A Critical Review of Apple’s Financial Performance

Background and Industry
Apple is a multi-national electronic and technological company that was founded in April
1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne. The company is headquartered in
Cupertino, California, and specialized in the manufacture of electronic products such as mobile
handsets, computer hardware and software, and accessories such as the iPod, smartwatch
(Jensen, 2019) . Initially, the company ventured into the production of desktop computers before
diversification through the launch of other electronic products as part of its diversification
strategy. Apple first went public on December 12 th, 1980, but paid out the first dividend on
March 19 th, 2012 (Finkle & Mallin, 2010) . Apple’s main competitors consist of companies
engaging in the manufacture of handsets, for instance, Samsung, computer hardware, and
software, for example, Dell and IBM. My rationale for selecting the company is that its stock is
classified as SP 500, and the company belongs to the Boston Group. Moreover, its
diversification provides a good basis for analyzing its financial performance.
Common Analysis Size and Balance Sheet

The common size consolidated balance sheet compares the items in the statement of
financial position against the assets. There was a notable increase in cash and cash equivalents,
signifying the company’s liquidity, which is crucial in servicing operations. The market securities
decreased to 11.04% before registering an increase in 2019 recorded at 15.28% (Stock Analysis
on Net. , n.d) . Similarly, inventories fell to 1.08% in 2018 and increased to 1.21% in 2019. the
current assets registered a steady increase over the three years. The long term marketable
securities significantly reduced to 46.70% in 2018 from 51.88% in 2017, to 32.12% in 2019

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APPLE INC.
(Macrotrend, n.d) . PPE recorded an increase in 2018 and a slight decrease in 2019. The non-
current assets registered a constant decline over the period

Apple Inc.
Common-Size Consolidated
Balance Sheet: Assets

  Sep 28,
2019
Sep 29,
2018
Sep 30,
2017
Sep 24,
2016
Sep 26,
2015
Sep 27,
2014
Cash and cash equivalents 14.43% 7.09% 5.41% 6.37% 7.27% 5.97%
Short-term marketable securities 15.28% 11.04% 14.36% 14.51% 7.05% 4.85%
Accounts receivable, net 6.77% 6.34% 4.76% 4.90% 5.80% 7.53%
Inventories 1.21% 1.08% 1.29% 0.66% 0.81% 0.91%
Vendor non-trade receivables 6.76% 7.06% 4.74% 4.21% 4.65% 4.21%
Other current assets 3.65% 3.30% 3.71% 2.57% 5.19% 6.09%
Current assets 48.10% 35.91% 34.28% 33.22% 30.77% 29.56%
Long-term marketable securities 31.12% 46.70% 51.88% 52.98% 56.48% 56.14%
Property, plant and equipment,
net 11.04% 11.29% 9.00% 8.40% 7.74% 8.90%
Other non-current assets 9.74% 6.09% 4.84% 5.40% 5.01% 5.40%
Non-current assets 51.90% 64.09% 65.72% 66.78% 69.23% 70.44%
Total assets 100.00%
100.00
%
100.00
%
100.00
%
100.00
%
100.00
%
Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Apple-
Inc/Ratios/Profitability/Quarterly-Data

Trend Analysis

Notably, the percentage of the products is more significant than the services, signifying
it’s the primary source of revenue in the company. The product percentage has been on a decline
for the past three years, indicating the declining performance of the company. On the contrary,
revenue obtained from Apple’s service has increased over the three years. The cost of sales has
been growing over the past three years, yet the income has been on the decline, signifying

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APPLE INC.
Apple’s ineffective management of costs (Jensen, 2019) . The company’s operating expenses have
significantly increased due to increased expenditure in selling and administrative costs, result
from aggressive marketing activities. Also, the rise in research and development has been
conducted in countering the highly competitive electronics industry. The net income increased
from 2017 to 2108 and reduced in 2018. From the income statement analysis, Apple Inc.
performed relatively well, given the economy experienced slow down during the period.

Apple Inc.
Common-Size Consolidated
Income Statement

12 months ended Sep 28,
2019

Sep 29,
2018
Sep 30,
2017
Sep 24,
2016
Sep 26,
2015
Sep 27,
2014
Products 82.21% 85.03% 85.74% — — —
Services 17.79% 14.97% 14.26% — — —
Net sales (legacy) — — —
100.00
%
100.00
%
100.00
%

