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GROUP  2  ACG  6176  

Apple  Inc.  Case  Analysis  
Part  1  
  Aguilar,  Christian     Delaosa,  Dominic     Garcia,  Anthony     Mark,  Joshea     Sanchez,  Anais     9/19/2011        

 

Table of Contents

Summary of Financial and Operational Characteristics…………………………………………………....2 Economic Conditions within the Industry………………………………………………………………….4 SWOT Analysis……………………………………………………………………………………….........5 Major Accounting Principles……………………………………………………………………………….8 Adjustments of Financial Statements……………………………………………………………………...14 Financial Analysis…………………………………………………………………………………………15 Cash Flow Analysis……………………………………………………………………………………….19 Horizontal Analysis………………………………………………………………………………………..23 Vertical Analysis…………………………………………………………………………………………..24 Financial Ratios……………………………………………………………………………………………25 References…………………………………………………………………………………………………26  

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As such. design.     Apple Inc. due to the composition of its sales mix.e. Furthermore. The competiveness is further extended since the Company is involved in world markets. which has slightly altered whom they compete against. 2     .  Financial and operational characteristics of the industry and the key drivers of profitability. Moreover. ITunes). not only can profitability can be adversely affected but also. and quality. notably music and then communications. iPad or iPod touch. and by its nature. the industry is primarily driven by innovation as well the ability to offer an array of products. However. which experience technological advances at an accelerated pace. Apple is a market leader because they focus on innovation. it is in a very competitive industrial environment. started a revolution. as of late. Apple Inc is considered a technology company. The iTunes Store includes the App Store and iBookstore. the Company continues to build and host a robust platform for the discovery and delivery of third-party digital content and applications through the iTunes Store. If a participant in this industry is unable to keep up with the technological changes. they revolutionized the market place for a remote yet easily accessible music store (i. Interesting enough. Therefore. Apple expanded in personal computers and gained recognition for it. In conjunction with its strategy. the company has expanded to other areas of the technology sector. the company could be run out of business. the advent of the IPod. (SEC). not only did they become the standard for MP3’s in hardware. which allow customers to discover and download third-party applications and books through either a Mac or Windows-based computer or wirelessly through an iPhone.

leaving several unanswered questions such as: with the resignation of Jobs. He transitioned the company from being just a computer company to a diversified technological company. but specifically. Despite the heightened quality offered by Apple. Otherwise.” (SEC) When this statement was made. Jobs is an incredibly talented individual 3     . the industry seeks profitability by offering affordable products at a larger scale. in this aspect precisely. he was a main driver of the company because he instituted his vision in the company. who is considered the “brain” behind the company. in August of 2011. Apple differentiates itself from its competitors. the technology industry in which the Company is involved in is driven by the ability to reduce costs in order to pass it on to customers. Steve Jobs resigned as CEO of Apple. an operational characteristic of the industry is having a Chief Executive Officer (CEO) that contributes talent. However. which are sold at a premium. the lowcost products offered by its competitors are considered the norm in the industry. the companies involved in this type of industry must be able to introduce and deliver their new product expeditiously. Unfortunately. it was addressing not just key personnel. how will the company perform in the future? What is the probability of maintaining the market leader position Apple holds in an industry that demands constant innovation? Jobs’ resignation is of great concern considering that in the company’s 2010 10-k’s specifically noted that “The Company’s success depends largely on the continued service and availability of key personnel. granting them greater market share. the company can run the risk of having another company introduce the same product preemptively.In addition. In Apple’s case. Additionally. Moreover. Therefore. they were fortunate to have Steve Jobs as their CEO. while Apple offers relatively more expensive products at much smaller scale. Also. Steve Jobs as its CEO. Apple offers high quality and aesthetically designed products.

