Introduction

Apple Inc. is an American multinational technology company headquartered in

Cupertino, California, that designs, develops, and sells consumer electronics, computer

software, and online services. The company's hardware products include the iPhone

smartphone, the iPad tablet computer, the Mac personal computer, the iPod portable

media player, the Apple Watch smartwatch, the Apple TV digital media player, and the

HomePod smart speaker.

In 2016, Apple became the first U.S. company to be valued at over US$700 billion. In

2018, Apple became the first public U.S. company to be worth US$1 trillion. As of

October 2020, Apple is the world's most valuable company.

Context (C) – External environment

In order to assess the financial performance and position of Apple Inc., an analysis of

the technological, economic, social and political factors that have influenced the

company over the past four years will be conducted.

Technological

In terms of technological developments, Apple has been at the forefront of many new

innovations and has been quick to adopt new technologies in order to maintain its

competitive advantage.

The company is also rumored to be working on a number of new services, including a

streaming TV service, a subscription-based news service and a subscription-based

gaming service.
Economic

The global economy has been relatively stable over the past four years, with GDP

growth of 2.4% in 2014, 2.9% in 2015, 3.1% in 2016 and 3.0% in 2017. In terms of

inflation, the CPI has remained relatively stable, with an average rate of 2.1% over the

past four years. In terms of unemployment, the rate has remained relatively stable, with

an average rate of 5.8% over the past four years.

Social

There have been a number of social changes over the past four years that have

impacted Apple. In terms of demographics, the population of the world has continued to

grow, reaching 7.6 billion in 2017. The population of the US has also continued to grow,

reaching 324 million in 2017. The population of China has also continued to grow,

reaching 1.4 billion in 2017.

In terms of lifestyle changes, there has been a continued trend towards health and

fitness, with more people looking to adopt healthy lifestyles.

In terms of technology usage, there has been a continued trend towards the use of

mobile devices, with more people using smartphones and tablets.

Political

There have been a number of political changes over the past four years that have

impacted Apple. In terms of trade, the US and China have been engaged in a number of

trade disputes, with the US imposing tariffs on Chinese imports and China retaliating

with tariffs on US imports.

In terms of taxation, the US corporate tax rate was reduced from 35% to 21% in 2018.

The Chinese corporate tax rate was reduced from 25% to 20% in 2018.

In terms of regulation, the US introduced a number of new regulations, including the

Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection

Act. In China, a number of new regulations were introduced, including the Anti-Unfair

Competition Law and the Cybersecurity Law.

Porter Five Forces – Micro environment

In order to analyze the financial performance and position of Apple Inc., an analysis of

the Porter Five Forces will be conducted.

Competitive rivalry

The competitive rivalry within the technology industry is intense, with a large number of

companies competing for market share. Apple competes with a number of companies,

including Samsung, Sony, LG, HTC, Huawei, Xiaomi and Oppo.

Bargaining power of suppliers

The bargaining power of suppliers is high due to a number of factors, including the large

number of suppliers within the industry, the high level of differentiation among suppliers,

the high level of switching costs, and the low level of integration within the supply chain.

Bargaining power of buyers

The bargaining power of buyers is high due to a number of factors, including the large

number of buyers within the industry, the high level of differentiation among products,

the high level of switching costs, and the low level of integration within the supply chain.
Threat of new entrants

The threat of new entrants is high due to a number of factors, including the high level of

capital requirements, the high level of technological expertise required, the high level of

brand recognition and customer loyalty, and the high level of government regulation.

Threat of substitutes

The threat of substitutes is low due to a number of factors, including the high level of

customer loyalty, the high level of brand recognition, the high level of customer

switching costs, and the low level of price sensitivity.

The low threat of substitutes is a result of the fact that there are a large number of

companies within the industry, and the products they offer are highly differentiated. This

differentiation makes it difficult for substitutes to compete with existing products.

Context (C) – Internal environment

In order to assess the financial performance and position of Apple Inc., an analysis of

the company’s organizational structure, culture and financial statements will be

conducted.

Organizational structure

Apple Inc. is organized into four main divisions: AppleCare, Hardware Engineering,

Marketing, and Sales. AppleCare provides customer service and support for Apple

products. Hardware Engineering develops and designs new Apple products. Marketing

creates and executes marketing campaigns for Apple products. Sales manages Apple’s

retail stores and online store.

Culture
The culture at Apple is one of innovation and creativity. The company is known for its

secretive and innovative culture, which has been integral to its success. Apple

employees are passionate about their work and are known for their dedication to the

company.

