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Ratio Analysis

Liquidity Ratios1

Liquidity Ratios
2.5
2
1.5
1
0.5
0
2010

2011
Current Ratio

2012
Quick Ratio

2013
Cash Ratio

(Google Finance, 2014)


Ratio

Description

The company

Curre
nt
ratio

A liquidity ratio calculated as


current assets divided by current
liabilities.

Apple Inc.'s current ratio


deteriorated from 2011 to 2012
but then improved from 2012 to
2013 exceeding 2011 level.

Quick
ratio

A liquidity ratio calculated as


(cash plus short-term marketable
investments plus receivables)
divided by current liabilities.

Apple Inc.'s quick ratio


deteriorated from 2011 to 2012
but then improved from 2012 to
2013 exceeding 2011 level.

Cash
ratio

A liquidity ratio calculated as


(cash plus short-term marketable
investments) divided by current
liabilities.

Apple Inc.'s cash ratio deteriorated


from 2011 to 2012 but then
improved from 2012 to 2013
exceeding 2011 level.

1 Annexure I Cash Flow Statement

Profitability Ratios2
Return on Investment

Return on Investment
40
35
30
25
Percentage 20
15
10
5
0
2008

2009

2010

2011

2012

2013

Year
ROA

ROE

(Apple Investors, 2014)

Rati
o

ROE

Description

The company

A profitability ratio calculated as net


income divided by shareholders'
equity.

Apple Inc.'s ROE improved from 2011 to


2012 but then deteriorated significantly from
2012 to 2013.

2 Annexure II Balance Sheet

ROA

A profitability ratio calculated as net


income divided by total assets.

Apple Inc.'s ROA improved from 2011 to


2012 but then deteriorated significantly from
2012 to 2013.

Profit Margin3

Profitability
50
40
30

Percentage

20
10
0
2008

2009

2010

2011

2012

2013

Year
Gross Profit Margin

Net Profit Margin

(Yahoo Finance, 2014)

Ratio

Description

The company

Gross
profit
margin

Gross profit margin indicates the


percentage of revenue available to
cover operating and other
expenditures.

Apple Inc.'s gross profit margin


improved from 2011 to 2012 but then
deteriorated significantly from 2012
to 2013.

Net profit
margin

An indicator of profitability,
calculated as net income divided by

Apple Inc.'s net profit margin


improved from 2011 to 2012 but then

3 Annexure III Income Statement

revenue.

deteriorated significantly from 2012


to 2013.

Observations
Based on the findings in the trend and common
size analysis, Apples overall performance is above
average.
Analysis of companys Balance Sheet showed that
Apples growth in Total Assets, Common Equity,
and Retained Earnings was above industry
average.
Analysis of companys Income Statement showed
that Apples growth in Net Sales, and Gross Income
was above its competitors.
Analysis of companys Cash Flow Statement
showed that Apples Net Cash Flow from Operating
Activities was above the industry average, and that
resulted in a positive Net Change in Cash.

Suggestions
For Company
Lowering the cost of products and maintaining the same quality
standards.
Can form joint ventures.
Knowledge Management.
More number of retail stores for easy access.
Continuous innovation to expand.

For Others
Do not compromise on price for quality.
Choose the products based on individual needs.
Be unique and different.

Scale up its production capabilities. Every time Apple releases a


hot new gadget, customers can't get it. This is a consequence of Apple's
legendarily precise just-in-time manufacturing system. Apple never wants
to make more devices than it will sell, so it ramps up manufacturing in
lock step with demand. That reduces its inventory costs and thus boosts
its profit, but Apple's production is still too slow to keep up with instant
spikes in demand. Is it possible for Apple to build products any faster
than it does now? If money is no object, sure: It could set up factories in
many different countries and it could invest in next-generation production
capabilities that might pump out iPhones even faster (for instance, robotic
assembly lines, which have the added benefit of not raising any concerns
about factory conditions).

Build or buy a cellular carrier. The iPhone is Apple's biggest


product, but Apple sells almost all of its phones in partnership with
carriers whose prices it doesn't control. Those costs are the biggest piece
of a smartphone purchase, and, in the U.S. and many other places around
the world, they have remained relatively stable for years. Your cellular
carrier's technology and customer service also leave a lot to be desired.
Steve Jobs once said that Apple's goal is to "own and control the primary
technology in everything we do." Cellular data service is a key such
technology, and Apple should make it a goal to own and improve that
service. It could start small, building infrastructure that boosts iPhone

service in congested cities, but with enough investments it could build a


network of its own, thus improving current carriers' service and prices
through competition.