demand for technologically advanced products may be diminishing.apple. As such. Given that Apple is involved in Global markets. Furthermore. “As COO. Consequently. he personally recommended Tim Cook to be named CEO. Consequently. the raising costs of energy costs and the tightened credit markets affect the consumer’s behavior. some of Apple’s suppliers located in Japan were affected by earthquake 4     .” (http://www.that has allowed Apple to compete in Global Markets at an impressive rate of profitability. have held back from spending excessively. For example.com/)  Research relevant information about economic conditions and events affecting your company specifically and the industrial environment in general. Japan experienced an earthquake and tsunami. Another type of event that could affect the company and the industry is unfavorable weather and/or natural disasters. when Steve Jobs resigned. sales activities. In addition. and service and support in all markets and countries. or rather have been behaving as more prudent spenders. in the first quarter of 2011. the 2010 10-k further explain that there is no assurance of being capable of maintaining such key personnel. including end-to-end management of Apple’s supply chain. several economic conditions affect the company. In addition. which could negatively impact the demand of not just the Company but competitors in the industry as well (SEC). For example. This natural disaster devastated several parts of Japan and harmed the economy. Cook was previously responsible for all of the company’s worldwide sales and operations. the products offered by the company could experience a decrease in demand. people in the United States as well as abroad. Cook was previously Apple’s Chief Operating Officer. the United States has been experiencing a recession that has directly impacted many countries’ economies. (SEC) In an effort to calm uneasiness in investors and Apple-users.

and a vast global distribution network. an effective mass marketing strategy . the company can be adversely affected in the current period as well as future periods. financial prowess and endless resources. is Apple susceptible to? What opportunities lay ahead for Apple? And finally. is arguably one of the most iconic and successful companies in modern history. and its ability to create industry differentiation that are among Apple’s most important strengths.    SWOT Analysis Apple Inc. a strong corporate culture. Apple has grown from a small computer company started in 1976 to the amazing global brand we have all come to know and love today. industry differentiation. A global Juggernaut. Unparalleled innovation. what threats lurk on the horizon for Apple? The following is an analysis of Apple. Inc. weaknesses. superb product quality. these are just a mere fraction of Apple’s strengths. it is practical to focus on those factors which have led to its success more than any others. employee experience and knowledge. Apple has forever transformed the digital landscape by producing a cornucopia of ground breaking digital devices that have come to revolutionize how we do everything from listen to music to use our cell phones. or simply Apple. opportunities.. top quality leadership and vision fostered by management. and threats (SWOT).’s strengths. if a company is unable to deliver in a timely manner. it is the competitive advantage Apple has created by crafting consumer electronics that are innovative and beautifully designed. Considering an entire page could be filled with Apple’s strengths. Therefore.and tsunami and could not produce the supplies that Apple anticipated. Therefore. But what strengths has Apple utilized to reach such phenomenal growth? What weaknesses if any. 5     .

As one can see from the short but immensely influential items aforementioned. This emphasis on design has helped their product line become the most desirable electronic devices on the market and have contributed to its growth over the years. Not to mention. which looked like nothing that had come before it to the sleek metallic appearance of its current products. Rather than shy away from taking risks on new and untested products. smart phones. Likewise. It is Ive that was responsible for the design of the iPod and iPhone. This is evident in more recent years when Apple hired visionary designer Jonathan Ive in 1997 to its industrial design team. this has been immensely important factor in their success and it has become a major strength. they have embraced research and development of entirely new devices. Starting with the release of the iMac G3 in 1998. two of Apples must recognizable and popular devices.The computing world would not know the personal computer as it does today without Apple’s first master piece. The design aesthetic incorporated by Apple into its product line is another major strength of Apple. the Macintosh. Another major strength of Apple is its ability to differentiate itself in a market that is saturated with competitors. It is the innovation of new products like these that have led to Apple being a dominate player in the consumer electronics industry. The MP3 player would not exist today as we know it without the creation of Apple’s iPod. This has given the public the perception 6     . They have been apple to do so with catchy and clever advertising that brands Apple as not your typical corporate company. and tablets as they essentially created the market for these devices. Apple has always been keen to design amazing looking products. They have managed to become the industry leader when it comes to devices like MP3 players. the “smartphone” would not be “smart” without Apple’s creation of the iPhone. which have received wide spread acclaim for its minimal but awe-inspiring looks.

