FINANCIAL ANALYSIS APPLE

1. Introduction:

With the market capitalization of “Apple” who is exceed more than 2 000 Billion $ on April 2021, this
gives us the wish to understand how the big companies dominate and the technology in our lives.

These interpretations hide the succeed of Apple: the creation of a financial model who is giving the
wants of Americans companies. Of course, the company is producing smartphones and Laptops, but
if you look under its sleek shape, you will find a real financial machine who became the ideal of
American companies. Without significant investments in a material goods, Apple makes his money
works and give it back very quick to its shareholders. It is difficult to not admire Apple.

But this type of model which has been perfected at Apple is very risky and often badly imitated by
many American societies. The next decade will show if these imitations were a bad thing or a large-
scale financial engineering.

2. Wealth creation (sales trends, margin analysis):

We can differentiate Apple revenue in two categories: products and services selling, the main part of
Apple revenues came from the sales made with their products, but since 2019 Apple have started to
diversify into services like Apple TV+ which is a streaming service

Here’s a complete analysis of what Apple’s revenues are composed of:

The Operating revenues of Apple since 2011 is on the annexe part 2.

As we can analyse thanks to this graph, since 2011, there is a huge raise for the annual turnover, we
can guess that this increase is due to the arrival of certain products such as the iPhone and the iPad.
In 2020 the turnover of Apple has increase by 5.5% since 2019, which is worth 275 billion.

The turnover of Apple is composed of 52% of the iPhone sales, the iPhone is the most popular
products of the company, 11% of the turnover is based on Mac and MacBook products, 10% is based
on Apple Watch and Airpods sales, 7% is based on iPad sales, and the last 20% of the turnover are
based on the services sales such as iCloud, AppleCare, Apple TV+ or Apple Pay.

Apple 2020 Apple 2019

Gross profit =((274515000- Gross profit (110939000/260174000)*
margin 158503000)/274515000 ) * margin 100=42%
100 = 42%

Operating (66288000/274515000) * Operating (63930000/260174000)

profit margin 100 = 24 % profit margin *100=24%
Net profit (57411000 / 274515000) * Net profit (55256000/260174000) *100=
margin 100 = 21% margin 21%
Return on total (57411000 / 323888000) * Return on total (55256000/338516) *100=16%
assets 100 =17% assets
Return on (57411000 / 65339000) * Return on (55256000/90488) =61%
equity 100 = 87% equity
 Earnings per 3,31$ Earnings per 6,51$
share share
Price/earnings (115 / 3,31) = 34,74 Price/earnings (80/6,51) = 12,28
ratio ratio

So, as we can see the gross profit margin and the operating profit margin are the same for 2019 and
2020 therefore the net profit margin doesn’t move and stay at 21% who is a good profit for the
company.

ROA has been increased up to 1% this year, so the ROA move to 16% up 17% who is a good one.

For the ROE if a shareholder buys for 100$ shares that will give 87$ for the company and compared
to 2019 where this was given only 61$ to Apple.

PER has moved to 12,28 in 2019 up 34,74 today so this Is good for the company and they are waiting
for big profits in the future.

3. requires investments in capital employed (fixed assets, working capital):

APPLE

From the balance sheet we can see the FIXED ASSETS:

In 2020 we have: 180,175,000 $

In 2019 we have: 175,697,000 $

To speak about the asset evolving we see a difference between both. The difference is 4,478,000$,
we see that is a good increase. This increase is a good thing for the company but the asset result isn't
an only thing that we need to check.

We nedd to look at the WORKING CAPITAL:

The working capital is relating to the operating cycle.

WCR = inventory + operating receivable – operating debts

In 2020: -22,115,000 $
The society does not have the financial capacity to finance the proper functioning of the company.

In 2019: - 19,204,000 $

The society does not have the financial capacity to finance the proper functioning of the company.
We are going to present you the different ratio to analyse more about the society.

CURRENT RATIO

The current ratio is a calculation about the ability to pay short terms obligations.

Current assets / current liabilities

In 2020: 143,713,000 / 105,392,000 = 1,3636

This low ratio suggest that the company is not well placed to pay its debts. So, APPLE need to find a
financing or extend the time to pay creditors.

In 2019: 162,819,000 / 105,392,000 = 1,5448

This low ratio suggest that the company is not well placed to pay its debts. So, APPLE need to find a
financing or extend the time to pay creditors. But we see that a better ratio than 2020 even if the
company nedd to make some efforts.

The SHAREHOLDER’S RATIO EQUITY:

The ratio equity is very important to measure the amount leverage used by the society.