Net sales 100.00%
100.00
%
100.00
%
100.00
%
100.00
%
100.00
%
Products -55.73% -55.79% -55.11% — — —
Services -6.45% -5.87% -6.42% — — —
Cost of sales (legacy) — — — -60.92% -59.94% -61.41%
Cost of sales -62.18% -61.66% -61.53% -60.92% -59.94% -61.41%
Gross margin 37.82% 38.34% 38.47% 39.08% 40.06% 38.59%
Research and development -6.23% -5.36% -5.05% -4.66% -3.45% -3.30%
Selling, general and
administrative -7.01% -6.29% -6.66% -6.58% -6.13% -6.56%
Operating expenses -13.25% -11.65% -11.71% -11.24% -9.58% -9.87%
Operating income 24.57% 26.69% 26.76% 27.84% 30.48% 28.72%
Interest and dividend income 1.91% 2.14% 2.27% 1.85% 1.25% 0.98%
Interest expense -1.37% -1.22% -1.01% -0.68% -0.31% -0.21%
Other income (expense), net 0.16% -0.17% -0.06% -0.55% -0.39% -0.24%
Other income (expense),
net 0.69% 0.75% 1.20% 0.63% 0.55% 0.54%
Income before provision
for income taxes 25.27% 27.45% 27.96% 28.46% 31.03% 29.26%
Provision for income taxes -4.03% -5.03% -6.87% -7.27% -8.18% -7.64%
Net income 21.24% 22.41% 21.09% 21.19% 22.85% 21.61%

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APPLE INC.

Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Apple-
Inc/Ratios/Profitability/Quarterly-Data

Ratio Analysis

Liquidity ratio
The current ratio is a metric that determines a company’s effectiveness in servicing its
short term obligations with its current assets. Apple’s current assets were recorded at 1.54 in
2019, indicating the firm has one and a half times assets required in repaying its debt. Notably,
the lowest current ratio recorded over the past five years was 1.08, signifying the firm’s financial
stability (Stock Analysis on Net. , n.d) . The quick ratio signifies a company’s ability to repay its
short term liabilities from its cash assets. This metric demonstrated the company’s solvency,
which is crucial in financing the organization’s activities. The quick ratio recorded in 2019 was
1.38, indicating Apple has one and a third the required cash assets in servicing its current

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APPLE INC.
liabilities. There was a significant increase in quick ratio from 2018, whereby it was recorded at
0,.99 to 2019, where it was registered at 1.38. Notably, the lowest quick ratio recorded over the
past five years was 0.89, illustrating the company’s liquidity
Operating Performance Ratio
Day of sales inventory turn over
Day of sales inventory turnover measures the number of days it takes for a company to
convert its stock to cash. Apple’s day sales inventory was registered at 6.61 as of December
2019, suggesting it takes a week for Apple to sell its products (Macrotrend, n.d) .
Days of Sales Outstanding
Days of Sales Outstanding indicates the number of days it takes for a company to convert
its credit into cash. Apple’s DSO was recorded at 20.84, which was an increase from 2018.
Therefore, Apple collects cash payment from credit purchases in less than a month
Days of Payables Outstanding
Days of Payables Outstanding indicates the number of days it takes for Apple to repay its
payables. Apple’s DPO was recorded at 72.72 as of 2019.
Receivable Turnover Ratio (TTM)
Receivable Turnover Ratio is a metric that evaluates a company’s efficiency in collecting
revenue and managing assets. Apple, receivable turnover was recorded at 14.64 in 2019, which
was a decrease given in 2018 it was registered at 15.02
Inventory turn over

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APPLE INC.
Inventory turnover signifies the company’s effectiveness in managing inventory by
comparing the cost of goods sold with the average inventory. It signifies the period it takes a
company to convert to sales Apple inventory turnover was recorded at 65.12 (Macrotrend, n.d) .
Fixed Assets Turnover,
A fixed asset turn over illustrates the company’s effectiveness in earning revenue from its
fixed assets such as PPE (property, plant, and equipment). Apples’ fixed asset turnover was
recorded t 0.27 in 2019.
Total Assets Turnover
Total assets turn over indicates a company’s effectiveness in generating sales revenue
from its total assets. Apple’s total turnover ratio was recorded at 1.086
Profitability Ratio
Gross Profit Margin,
Gross Profit Margin is a profitability margin that measures the remaining revenue
obtained from sales after paying the cost of goods. Apple’s gross margin was recorded at 37.817,
which was an increase from the previous year of 38.3. Over the past five years, the highest gross
margin attained was 40, and the lowest was 38. Therefore, the cost of goods sold comprise 60%
of the total revenue earned over a period
Operating Profit Margin,
Operating Profit Margin refers to the percentage of profit obtained before deducting tax
and interest expense. Apple’s operating margin was recorded at 24.572 in 2019, registering a
decrease from the previous year (26.94).