Steve Jobs has been at the helm of Apple since its inception in 1976 besides a stint from 1985 to 1997 when he was forced out of the company. and has been the major driving force behind what many have dubbed the second golden age of Apple. Apple has not provided this extremely popular product on any other service provider besides AT&T and thereby limiting their potential customer base and lessening revenues. and provide these phones to people who were unable to 7     . This differentiation strategy. they have successfully produced their on operating system and software linking all of their products with one another. one of Apple Inc. when it comes specifically to the iPhone. considering that his recent departure leaves many wondering if anyone will be able to lead Apple as effectively and continue the recent successes of the company. Weakness What weaknesses could befall this behemoth? A major development of late is the departure of Steve Jobs.that their products are superior when it comes to such areas as computer graphics. is their exclusivity. The importance of Jobs can definitely be viewed as a weakness. music recording and manipulation. For example. Also. the only major competitor to the Windows operating system. and video editing. This has allowed competitors such as Samsun and HTC to catch up and design smart phones with comparable abilities to the iPhone. They have used this fact to their advantage and have branded their OS as more user friendly and safer as it is less susceptible to computer viruses.’s original founders and it’s CEO. Apple computers are currently running the OS Lion X. Another weakness of Apple. which is arguably. along with their innovative products and sleek design aesthetic has allowed Apple to consistently outperform its competitors and are therefore major company strengths.

Apple has proven that it can develop entirely new technology and profit handsomely from it and as mentioned is willing to take risks when it comes to such endeavors. Apple can also There are many threats that Apple has to contend with to continue its industry dominance. Another are of China Opportunities Apple has many opportunities on its horizon. Google for instance. Additionally. With its most recent release of the iPad. The foremost of these is the intense competition from such companies as Google. Even though these lawsuits may amount to nothing. The preparations of such statements require management to make estimates and 8     . Apple’s unwillingness to work with other service providers is a weakness. it has created an entirely new revenue stream from users who will be downloading songs via iTunes and software on its App Store on their iPad. Microsoft.switch to a different cell phone provider. Apple is at the forefront of new and innovative technologies such as cloud computing with the iCloud and further tapping into new customers with Apple TV. Also. Samsung. they are costly and tie up resources. has been getting more and more of the mobile phone market share with its Android OS.  Major accounting principles and policies Companies such as Apple use specific policies and procedures in an effort to prepare their financial statements in accordance with United States Generally Accepted Accounting Principles (GAAP). ect. Apple has had increasing problems with lawsuits against Apple claiming patent infringement.

iPad. the new accounting principle required the company to account for the sale of iPhones. Apple TV are amongst a few examples of product lines that fit this criterion mentioned above. The iPhone. Apple TV. Furthermore. revenue and cost of goods sold for these products are deferred. Apple eliminated the subscription accounting method for accounting for these products. The deferral of revenue and expenses resulted in Apple’s earnings to be unfavorable in comparison to their actual earnings amount. The 9     . Apple provides future unspecified software upgrades and features free of charge to their customers. These estimates and assumptions are based on historical experience and on various other assumptions in which top management believes to be reasonable with respect to current circumstances affecting the company. Apple prepares their consolidated financial statements based on either a 52 or 53-week fiscal period that ends on the last Saturday of September.assumptions that influence the amounts reported within the company’s financial statements and accompanying footnotes. Apple has reported sales revenues using the subscription accounting method for products with multiple components and arrangements. or iPod Touches as two separate pricing components. As of June 2010. and recognized on a straight-line basis over each product’s economic life. and features relating to the product’s essential software. The first pricing component is the hardware and software that’s essential to the functionality of the product delivered at the time of sale. However. iPod. Historically. iPad. including the software and hardware components of the product. While the second pricing component relates solely to the future unspecified software updates. Also. and in the first quarter of 2010 Apple elected a retrospective change with respect to their accounting standards related to revenue recognition for these products. Under this method. These policies are in accordance with Apple’s 10-K report regarding the presentation and preparation of their consolidated financial statements.