Ratio equity: shareholder’s equity / total asset

In 2020: 65,339,000 / 180,175,000 = 0,3626

In 2019: 90,488,000 / 175,697,000 = 0,5150

The ratio is low and significate a leveraged company. The company is not financed enough with its
own funds and too much with its debts.

GROSS PROFIT MARGIN

gross profit / sales * 100

2020: 116,012,000 / 274,515,000 * 100 = 42,26 %

2019: 110,939,000 / 260,174,000 * 100 = 42,64 %

As we can see the company have a rather average margin, the company did more or less well in
managing its cost of sales.

NET PROFIT MARGIN

2020: profit margin = (57411000 / 274515000) * 100 = 21%

21% of each dollar collected by a company as revenue translate to his profit.

APPLE have some issues with the financing and the working capital. The society has a lot of debts but
it has a good sales and net profit. The company has a negative working capital and isn’t a good thing
for the company’s health. APPLE need to make a huge financing to have a better result. Now, we are
going to compare with another company: MICROSOFT.

MICROSOFT

FIXED ASSET

2020: 119,396,000 2019: 111,004,000

We see an increase of 8392000 $

WORKING CAPITAL

2020: 21,376,000 2019: 22,205,000

The WORKING CAPITAL is positive and the company have the potential to invest and grow.

GROSS MARGIN PROFIT

gross profit / sales * 100

2020 76,73 % 2019 75,41 %

As we can see the company have a hight margin, the company did well in managing its cost of sales.

NET MARGIN PROFIT

2020 37,08 % 2019 34,72 %

Between 34 and 37% of each dollar collected by a company as revenue translate to his profit. It’s a
good number

To compare APPLE and MICROSOFT, APPLE has more issues with his working capital than
MICROSOFT. APPLE need to make a financing to invest and grow. MICROSOFT have a better
management of the working capital, ect …

4. That must be financed

Apple is mostly financed by its shareholders: in 2020, their funds are around 65,340,000 dollars. This
includes capital and other funds. In 2019 these funds were 12% lower than in 2020.

Over the same period, there has been a drop of more than 65% in other funds.

We could interpret these changes as the company wanting to support itself with its own funds.

The company's long-term debt has increased overall in recent years to reach $99,304,000 in 2020.
While the company did not borrow for some time, it has changed its pattern in recent years,
reaching $8,797,700 in borrowings in 2020.

WORKING CAPITAL

2020: - 22 115 000

2019: - 19 204 000

The result is negative: Apple is unable to pay its current liabilities by liquidating its current assets. It’s
worse in 2020 than in 2019.

CASH & CASH EQUIVALENT

2020: 90 943 000

2019: 100 557 000

Apple has cash on hand. However, this cash flow has decreased between 2019 and 2020. Cash and
cash equivalents show the value of assets: cash or money that can be converted into cash
immediately.

FINANCIAL DEBT RATIOS

This will make it possible to measure the company's level of indebtedness and financial dependence
on third parties.

1) Total equity / total assets

Total assets: 2020: 323 888 000 $ 2019: 338 516 000 $

Total equity: 2020: 65 339 000 $ 2019: 90 488 000 $

2020: total equity / total assets = 65 339 000 / 323 888 000 = 0,20 < 0,25 High
2019: total equity / total assets = 90 488 000 / 338 516 000 = 0,27 > 0,25 Low

Low ratio = the company has room to borrow, so it is in good health

High ratio = the company is highly dependent on external financing

Between 2019 and 2020 we can observe an increase in the company's debt ratio.

2) Total financial debt / total equity

CT debts: 2020: 105 392 000 $ 2019: 105 718 000 $

LT debts: 2020: 153 157 000 $ 2019: 2 142 310 000 $

Total financial debt: 2020: 105 392 000 + 153 157 000 = 258 549 000 $

2019: 105 718 000 + 142 310 000 = 248 028 000 $

Total equity: 2020: 65 339 000 $ 2019: 90 488 000 $

2020: total financial debt / total equity = 258 549 000 / 65 339 000 = 3,96 > 1 High

2019: total financial debt / total equity = 248 028 000 / 90 488 000 = 2,74 > 1 High

High ratio = the company is highly dependent on external financing

3) Net debt / EBITDA

CT debts: 2020: 105 392 000 2019: 105 718 000

LT debts: 2020: 153 157 000 2019: 142 310 000

Net debt: 2020: 105 392 000 + 153 157 000 = 258 549 000

2019: 105 718 000 + 142 310 000 = 248 028 000

EBITDA:

2020: 77 344 000 2019: 76 477 000

2020: net debt / EBITDA = 258 549 000 / 77 344 000 = 3,34 > 3 High

2019: net debt / EBITDA = 248 028 000 / 76 477 000 = 3,24 > 3 High

High ratio = the company is highly dependent on external financing

4) Net debt / equity

CT debts: 2020: 105 392 000 2019: 105 718 000

LT debts: 2020: 153 157 000 2019: 142 310 000

Net debt:

2020: 105 392 000 + 153 157 000 = 258 549 000 $ 2019: 105 718 000 + 142 310 000 = 248 028 000 $

Total equity: 2020: 65 339 000 $ 2019: 90 488 000 $

2020: net debt / equity = 258 549 000 / 65 339 000 = 3,96 > 1 High

2019 : net debt / equity = 248 028 000 / 90 488 000 = 2,7 > 1 High
High ratio = the company is highly dependent on external financing

Overall, the results of the financial debt ratios are high which means that the company is doing
quite badly financially as it is very dependent on its investors.

COMPARAISON WITH MICROSOFT

MICROSOFT DATA

1) Total equity / total assets

Total assets: 2020: 301 311 000 2019: 286 556 000

Total equity: 2020: 118 304 000 2019: 102 330 000

2020 : total equity / total assets = 118 304 000 / 301 311 000 = 0,39 > 0,25 Low

2019: total equity / total assets = 102 330 000 / 286 556 000 = 0,36 > 0,25 Low

Low ratio = the company has room to borrow, so it is in good health

2) Total financial debt / total equity

CT debts: 2020: 72 310 000 2019: 69 420 000

LT debts: 2020: 68 534 000 2019: 72 919 000

Total financial debt: 2020: 72 310 000 + 68 534 000 = 140 844 000

2019: 69 420 000 + 72 919 000 = 142 339 000

Total equity: 2020: 65 339 000 2019: 90 488 000

2020 : total financial debt / total equity = 140 844 000 / 65 339 000 = 2,16 > 1 High

2019 : total financial debt / total equity = 142 339 000 / 90 488 000 = 1,57 > 1 High

High ratio = the company is highly dependent on external financing

3) Net debt / EBITDA

CT debts: 2020: 72 310 000 2019: 69 420 000

LT debts: 2020: 68 534 000 2019: 72 919 000

Net debt:

2020: 72 310 000 + 68 534 000 = 140 844 000 2019: 69 420 000 + 72 919 000 = 142 339 000

EBITDA:

2020: 65 755 000 2019: 54 929 000

2020: net debt / EBITDA = 140 844 000 / 65 755 000 = 2,14 < 3 Low

2019: net debt / EBITDA = 142 339 000 / 54 929 000 = 2,6 < 3 Low

Low ratio = the company has room to borrow, so it is in good health

4) Net debt / equity

CT debts:

2020: 72 310 000 2019: 69 420 000

LT debts:

2020: 68 534 000 2019: 72 919 000

Net debt:

2020: 72 310 000 + 68 534 000 = 140 844 000 2019: 69 420 000 + 72 919 000 = 142 339 000

Total equity:

2020: 65 339 000 2019: 90 488 000

2020: net debt / equity = 140 844 000/ 65 339 000 = 2,16 > 1 High

2019: net debt / equity = 142 339 000/ 90 488 000 = 1,57 > 1 High

High ratio = the company is highly dependent on external financing

Apple is highly dependent on external financing. Microsoft is highly dependent on external financing.
Apple is more dependent on financing than Microsoft. For Apple, 2020 is worth than 2019 on the
financial plan. For Microsoft, the 2 years are similar on the financial plan.

5. Provide sufficient returns (return on capital employed, return on equity,

leverage effect)
All calculations and result are on the annex number.

As the ROE “using net income” shows, Apple knows how to generate income from equity allowed to
it. For example, the result means that on 100 dollars invested by shareholders, the net income
obtained is 61,06. In reverse, the ROCE doesn’t seem very well. In fact, we can consider a good ROCE
when it turns around 10-15% but here, Apple Inc indicates a ROCE of 8.8%. The leverage is on the
good side, with 52% in 2019 and an upgrade to 78,47% in 2020. The evolution of ROE and ROCE are
in a positive way as we can see, the ROE jump from 61,06% in 2019 to 87,87% in 2020, and the ROCE
increase from 8.8% to 9.4%. In conclusion Apple should improve it ROCE result to a score of 15% to
be more profitable.
6. Synthesis:
So, as we can see the gross profit margin and the operating profit margin stay the same therefore the net profit margin
does not move and stay at 21% who is a good profit for the company.