Financial statements

The financial statements of Apple Inc. for the years ended September 29, 2018 and

September 28, 2019 show that the company had total revenue of $265.6 billion and

$260.2 billion, respectively. The company had net income of $59.5 billion and $54.3

billion, respectively. The company had total assets of $382.3 billion and $427.2 billion,

respectively. The company had total liabilities of $103.6 billion and $120.5 billion,

respectively.

Industry analysis – Porter’s Five Forces

In order to analyze the financial performance and position of Apple Inc., an analysis of

the Porter Five Forces will be conducted.

Competitive rivalry

The competitive rivalry within the technology industry is intense, with a large number of

companies competing for market share. Apple competes with a number of companies,

including Samsung, Sony, LG, HTC, Huawei, Xiaomi and Oppo.

The intensity of competitive rivalry is high due to a number of factors, including the large

number of companies competing for market share, the high level of innovation within the

industry, the high level of advertising and marketing expenditure, and the high level of

customer switching costs.

Bargaining power of suppliers

The bargaining power of suppliers is high due to a number of factors, including the large

number of suppliers within the industry, the high level of differentiation among suppliers,

the high level of switching costs, and the low level of integration within the supply chain.

The high bargaining power of suppliers is a result of the fact that there are a large

number of suppliers within the industry, and the products they supply are highly

differentiated. This differentiation gives suppliers a high degree of power when

negotiating prices with buyers.

Bargaining power of buyers

The bargaining power of buyers is high due to a number of factors, including the large

number of buyers within the industry, the high level of differentiation among products,

the high level of switching costs, and the low level of integration within the supply chain.

The high bargaining power of buyers is a result of the fact that there are a large number

of buyers within the industry, and the products they purchase are highly differentiated.

This differentiation gives buyers a high degree of power when negotiating prices with

suppliers.

Threat of new entrants

The threat of new entrants is high due to a number of factors, including the high level of

capital requirements, the high level of technological expertise required, the high level of

brand recognition and customer loyalty, and the high level of government regulation.

The high threat of new entrants is a result of the fact that there are a large number of
companies within the industry, and the products they offer are highly differentiated. This

differentiation makes it difficult for new entrants to compete with existing companies.

SWOT analysis

In order to analyze the financial performance and position of Apple Inc., a SWOT

analysis will be conducted.

Strengths

Apple Inc.’s strengths include its strong brand recognition, its large customer base, its

high level of customer loyalty, its strong financial position, and its innovative culture.

Weaknesses

Apple Inc.’s weaknesses include its reliance on the iPhone, its high level of debt, and its

high price point.

Opportunities

Apple Inc.’s opportunities include the continued growth of the smartphone market, the

continued growth of the tablet market, the growth of the wearable device market, and

the growth of the services market.

Threats

Apple Inc.’s threats include the intensifying competitive rivalry within the technology

industry, the increasing bargaining power of suppliers, the increasing bargaining power

of buyers, the threat of new entrants, and the threat of substitutes.

Horizontal Analysis – Income Statement and the Balance Sheet

In order to analyze the financial performance and position of Apple Inc., a horizontal

analysis of the company’s income statement and balance sheet will be conducted.

Evaluation (E) – Analysis

Profitability Ratios

Gross Margin

Gross Margin
44.00% 43.31%
41.78%
42.00%
Gross Margin

40.00% 38.23% 37.82%

38.00%
36.00%
34.00%
2022 2021 2020 2019
Year

Looking at the table, we can see that the gross margin has been increasing over the

past few years. In 2019, the gross margin was 37.82%. In 2020, it increased to 38.23%.

In 2021, it increased again to 41.78%. And in 2022, it is projected to increase to

43.31%. This shows that the company is becoming more and more profitable.

Operating Profit (PBIT) Margin

Operating Profit (PBIT) Margin

35.00%
30.29% 29.78%
30.00%
24.15% 24.57%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2022 2021 2020 2019

PBIT
The Operating Profit (PBIT) Margin is the percentage of operating profit that a company

generates in relation to its total revenue. For the years 2022, 2021, 2020, and 2019, the

company's PBIT Margin was 30.29%, 29.78%, 24.15%, and 24.57%, respectively. This

means that, for every dollar of revenue generated, the company earned 30.29 cents in

operating profit in 2022, 29.78 cents in 2021, 24.15 cents in 2020, and 24.57 cents in

2019.

ROEC

ROEC
70.00% 60.09%
60.00%
48.31%
50.00%
40.00% 30.34% 27.46%
30.00%
20.00%
10.00%
0.00%
2022 2021 2020 2019

The higher the ROCE, the more profitable the company is. In the table above, the

ROCE for 2022 is 60.09%, which is higher than the ROCEs for 2021, 2020, and 2019.

This means that the company is becoming more profitable over time.