and collection is probable. revenue recognition occurs at the time of sale for the amounts allocated to the hardware and related essential software. are recognized at the time of sale. Apple recognizes revenue when persuasive evidence of an arm’s length transaction exists. the sales price is fixed or determinable. including the sale of upgrades to previously sold software are valued at their fair market value with respect to each element of the product. Revenue recognition for these undelivered products will reoccur if either of these three criteria’s are met: 1) When all accompanying components of the product are delivered to the end customer 2) When services have been performed. or software related products. While the revenue recognition for the second component of the product encompassing the unspecified software upgrade rights are deferred and recognized on a straight-line basis over 24-month. Moreover. Moreover. Furthermore. or 3) If fair market value can be determined for any remaining undelivered product elements. peripherals. hardware accompanied with software that’s essential to its functionality. which is the estimated life of each of these products. Therefore.company has allocated revenue to these two components using the relative selling pricing method (ESP). and third-party digital content sold on the iTunes Store. iPads. Apple defers revenue recognition of these products at the point in which they can no longer reasonably determine with certainty the fair market value of any undelivered products. Apple recognizes revenue in accordance with GAAP regarding the sale of Macs. all estimated warranty costs associated with the product. revenue 10     . delivery has occurred. Apple products containing multiple elements that consist only of software. Furthermore. iPods. Apple uses this pricing model only when products are sold separately at a price that’s actually charged by the company. Thus the fair market value is determined by vendor-specific objective evidence of fair value (VSOE). iPhones.

and recognizes revenue upon the point of use of the cards by the end customers. Therefore causing Apple to account for such sales based solely on the commission Apple retains from each sale. and other sales programs and volume-based 11     . For instance.recognition regarding the shipment of Apple’s products occurs at the point of shipment to the customer at which time title and risk of loss have been fully transferred to the buyer. when certain products are sold via the iTunes Store. including the sales of third-party software applications for Apple’s iOS products. Revenue reductions occur as a result of estimated commitments relating to price protection. Furthermore. Apple records deferred revenue when it sells gift cards at retail. Note that the portion of the sales price that has to be paid back to the third-party will not be reflected within Apple’s consolidated financial statements. and assumes the credit risk for amounts billed to its customers. Therefore. Apple records the deferred revenue at the point of sale of the gift cards. and for customer incentive programs. revenue from the AppleCare service contracts are also deferred and recognized over the service coverage periods. Revenue recognition from the selling of software and other secondary products obtained from other companies are based on gross amounts billed. revenue recognition regarding online sales to individuals differs from when the products are shipped from the store. and are treated with the same revenue recognition principles and procedures as if they were Apple products. With regards to online sales the company does not recognizes revenue until the customer receives the products because the company still retains a portion of the risk of loss on the sale while the product is in transit. However. and online stores for the purchase of their products. which encompasses reseller and end-user rebates. However. the company does not have ownership of those products. Apple establishes its own pricing and retains related inventory risks.

As indicated within Apple’s 10-K report.incentives. including retail space. Under this plan employees whom partake in this savings plan are allowed to defer a portion of their per-tax earnings. Apple had operating lease commitments in the amount of $3. Apple does not extensively use off-balance sheet financing within their operations. which consisted of both facility and retail space leases. For transactions involving price protection. Whereas.2 billion. which also may contain multi-year renewal options. Furthermore. for customer incentive programs. had outstanding off-balance sheet transactions relating to third-party manufacturing commitments and component purchase commitments in the amount of $8. & 2) Employer contribution cannot exceed a maximum of 6% of the employee’s eligible earnings. 12     . or has sold the product. Furthermore. leases regarding retail space normally are subject to 20-years. Further analysis based on Apple’s 10-K report reveals that their matching contributions for 2009 were $59 million. under non-cancelable operating lease agreements. Apple leases various equipment and facilities.8 billion. In addition. as of September 25. Apple will match 50% to 100% of each employee’s contribution to the savings plan. and generally provide renewal options for terms not exceeding five additional years. Apple has an employee savings plans in which qualifies as a deferred salary arrangement under Section 401(K) of the Internal Revenue Code (IRS). Facility leases are normally no more then 10-years. Apple estimated the cost of these products to be recognized at either the later date at which Apple has offered the product. Apple recognizes revenue net of the estimated amount to be refunded. to the operating lease agreements Apple does not use any other off-balance sheet financing arrangements. 2010. depending on two factors such as: 1) length of service the employee has vested in the company. 2010. Apple as of September 25.

