I have decided to invest $10,000 in APPLE INC. Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”). These companies design, manufacture, and market personal computers, mobile communication devices, and portable digital music and video players and sell a variety of related software, services, peripherals, and networking solutions. The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and thirdparty wholesalers, resellers, and value-added resellers. In addition, the Company sells a variety of third-party Macintosh® (“Mac”), iPhone® and iPod® compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store®. The Company sells to consumer, small and mid-sized business (“SMB”), education, enterprise, government and creative customers. I have used financial statements of the year 2009, 2008 and 2007 for the financial analysis and to develop an understanding about the company’s performance. My findings are as follows:

Initial Review:
Initial understanding about the company’s business is developed on the basis of the following of the review of the auditor’s report on company performance and management comments on company’s future planning: 1. The auditor’s (Ernst & Young LLP) have expressed an unqualified opinion on the financial statements of the year 2009. This means that the financial 1

statements were prepared in their true sense and depict the true picture of the company’s financial performance. 2. As per the management discussion and analysis of financial condition & results of the operations, the company is enhancing its product sale through the expansion and improvement of its distribution capabilities by opening its own retail stores in the U.S. and in international markets. The Company had 273 stores open as of September 26, 2009. Further, the company has also invested in programs to enhance reseller sales, including the Apple Sales Consultant Program, which places Apple employees and contractors at selected third-party reseller locations, and the Apple Premium Reseller Program, through which independently run businesses focus on the Apple platform and provide a high level of customer service and product expertise. The company distributes iPhone in over 80 countries through its direct channel and the company has signed multi-year agreements with various cellular network carriers authorizing them to distribute and provide cellular network services for iPhones. These agreements are generally not exclusive with a specific carrier, except in the U.S., Germany, Spain, Ireland and certain other countries.

Financial Analysis
The financial strength and performance of the company over the last three years i.e. 2009, 2008 & 2007 is determined through the following ratios:


• S.

Liquidity Analysis Detail Working 200 9 Current Ratio $36,265 / $19,282 1.8 8 20 08 2.2 9 2.2 6 27 25 2.32 200 7 2.36

No. a


Quick Ratio

$36,265 - $455/ $19,282

1.8 6


Collection period (in days)

$3,361 * 365 / $36,537



Number of day’s sales in ending inventory (in days)

$455 * 365 / $23,397




The company is still higly liquid but this liquidity trend is in declinging trend as current ratio 2.36 in 2007 is declined to 2.29 in 2008 and further declined to 1.88 in 2009. This decling trend is mainly due to increase in collection period of the sale and decrease in number of day’s sale in ending inventory as depicted above. • S. No. a Gross profit percentage $13,140 / $36,537 35.96 % b Operating income $7,658 / $36,537 20.96 34.31 % 19.32 33.97 % 18.37 3 Profitability Analysis Detail Working 2009 2008 2007

percentage c Return on equity $5,704 / $27,832

% 20.49 %

% 22.99 % 12.22 % 0.24 1.99

% 24.06 % 13.79 % 0.22 1.56


Return on assets

$5,704 / $53,851

10.59 %

d e

Cash return on assets Quality of income

$10,159 / $53,851 $10,159 / $5,704

0.19 1.78

There is an increasing trend in profit of the company over the last three years i.e. 2007 to 2009. The gross profit percentage has increased from 33.97% in 2007 to 34.31% in 2008 and then 35.96% in 2009. Operating income percentage has also increased from 18.37% in 2007 to 19.32% in 2008 and then 20.96% in 2009. Return on equity and on assets has decreased due to accumlation of profits in retained earning and investment in long term marketable securities respectivelly. The same is with cash return on assets. In short, the company is enjoying with strong profitability and is in upward growth with respect to profits. • S. No. a Financial leverage $26,019 / $27,832 Solvency (capital structure) Analysis Detail Working 200 9 93 % b Times interest earned NA NA 20 08 88 % NA NA 200 7 74%


The financial leverage of the company is also on the upward growth trend, this is due to the increase in liabilities specially increase in deffered revenue of the company. Further, interest ratio was not computeable for the company as the company is not availing any debt and so not paying any interest. • S. No. a Earning per share (Basic) $5,704 / 893 Market Test Detail Working 200 9 $6.3 9 a Earning per share (Diluted) b c Market-to-book value Price-to-earnings $182.37 / $31.17 $182.37 / $6.39 $5,704 / 907 $6.2 9 5.85 28.5 4 200 8 $5.4 8 $5.3 6 5.37 23.4 0 200 7 $4.0 4 $3.9 3 9.12 37.9 9

Earning per share (basic & diluted) of the company has an increasing trend due to increase in the profitability of the company over the last three years. Further, market to book value of the company was decreased in 2008 to 5.37 as compared to 9.12 in 2007 but this ratio has increased to 5.85 in 2009. Morover, the price to earning ratio has decreased to 23.40 in 2008 as compared to 37.99 in 2007 but this ratio has increased to 28.54 in 2009 due to increase in market price of the share.

Investment must be made in the company as the company is financially very strong and has increasing trend in earning. Further the company is financially sound and 5

the share of the company is being traded over the book value of the share that depicts the investor trust on the company’s performance. Comparision: The Apple company’s performance can be compared with its competitor Dell to have a better understanding of the performance of the company with respect to its competitor. The ratios of the two compinies are as follows: Ratio Analysis Current ratio Quick ratio Collection Period Number of days sales in ending inventory Gross Profit Percentage Apple 1.88 1.86 34 7 35.96 % Operating income percentage 20.96 % Return On Equity 20.49 % Return on assets 10.59 % Cah return on assets Quality of income Financial Leverage Times Interest earned Earning per share Basic Earning per share Diluted 0.19 1.78 93% NA $6.39 $6.29 0.07 0.76 520% 27.65 $1.25 $1.25 6 58.02 % 9.35% Dell 1.36 1.30 28 6 17.93 % 5.22%

Market to book value Price to earning ratio

5.85 28.54

4.34 7.60

It is evident from the above ratio analysis that the Apple company is more strong than the Dell company. Apple company is more strong in liquidity than the Dell as the liquidity ratio of Apple is 1.88 and of Dell is 1.36. Further, the quick ratio of the Apple company is 1.86 as compared to 1.30 of Dell that depict that the Apple is more liquid than Dell. Dell is doing good in collecting from its customers and convrsion of inventory of sale as compared to Apple company. Further, with respect to prfoitability the Apple company is better than the Dell company and Apple company is using its assets more efficiently than the Dell company as return on assets of Apple is 10.59% whereas 9.35% for Dell company. Moreover, market ratios of the Apple company is better than the Dell company as earning per share, market to book value and price to earning ratio of Apple company is better than Dell company. In short, the investment in Apple company is more viable than the investment in Dell company as Apple company is more profit oriented, financially strong and performing in market better than the Dell company.


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