ROE

ROE
2019 61.06%

2020 87.87%

2021 150.07%

2022 196.96%

0.00% 50.00% 100.00% 150.00% 200.00% 250.00%

The table above shows the ROE for a hypothetical company over a four-year period. As

can be seen, the company's ROE increased from 61.06% in 2019 to 196.96% in 2022.

This means that the company became more profitable and efficient in its use of

shareholders' equity over this four-year period.

Liquidity Ratios

Current Ratio

Current Ratio
2019 1.54

2020 1.36

2021 1.07

2022 0.88

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

Looking at the table above, we can see that the company's current ratio has been

trending downward over the past few years. In 2019, the company's current ratio was

1.54, which means that the company had 1.54 times more current assets than current

liabilities. However, in 2020, the company's current ratio decreased to 1.36, and in

2021, it decreased even further to 1.07. This downward trend is a cause for concern, as

it indicates that the company's liquidity is deteriorating.

Acid Ratio
 Acid Ratio

2019 1.50

2020 1.33

2021 1.02

2022 0.85

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

The acid ratio has a few implications for Apple. A higher acid ratio means that the

company is less able to pay its debts, which could lead to financial difficulties. In

addition, a higher acid ratio could also indicate that the company is using more

aggressive accounting methods, which could make the company's financial statements

less reliable. However, the downward trend in the acid ratio may also suggest that the

company is becoming more conservative in its accounting.

Gearing Ratio

Gearing Ratio

Gearing Ratio
80.00% 74.51% 72.02% 70.10%
70.00% 61.13%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2022 2021 2020 2019

The gearing ratio is a financial ratio that measures the extent to which a company is

funded by debt. The higher the gearing ratio, the more leveraged the company is. For
Apple, the gearing ratio has been increasing over the past few years, meaning that the

company is becoming more leveraged. This could be a concern for investors as it

means that Apple is taking on more debt to finance its operations. This could lead to

higher interest payments and greater financial risks if the company is unable to meet its

debt obligations. However, it should be noted that Apple has a strong financial position

and has been able to consistently generate positive cash flows, meaning that it is likely

to be able to service its debt obligations.

Debt to Equity Ratio

Debt to equity ratio

2019 2.74
2020 3.96
2021 4.56
2022 5.96
0 1 2 3 4 5 6 7

The debt-to-equity ratio has increased over the past four years, meaning that the

company has been taking on more debt relative to the equity it has on its balance sheet.

This can be a concern for investors, as it means that the company is becoming more

leveraged and may be at risk of defaulting on its debt obligations if its business

performance weakens. However, it should be noted that Apple has strong operating

cash flows and a large cash balance, which provides it with some cushion in case of a

downturn.

Interest Cover
 Interest Cover
45 40.75 41.19
40
35
30
25 23.07
20 17.88
15
10
5
0
2022 2021 2020 2019

A high interest cover indicates that a company can easily make its interest payments,

while a low interest cover indicates that a company may have difficulty making its

interest payments. For Apple, the interest cover has been increasing over the past few

years, reaching 40.7 in 2022. This indicates that Apple is in a strong position to make its

interest payments and is unlikely to default on its debt.

Investment Ratios

EPS

Earnings per share (EPS)

7
6
5
4
3
2
1
0
2022 2021 2020 2019

The earnings per share for Apple Inc. have been increasing over the past few years. In

2019, the EPS was 2.99, while in 2020 it increased to 3.30. This trend continued in
2021, with the EPS reaching 5.67. Finally, in 2022, the EPS is 6.15. This shows that the

company is doing well and is expected to continue growing in the future.

PE Ratio

Price per Earning Ratio (PE)

45
40.20
40
35 31.22
30 26.32 25.74
25
20
15
10
5
0
2022 2021 2020 2019

For Apple, we can see that the PE ratio has been relatively high in recent years,

indicating that investors are willing to pay a higher price for the company's shares.

However, the PE ratio has been trending downwards, indicating that investors are not

willing to pay as much for the company's shares as they were in the past.

Efficiency Ratios

Asset turnover

Asset Turnover
1.2
1
0.8
0.6
0.4
0.2
0
2022 2021 2020 2019
The asset turnover for Apple Inc. has been increasing from 2019 to 2022. This means

that the company is becoming more efficient in using its assets to generate revenue.

This is a positive trend for the company, as it indicates that it is able to generate more

sales with the same amount of assets.

Conclusion

Apple Inc.'s overall financial position seems to be improving, based on the trend in its

financial ratios. The company is becoming more efficient in using its assets to generate

revenue, and its liquidity position is also improving. Additionally, its operating margin

and net margin have also been increasing, indicating that it is becoming more profitable.

This indicates that the company is in a good financial position and is likely to continue to

grow in the future.