These principles and estimates regarding depreciation methods have remained consistent in prior years. For instance. In addition to our analysis we did not find any major accounting principle differences amongst their competitors with respect to inventory evaluation methods. Apple depreciates their fixed assets using the straight-line depreciation method over the estimated useful life of the assets. Hewlett Packard.Apple states there inventory using the first-in. 1.3%-decrease respectfully. Apple accounts for their property. Apple uses the lower of cost or market method in their computation of inventory. for buildings it’s the lesser of either 30 years or the remaining life of the building and equipment has a five-year useful life. and Lexmark experienced 0. Costs incurred after the preliminary project stages used to develop internal-use software are deferred using the straight-line method over the estimated useful lives of the assets. and equipment at their stated cost. causing Apple to expand its market opportunities further regarding their mobile communication and media devices. rose 1. IBM.7%-increase. For insistence.54. Moreover. which can range from three to five years.1%-increase.9% up by $7.7%decrease. and 1. Apple Inc. 1. 13     . first out-method in computing their inventory figures. This analysis illustrates the comparison between Apple and its competitors within its industry. The commonality amongst Apple Inc and their fellow competitors would be their similar product lines. This personal computer industry that’s driven by frequent product introductions and technological advances thus. plant. 2011 how the shares of some top computer companies were mixed at the close of trading. and revenue recognition principles. which consists of components and finished goods for all periods. these fluctuations can be further explained by the competitive landscape of the personnel computer industry. Furthermore. while Dell. Bloomberg Businesswek revealed at 6:03 PM Eastern Time on September 16.

Apple treats its leases as operating leases. sufficient information was not found regarding the useful life of the asset or if ownership would be transferred at the end of the lease. the company provides a thorough detailed description of their business strategy. As a result. Unfortunately. we find Apples disclosures to be both adequate and understanding. we are unable to determine if in fact the leases should be reclassified as capital leases.In assessing the quality of Apples disclosure and footnotes. it worth noting that if the operating leases would instead be classified as capital leases. Currently. disclosing current losses within their financial statements. potential economic consequences. Please refer to the section titled “Accounting Principles and Policies” for further detail. we have found that the method used to recognize revenue and the method used to account for pensions are in conformity to industry standards and is in accordance with GAAP. As mentioned above. Apple provided a detailed description on their performance by product and geographic segments. as well as. we noted that Apple provided ample detail within their footnotes explaining key accounting policies and assumptions. However. certain accounts would be affected 14     . Furthermore. we analyzed six key measures in assessing this level of quality: 1) Does Apple provide adequate disclosures to assess their business strategy and their economic consequences? 2) Do the footnotes adequately explain the key accounting policies and assumptions? 3) Does Apple adequately explain their current performance? 4) Does Apple provide quality segment disclosures? & 5) How forthcoming is management with respect to bad news? Based on this analysis. Within Apples 10-K report. and their current performance.  Adjustments of Financial Statements Based on a review of the Company’s financials. In our analysis we concluded that management does disclose scenarios that can lead to a negative effect on their consolidated financial statements and operating results.