ROA has been increased up to 1% this year, so the ROA move to 16% up 17% who is a good one.

For the ROE if a shareholder buys for 100$ shares that will give 87$ for the company and compared to 2019 where this was
given only 61$ to Apple.

PER has moved to 12,28 in 2019 up 34,74 today so this Is good for the company and they are waiting for big profits in the
future.

Apple have a difference of 4,478,000$ between 2019 and 2020, we see that is a good increase. Before our analysing the
society does not have the financial capacity to finance the proper functioning of the company.

This low ratio suggest that the company is not well placed to pay its debts. So, APPLE need to find a financing or extend the
time to pay creditors.

To compare with Microsoft has a positive working capital and the company have the potential to invest and grow.
Microsoft invest better than Apple.

Apple is mostly financed by its shareholders: in 2020, their funds are around 65,340,000 dollars. This includes capital and
other funds. In 2019 these funds were 12% lower than in 2020. Over the same period, there has been a drop of more than
65% in other funds. We could interpret these changes as the company wanting to support itself with its own funds.

The company's long-term debt has increased overall in recent years to reach $99,304,000 in 2020. While the company did
not borrow for some time, it has changed its pattern in recent years, reaching $8,797,700 in borrowings in 2020. Apple is
unable to pay its current liabilities by liquidating its current assets. It’s worse in 2020 than in 2019. Apple has cash on hand.
However, this cash flow has decreased between 2019 and 2020. Cash and cash equivalents show the value of assets: cash
or money that can be converted into cash immediately.

Apple is highly dependent on external financing and Microsoft too. But Apple is more dependent on financing plan than
Microsoft. For Apple, 2020 is worth than 2019 on the financial plan and for Microsoft, the 2 years are similar on the
financial plan.

ROE is increasing of 26% which is positive for the company and shareholders. However, ROCE is too low, despite a 1%
increase since 2019 the company should try to have a 13% ROCE, on the next years, for it to be beneficial
Annexes:
Part 2:
Apple 2020 Apple 2019
Gross profit =((274515000- Gross profit (110939000/260174000)*
margin 158503000)/274515000 ) * margin 100=42%
100 = 42%

Operating (66288000/274515000) * Operating (63930000/260174000)

profit margin 100 = 24 % profit margin *100=24%
Net profit (57411000 / 274515000) * Net profit (55256000/260174000) *100=
margin 100 = 21% margin 21%
Return on total (57411000 / 323888000) * Return on total (55256000/338516) *100=16%
assets 100 =17% assets
Return on (57411000 / 65339000) * Return on (55256000/90488) =61%
equity 100 = 87% equity
Earnings per 3,31$ Earnings per 6,51$
share share
Price/earnings (115 / 3,31) = 34,74 Price/earnings (80/6,51) = 12,28
ratio ratio

The Operating revenues of Apple since 2011:

Part 4 :
Annex number 5
2019:
ROE “using net income” = 61,06%

ROCE = EBIT * (1- tax rate) / [Shareholders funds + Non-current liabilities]

ROCE = 24.57*(1 – 15.9%) / (90.488 + 142.310) = 0,088

ROCE*100 = 8.8%

Leverage effect = ROE – ROCE

Leverage effect = 61.06% - 8.8% = 52,26%

2020:
ROE “using net income” = 87,87%

ROCE = EBIT * (1- tax rate) / [Shareholders funds + Non-current liabilities]

ROCE = 24.15*(1 – 14.8%) / (65.339 + 153.157) =0,094

ROCE*100 = 9.4%
Leverage effect = ROE – ROCE
Leverage effect = 87.87% - 9.4% = 78.47%
As the ROE “using net income” shows, Apple knows how to generate income from equity allowed to
it. For example, the result means that on 100 dollars invested by shareholders, the net income
obtained is 61,06. In reverse, the ROCE doesn’t seem very well. In fact, we can consider a good ROCE
when it turns around 10-15% but here, Apple Inc indicates a ROCE of 8.8%. The leverage is on the
good side, with 52% in 2019 and an upgrade to 78,47% in 2020. The evolution of ROE and ROCE are
in a positive way as we can see, the ROE jump from 61,06% in 2019 to 87,87% in 2020, and the ROCE
increase from 8.8% to 9.4%. In conclusion Apple should improve it ROCE result to a score of 15% to
be more profitable.