High demand of iPad mini and iPhone 5. iPad mini sales will
increase Apples market share in the tablet market and,
will strengthen firms competitive advantage.
iTV launch. iTV launch will support Apple TV sales and the
products ecosystem.
Growth of tablet and smartphone markets. Growth of
tablet and smartphone markets is a good opportunity to
expand firms share in these markets.
Provide value for the products offered-If a perception is
created that Apple is offering its customers with fine
products with premium quality in the industry, which is not
being offered by others; than Apple should be able to
differentiate themselves from their competitors in order to
still keep premium pricing for their products.
Conduct more aggressive promotion-Increasing promotional
programs never proves to be damaging for any firm, but
only proves to be beneficial, it not only helps to attract
potential customers, but also new customers boosting
customer traffic and sales. Apple should also start creating
'TV commercials', in such a way that educate the
customers about the latest technological product, making
it seem more appealing. Also, they should start focusing
on advertising all products not only new products in order
to meet the sales target for all products.
Make maximum innovations-Technology market is a highly
competitive market, its very easy for competitors to clone
your products and sell as new products by making small

innovations. Therefore, it has become very important to


keep making constant innovations in design, features and
specifications in order to differentiate your product from
competitive brands and to be able to dominate the
market.
Offer price reduction offers from time to time-Instead of not
charging premium, price reductions, free gifts, vouchers,
VIP cards, etc. can be made for a limited period of time, to
allow customers to buy from Apple more often. Thus, this
may help Apple to attract new target group customers
increasing its fan base, along with sky rocketing its brand
loyalty and sales.
Open more Apple outlets in different areas-Since Apple
relies on online, direct and retail distribution methods, its
important for Apple to expand its direct reach through its
own stores and retail stores by locating stores in a more
reachable district, like residential areas so that people can
have an easy access to the stores.

STRATEGY RECOMMENDATIONS
Strategy 1
Open six computer retail stores (not just peripheral and accessories). Apple
currently has stores opened throughout the United States with only peripheral
and accessories for their computers. Adding the hardware should generate more
hands-on awareness and use already established locations. This will increase
product accessibility for those who wish to view items other than just
accessories and increase awareness of the originality of Apples products. 2
percent increase over the next 2 years in sales representatives for the computer
hardware.

Strategy 2
Contract music spokesperson to attract the upcoming generation who are
attending high school and college. This will invoke a sense of style and linking
apple with a distinctive and memorable top 10 hit. This will stay in the

customers awareness and influence future purchase decisions. Contracting one


music spokesperson estimated $6 million.

Strategy 3
Add more features to current products for greater Wintel compatibility. Features
such as iTunes software compatible with windows based computers, Office
programs loadable from PC installation disk (This would require a software
agreement with Microsoft). In late October 2003 Apple released an iTunes
software package that is PC ready. It will increase the United States market
share at least 30 percent for the next 2-3 years. $50 million is the estimated cost
for Research and Development.

CONCLUSION
It is concluded from the strategic management analysis at
APPLE Inc. that technological industries are never easy to
compete with. They have a lot invest at R&D and have to be
proactive in order to compete with their competitors in the
industry. As for APPLE is concerned they have been working so
well as it is shown form their products. As Apple Inc. is
increasing also, those other businesses are increasing and
trying to do something interesting for their own good. APPLE
needs to make a drastic change. They dont need to wait for
people buy their products only when they are on sale but they
need to focus more on the customer support and improve the
areas they already have problems.
Based on the performed analysis, Apple Inc. is financially
healthy and strong. The companys growth has been
extraordinary during the past five years. Apple is able to
finance its operations by current liabilities only. Its financial
structure is outstanding with 100% Equity. Apple Inc. does not
have any long-term debt, which makes the company very
financially independent. Revenues and Net Income are
increasing each year. Retained Earnings reached $9.101 billion
in 2007, which is an indicator for the financial power of Apple.
Due to the fact that sales are constantly increasing, and backed
by $9.352 billion (2007) in Cash and equivalents, the company
can afford future acquisitions.
During the years, Apple has substantially improved in its key
measures of profitability. In terms of ROA, ROE, and profit

margins, Apple strengthened financially and now has better


ratios than its competitors and the overall computer hardware
industry.
Based on the facts presented above, it may be concluded that
Apple Inc. is performing better than the industry average,
including Dell, and HP. This dramatic success in performance is
primarily due to the increase in sales from iPod product line,
and most recently from iPhone sales.
(O'grady, 2009)

I feel that Apple must focus on several key aspects to continue


to grow and succeed. They must continue a stable commitment
to licensing, push for economies of scope between media and
computers, and become a learning organization.
Although it should continue, Apple may want to consider other
forms of strategic alliances. An equity strategic alliance may
offer Apple the opportunity to obtain additional competencies.
An effective way for a company like Apple to accomplish this
would be in the form of a joint venture.
Apple should continue pushing the new line of media-centric
products. Meanwhile, Apple should not lose focus on its
computers. Macintosh computers were 59% of Apples sales in
2012. (Burrows)This very innovative company exploits its
second-mover position. In the future, they will need to continue
innovating

to

and computers.

expand

the

boundaries

of

both

media

Apple apparently made a commitment to licensing. Although it


should continue, Apple may want to consider other forms of
strategic alliances. An equity strategic alliance may offer Apple
the opportunity to obtain additional competencies. An effective
way for a company like Apple to accomplish this would be in
the form of a joint venture. Apple should continue push for
economies of scope between media and computers, and
become a learning organization, pushing the new line of mediacentric products.

This very innovative company exploits its

second-mover position. In the future, they will need to continue


innovating to expand the boundaries of both media and
computers. This will allow the company to withstand a
departure by Jobs. Based on the actions of the organization, we
feel that the mid-term performance of Apple will be strong. This
period allows Apple time to overcome their challenges if they
move swiftly. For this reason, we feel that they will continue to
succeed and will continue to outperform their peers.

Annexure
Annexure I Cash Flow Statement

Annexure II Balance Sheet

Annexure III Income Statement

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Word Count
Abstract 201 Words
Report 3800 Words (Approximate)