and cash flow to debt would all be modified if the leases were reclassified as capital leases. and cost of goods sold. For instance. In addition to being solvent. but sales is experiencing a declining trend. Based on our analysis. accounts receivable increased by 52% for the same periods reviewed. sales. several ratios would be altered. as indicated. This is a great 15     . capital intensity. no impairment is needed. One of Apple’s major financial strengths is their solvency. then there is reason to believe that accounts receivables needs to be reassessed for impairment.01 of current assets for every $1. the majority of Apple’s current assets are extremely liquid. which means they will not have any issues using their liquid assets to cover their current liability obligations. Furthermore.in their financials.36 of total debt for every $1. Moreover. Consequently. Apple has over 60% of its current assets in cash and short term marketable securities.24. however. strengthening our belief that Apple should have no complications in meeting its current obligations as they mature. liabilities would increase as well.  Financial Analysis Over the past two years Apple has displayed strong financial growth. if accounts receivables is experiencing an increasing trend. as such. accounts receivable is accurately correlated to sales.00 of current liabilities. However. for instance. Their cash ratio is currently at $1. Currently. This is a trend that will continue in the future as Apple currently only has $0. this is not that case for Apple. return on invested capital. assets would increase. and correspondingly. An assessment was done between accounts receivable. For instance. debt to equity.00 of an asset it owns. an impairment of receivables would be considered if accounts receivables was increasing on an exponential basis when compared to sales. inventory. sales increased by 64%. return on assets. debt to capitalization. Apple maintains a high current ratio with $2. From FYE2009 to FYE2010.

Apple generates $0. but will also remain solvent for the foreseeable future. Apple is given the flexibility to aggressively grow or seize business opportunities quickly. In addition. The recent growth of Apple’s stock price will allow Apple the option to raise large amounts of capital quickly. This may seem like a negative indication to Apple’s operating efficiency however. allowing the company to aggressively grow if it chooses to. Additionally. for Apple’s fiscal year in 2010 they incurred no interest expense and have no debt outstanding. In addition. Currently Apple is operating with close to $21 million of working capital. With twice as much current asset as current liabilities. that is not the case. Apple’s inventory and receivables only accounted for only 8. Moreover. Despite this fact Apple’s share price has increased dramatically. Apple has not declared a dividend for its shareholders in the last two years.14 in the first quarter of 2009 to trading in the range of $293. Furthermore. This is due to the cutthroat nature of the industry and competitive pricing. Apple currently has no existing contingencies that may threaten their solvency in the near future.68-$79.73% of its total assets. due to the competitive pricing in the retail industry profit margins tend to be low for retail companies. Apple has indicated that it does not plan on issuing any cash dividends in the foreseeable future. In the retail industry it is typical for companies to have a high asset turnover ratio.56 in the fourth quarter of 2010. Currently. which extremely high in their 16     . At the end of 2010. trading at a range of $119.53-$235. Another major financial strength of Apple is its financial flexibility. Apple has been able achieve a gross profit margin of nearly 40% in 2010.indicator that apple is not only solvent for the current year. There are no foreseeable financial complications in Apple’s future. indicating they have good inventory turnover as well as good receivable turnover.00 in total assets it currently has. However.87 for every $1.

This amount increased by 141 % by the end of 2010 to (in millions) $25. Apple was able to maintain a consistent gross profit margin for the last two years with it being 40% in 2009 and 39% in 2010. the company increased its cash equivalents and marketable securities by $16.528 in long term marketable securities. Furthermore. The trend that seems to be developing in Apple is that the company is taking a conservative approach when deciding to reinvest its capital. The results of the vertical analysis reveal Apple has maintained a consistent business model for the previous three years. Apple’s total assets increased by $27.468 million in 2010 while its property. research and development only increased by $449 million. As a result net income (in proportion to gross sales) has increased 17     .682 million while its total liabilities only increased by $11. Furthermore. Furthermore.391 million) of its total assets are in long term marketable securities. These factors indicate that Apple is planning to expand modestly and “hoard” capital. This fact may hinder their liquidity at a later point if they wish to aggressively expand or grow their business operations. Also.particular market segments. since Apple has a history of not declaring cash dividends for its shareholders it is no surprise that it’s retained earnings increased by $13. plant and equipment only increased by $1. First off.816 million. Apple had (in millions) $10. it is apparent that investing in long term marketable securities is part of its business model.391. Apple seems to be operating more efficiently with its gross sales increasing by nearly 50% while it’s operating expenses only increased by 33 %. When conducting a horizontal analysis of Apple.531 million. Moreover. Furthermore. Apple has become more efficient in their business operations with operating expenses decreasing (in proportion to gross sales) each year for the previous three years.33 % ($25. The only area of concern regarding Apple’s financial strength is the fact that 33. At the end of 2009.814 million.