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APPLE INC.
Net Profit Margin
Net profit margin refers to the number of sales earned after deducting expenses, interest,
and tax. The net profit margin was recorded at 21.2, which was a decrease from 22.41 earned in
the previous year. Notably, the highest profit margin earned over the five years is 22, and the
lowest is 21
Return on Investment Ratio
ROA
Return on assets is a metric that determines a company’s efficiency in the use of assets. It
indicates the revenue generated by the company’s assets. Apple’s ROE was registered at 16.32,
which was a 0.1 % increase from the previous year.
ROE
Return on equity signifies the company’s efficiency in converting shareholders’ wealth
into profit. Apple’s ROE was registered at 61.06, which was a remarkable increase from the
previous year 55.6. As a result, apple’s equity is attractive to shareholders, given the company
puts shareholders’ wealth into good use.
DuPont Analysis

Ratio 2019 2018 2017
Return on Equity
(ROE)

61.1% 55.56% 36.1
Net profit margin 21.2381% 22.4% 21.1%
Asset turnover 0.77% 0.73% 0.62%
Current ratio 1.54% 1.12% 1.28%
The company’s return on equity has remarkably increased over the years due to the
enhanced profitability in the company. Moreover, the company changed its dividend policies
allowing shareholders to earn more income from their investment. Subsequently, the company’s

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APPLE INC.
stock is attractive to investors. In improving the return on equity, Apple should diversify the
business in expanding the company’s revenue base and shielding against industrial risk, for
instance, increased competition resulting from the innovation of new products. The company
should also implement policies in reducing the costs as a measure in improving profitability.
Lastly, there is a need for the organization to invest in research and develop in launching
groundbreaking products that enhance the company’s revenue and the suitability of its stock.
Recommendation
In this report, rigorous financial analysis has been conducted in evaluating Apple’s
financial performance. Apple’s balance sheet indicates an increase in current assets and a
decrease in long term assets. The income statement shows declining revenue and gross profit
over the past year. On the contrary, the cost of goods sold registered an increase. Unfortunately,
Apple is bound to feature a decline in its financial performance, given the global economy is
undergoing a recession triggered by the coronavirus epidemic. Moreover, Apple was affected,
given that it had to close several of its stores in China before the virus had spread to other parts
of the globe. Moreover, the company’s production operations, which are centered in China, were
also adversely affected by the pandemic. Therefore, the company should formulate strategies of
recovery once the epidemic is brought under control. On the same note, the company should
identify opportunities in the market gap after the virus pandemic. In evaluating the company’s
liquidity ratios, I discovered that the company’s short term liabilities are sufficient to service its
long term obligations, which is commendable. The days of sales inventory suggests apple
converts its finished goods stock into cash within a week, which is impressive, given the
company suppliers the product in both domestic and global markets. Apple collects its credit
from its customers within 21 days. I recommend the company implement policies in reducing the

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APPLE INC.
day sales outstanding in enhancing the company’s liquidity. Apple pays its debt within 72 days,
yet collects its credit within 21 days. To improve the company’s reputation and relationship with
suppliers, the company should enhance the days payable outstanding. The firm should also
implement effective inventory management techniques given it takes 66 days for the company to
convert its inventory into sales. The gross margin was registered at 38, suggesting the company
cost of goods constitutes 62% of the revenue, which is ideal for a manufacturing firm. Apple’s
net profit margin is commendable and suggests effective cost management. Apple’s return on
equity makes it attractive to investors, making it easy for the company to raise funds that are
required in business operations. Thus, apple featured remarkable financial performance over the
past three years, indicating the company’s viability in the long run
Reflection
This assignment has enabled acquire competent skills in conducting the company’s
financial analysis. I feel confident to undertake tasks of similar nature in the future and look
forwards to gaining more finance knowledge. From the assignment, I realized companies in their
maturity stage feature stellar financial performance as opposed to those in the growth stage. As
an investor, I would purchase Apple’s stock as it is classified under SP500, and the company’s
ROE is favorable. Moreover, the company features promising growth prospects in the future
despite the prevailing economic conditions

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APPLE INC.

References

Finkle, T. A., & Mallin, M. L. (2010). Steve Jobs and Apple, Inc. Journal of the International
Academy for Case Studies, 16(7), 31.
Jensen, H. B. (2019). Exploring the Financial and Accounting Reporting Standards and
Principles under US GAAP (Doctoral dissertation, The University of Mississippi).
Macrotrend (n.d). Apple Financial Ratios for Analysis 2005-2020 | AAPL. Retrieved from
https://www.macrotrends.net/stocks/charts/AAPL/apple/financial-ratios
Stock Analysis on Net. Apple Inc. (NASDAQ:AAPL). Retrieved from https://www.stock-
analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Profitability/Quarterly-Data