from its philosophy of comprehensive aesthetic design to their advertising campaigns, Apple has engendered a distinct reputation in the consumer electronics industry and has cultivated a customer base that is unusually devoted to the company and its brand, particularly in the United States.

Company Overview

Computers Cellular phones MP3 players Software Online Music Vendor Distributes third party

Accessories Apple TV an online television adapter

computer

Product line-up

Revenue by Product

The

Company manages it business on a geographic basis. The operating segments consist of Americas, Europe, Japan, and Retail.

Geographical Sales

AAPL 10 Year Stock Chart

Apple Inc. competes in the Technology Industry, Their focus is: Computers Cellular Phones Online music Software Computer accessories The Technology Industry is highly competitive and characterized by rapid technological advances in both hardware and software. Because Apple participates in several components of the highly dynamic Technology Industry, Apples strategy has been to be an Innovator rather than a follower. Apples Greatest competitor is the Microsoft Corporation.

Industry Overview

Financial Results
Apple reported highest ever 4th quarter revenue and earnings:
Revenue increase over 6.22 billion or 29%, driven by strong Mac and iPods sales Robust growth from iTunes revenue 2007 Fiscal Year EPS: $3.93, up 73%

iPhone
Apple sold over 1.1 million iPhones over the last quarter, Began selling iPhones in Europe November 9, 2007 Apple plans to sell 10 million iPhones in 2008

Apple will also unveil a new sub-portable MacBook

The ultra-portable laptop is expected to be 50% thinner than the existing MacBook Will contain flash-based memory instead of a disc drive.

New Apple store highlights "geniuses," services

Apple stores pulled in $1.25 billion in revenue in the company's last fiscal quarter 42% jump from a year earlier and accounting for a fifth of total revenue.

Current Events

Income/Cash Flow
Sales Net Income Cash Flow from Operations

Sales Growth

Net Income Growth

Cash Flow from Operations

Operating Performance
ROE ROA EBIT Net Profit Margin Asset Turnover

ROE

ROA

EBIT

Net Profit Margin

Asset Turnover

Short Term Liquidity

Current Ratio Quick Ratio Receivables Turnover

Current Ratio

Quick Ratio

Receivables Turnover

Long-term Solvency

Decompose ROE into its components (Asset Turnover, Net Profit Margin, Financial Leverage) in order to analyze what might be trying to change ROE. Net Profit Margin Has significantly been increasing and affecting ROE.

DuPont Analysis

Market Share

A comparison with Apples main competitors to establish its market-share in the industry

Industry Revenues ---------------------> Market Share Desktop Portables Ipod OtherMusicRelatedproducts&Services Iphone&RelatedproductsandSerivces Peripherals&otherhardware Software,service,andothernetsales Total Net Revenue Total COGS GROSS PROFIT Gross Profit Margin Total COGS as % of Rev SGA, Operating Expenses Op Exp as % of Revenue OPERATING INCOME

379,580.90 2006 5.09% 3,319.0 4,056.0 7,676.0 1,885.0 - 1,100.0 1,279.0 19,315.0 13,717.00 5,598.00 28.98% 71.02% 3,145.0 16.28% $2,453.00 5.70% 6.62% 100.00% 17.18% 21.00% 39.74% 9.76%

307,620.00 2007 7.80% 4,020.0 6,294.0 8,305.0 2,496.0 123.0 1,260.0 1,508.0 24,006.0 15,852.00 8,154.00 33.97% 66.03% 3,745.0 15.60% $4,409.00 16.75% 26.22% 34.60% 10.40% 0.51% 5.25% 6.28% 100.00%

461,917.00 2008 6.50%

30,045.0 21,559.95 8,485.05 71.76% 4,482.71 14.92% 4,002.33

Pro Forma Income Statement

Unusual Item OPERATING Inc After Unusual Item OTHER INCOME (EXPENSE) Interest Income Interest Expense Net Interest Income (Expense) Gain on sales of prop/equip Other Income (Expense) Net EBT Income Taxes EAT NET INCOME Diluted Shares EPS
Realized Tax Rates: 394.0 0.0 394.0 0.0 29.0 $2,818.00 $829.00 $1,989.00 $1,989.00 877.5 $2.27 29.42% 647 0.0 647.0 0.0 48.0 $5,008.00 $1,512.00 $3,496.00 $3,496.00 889.3 $3.93 30.19% $2,453.00 $4,409.00

0 4,002.33

657.5624 0.0 657.6 0 48.0 4,611.90 1,385.87 3,226.02 3,226.02 905.3 3.56 30.05%

Pro Forma Income Statement cont .

Relative Valuation

Relative Valuation

Relative Valuation

Absolute Valuation
FCFF Model

Absolute Valuation - Cost Of Capital

Absolute Valuation

E(FCFF) = FCFF2007 * (1+g)t

Absolute Valuation

E(FCFF)2014 = FCFF20013 * (1+g)

Absolute Valuation Terminal Value

Absolute Valuation

Recommendation
Buy 100 Shares