Lastly.from 16. In addition. Apple has a sustainable growth rate of 26. Conversely. Furthermore. Apple’s short term marketable securities decreased from 38% (in proportion to total assets) in 2009. to 33% in 2010.32% in 2008. the only main difference in the balance sheet for Apple between 2009 and 2010 are the balances in its short-term marketable securities and its long term marketable securities. this is indicated with the increase return on assets ratio from 2009 (17%) to 2010(19%).22%) exceeded their sustainable growth rate. to 21. Furthermore. Utilizing Hewlett Packard’s model for sustainable growth. there is no indication that Apple will stop its trend of continued growth in sales and profitability for the foreseeable future. you will discover their actual sales growth in 2009 (12. they have become more efficient in their operations.03% in 2009.62%). Apples long term marketable securities increased from 22% (in proportion to total assets) in 2009. while in 2010 their sales growth (34. This is not a cause for concern considering in 2009 Apple was well under their sustainable growth rate and retained a lot of its 2009 earnings to support its 2010 growth. was less than their sustainable growth rate.48% in 2010. Furthermore. and a sustainable growth rate of 29. 18     .32 % in 2010. Apple plans to continue retaining their income for the foreseeable future indicating Apple will have no problem supporting future growth. to Apple’s sustained growth in sales. as Apple continues the trend of not paying cash dividends their retained earnings balance has remained at 49% (in proportion to total liabilities and shareholder equity) for the previous two years. When comparing Apple’s growth in sales over the previous two years to its sustainable growth rate. to 19% in 2010.

services and internet offerings.013. Apple has opened between 20 and 50 new stores per year. and $6.235. application software. with the majority of new locations opening outside of the US (Apple’s 10K. Analysis of the cash flow statement will give insight of the company’s flexibility as related to free cash flow. The Company reported their cash flows using an indirect method. The Company has maintained Net Income of $14.595. The Company’s unique ability to design and develop its own operating systems. hardware. peripherals. and services to provide its customers stems from its dedication to Research and Development (R&D). Over the past three years. to ensure a high quality buying experience.159. Apple’s 10K reports cash generated by operating activities is $18.596 (all number stated in millions) in 2010. software. Continual investment in R&D is critical to the development and enhancement of new innovative products and technologies. A cash flow analysis of Apple will provide an indication of the quality of the information in the firm’s income statement and balance sheet. Apple’s business strategy is committed to bringing the best user experience to its customers through its innovative hardware. Accounts Payable has the largest 19     . the company is expected to continue this trend. Cash Flow Analysis Apple’s 10K states. 2009 and 2008 indicates an increasing growth. Apple has managed to maintain a strong ability to generate internal cash. SEC.gov). A steady incline shows the firm strength and ability to generate internal cash. $10. the company is committed to expanding the number of its own retail stores. $8. Accounts Receivable and Payable seem to be largest changes in operating cash flows in 2010. Breaking down net income gives insight to where cash is being generated and dispersed. and $9. Historically.119 (all numbers stated in millions) in 2010. Furthermore. As compared to 2009. In 2011. 2009 and 2008.

761 $1. As related to Revenue. $6. Apple’s 10K provides this layout of operating expenses (in millions.variance.109 20     . The Company continues to invest its cash into R&D for innovation and to stay consistent with its business strategy.7% $3. The cash flows from operating activities parallel the company’s business strategy.0% R&D expense increased 34% or $449 million to $1. The decrease in percentage of net sales is due to the 52% increase in net sales from 2009 to 2010.8 billion from 2009 to 2010. may have affected Cost of Sales as well as increased Revenues $22.782 2. Products such as the iPad. $5.7% 2009 $1. developed in 2010. general and administrative o Percentage of net sales 10.32 billion from 2009 to 2010.517 8. the increase is due in part to new products being introduced to the market. Apple states in its 10K.307 from $92 (all numbers stated in millions) in 2010 and 2009.149 9.333 3. This percentage of sales is not a good indicator because net sales have increased so much from 2009 to 2010. the increase was primarily due to an increase in headcount and related expenses in the current year to support expanded R&D activities.0% • Selling.1% 2008 $1.5% $4. Apple’s commitment to innovation has maintained a competitive advantage over their competitors. except for percentages): 2010 • Research and Development o Percentage of net sales 3. as seen through the expenditures in R&D.

Cash from financing has varied from 2008 to 2010.724.263 and $11. Proceeds from maturities of marketable securities are $24.875 (all stated in millions) in 2010. Proceeds from sales of marketable securities are $21. Apple’s 10K reports investing activities are by far the largest inflows and outflows of cash. from $1. Apple has and maintains a steady cash flow. This free cash flow allows Apple the ability to expand its fleet of stores.383 billion on purchasing investments and received $1. $19. like that of 2009.965 (all stated in millions) in 2010. These figures give a clear picture on the scale the Apple is operating on.793. Dell spent $1.788.As for expansion. $46. 2009 and 2008.804 (all stated in millions) in 2010.790 and $11.930.261.538 billion on maturities and sales of investments in 2010 (Forbes. doubling the amount spent in 2009. Furthermore. and $22.055 billion of property. Compared to Apple’s competition. 2009 and 2008.888 and $4. They rely heavily on their investing activities for expansion although net cash used in investing activities is negative three years consecutive. $10. These figures show Apple remains liquid as well as flexible even through slower years. After reviewing the statement of cash flows. $2. 2009 and 2008.257 (all stated in millions). Apple most relies most heavily on is equity for financing. The major contributor to the increase in 2010 was due to the issuance of common stock from $475 million in 2009 to $912 million in 2010.116 to $663 to $1.439 (all stated in million) in 2010. continue to develop new 21     . $5. Also. The cash and cash equivalents at year end over the last three years have been very high ranging from $11. Purchases of marketable securities is $57.com). these numbers are extremely high considering net income of $14 billion in 2010. Apple’s 10K reports financing activities as the smallest activity but one that has increased cash flow in three consecutive years. 2009 and 2008. plant and equipment was purchased in 2010.

as well as make investing opportunities available. plant and equipment. continue investments and invest in new property.                               22     . This allows Apple to continue is its aggressive business strategy.products. There is readily available cash for the Company to invest into R&D which it so heavily depends on.

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32%     Affordable Growth Measure By Hewlett Packard Sustainable Growth= Earnings Retention x Asset Utilization x Profitability x Financial Leverage 2010 2009 29.66% 157.32% 26.956 $ 2.38% 18.01 $ 1.75% 157.00% 28.03%                       1     .42% 86.Tax Burden Interest Burden Return On Sales Asset Turnover Leverage Ratio Return on Assets Compound Leverage Factor Working Capital (in millions) Current Ratio Quick Ratio Acid Test Ratio Debt-to-Equity Solvency Ratio Cash Ratio Debt Ratio Gross Profit Margin ROI ROE 75.36 39.24 $ 0.91% $ 1.96 $ 1.32% 24.64% 29.91 $ 0.32% $ 20.57 54.58% 100.

http://sec.forbes.htm 2. http://finapps.  http://www. http://www.studyfinance.netmba.Sources 1.com/finance/financial/ratios/ 2     .jsp?tkr=DELL 4.jsp?tkr=AAPL 3.mv?page=04 5.forbes.com/lessons/sustaingrowth/index.com/finapps/jsp/finance/compinfo/Ratios.com/finapps/jsp/finance/compinfo/Ratios. http://finapps.gov/Archives/edgar/data/320193/000119312510238044/d10k.