Apple - Individual FIN202, Summaries of Finance

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INDIVIDUAL ASSIGNMENT

Fin Lecturer Bui Le Minh Class IB Student Le Nguyen Duy Roll Number HS

Contents

• Part 1: Introduction about Apple
  • Apple’s popularity across markets
  • Manufacturing
  • Touchscreen Hybrid
  • Healthcare
• Part 2: Financial Statement Analysis
  • I. Collect the financial data
    • 1. Balance Sheet
    • 2. Income Statement
    • 3, Cash Flow Statement
  • 1. Common-size Balance Sheet
  • 2. Common-size Income Statement
  • III. Perform Ratios analysis.
  • IV. Perform Dupont analysis.
  • V. Comment on trend and compare with peer group
  • VI. Comment on the Statement of Cash flows.
• Part 3. Conclude

Under CEO Tim Cook, Apple has continued to follow a stunning growth trajectory. Apple became the first U.S. company with a market capitalization in excess of two trillion dollars, just two years on from becoming the first trillion- dollar company. The iPhone, responsible for much of the company’s growth, has cemented its status as the smartphone of choice for many Americans during recent quarters. Apple smartphones achieved a 55 percent share of the market in Q1 2021, down from 65 percent from the end of the pevious year. Apple’s popularity across markets Apple have achieved similar success with the iPhone in markets across the globe. iPhones accounted for four of the five most-sold handsets in the United Kingdom during October 2020, three of the leading fivein Germany. The high price of Apple devices puts Apple at a disadvantage outside of wealthier markets. In East Africa, for example, rival manufacturer Samsung still maintains a 13 percent share of the market, while Apple is nowhere to be seen. Across smartphone price ranges, around 97 percent of smartphones shipped across Africa sell for less than $400, meaning companies with lower-priced models have more opportunities in Africa.

3. Main business Apple Inc. designs, manufactures and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related services. The Company’s products include iPhone, Mac, iPad, and Wearables, Home and Accessories.
4. Important projects Manufacturing Apple has come under fire in the past for the conditions of the factories where the company outsources its manufacturing to. Some in America have also criticized the company for not manufacturing enough in its home country. But the company may soon be moving towards building its own devices. As Bloomberg reported in 2018, Apple is designing and producing its own device displays for the first time. A secret manufacturing facility near its California headquarters is making small numbers of screens for testing purposes, according to the report. Apple also announced at the start of 2018 the company has increased its US manufacturing budget from $1 billion to $ billion, potentially creating 20,000 jobs and contributing over $350 billion to the US economy in the next five years.

Touchscreen Hybrid Apple’s laptop offerings are considered among the best, and it’s hard to beat the iPad for tablets. But the company has never merged the two. There are multiple laptop/tablet hybrids on the market, and having a touchscreen on a device with the power of a laptop is proving a more popular feature among manufacturers. A report from one of the many websites dedicated to all things Apple, 9to5 Mac , suggests the company is working on a new line of computers under the code name Star, which will be a hybrid touchscreen computer. Rumors, as ever, are hazy, so don’t be surprised if this ends up being a new feature for an iPhone or iPad instead. Healthcare Healthcare isn’t something you’d necessarily associate with Apple (or most consumer technology companies), but, frustrated by the lack of options for employees and their families, Apple has begun setting up medical clinics of its own. A report by CNBC suggests the clinics will operate under the name AC Wellness, and both will be in Santa Clara County. The company already has a Wellness Center in its headquarters in Cupertino.

5. Competitors Google is a primary competitor to Apple in the operation system segment. Google strategy is focused on mass penetration as android hold 84.7% of market share. On the other hand Apple iOS having 11.7% market. Windows and Blackberry phones having 8 and 3.6 respectively **Part 2: Financial Statement Analysis I. Collect the financial data
6. Balance Sheet AAPL_balance- sheet_Annual_As_Originally_Reported 2019 2020 2021 Total Assets 338,516,000,000 323,888,000,000 351,002,000, Total Current Assets 162,819,000,000 143,713,000,000 134,836,000,** Cash, Cash Equivalents and Short Term Investments 100,557,000,000 90,943,000,000 62,639,000, Inventories 4,106,000,000 4,061,000,000 6,580,000, Trade and Account Receivables, Current 45,804,000,000 37,445,000,000 51,506,000, Other Current Assets 12,352,000,000 11,264,000,000 14,111,000, Total Non-Current Assets 175,697,000,000 180,175,000,000 216,166,000,

Selling, General and Administrative Expenses - 18,245,000,000 - 19,916,000,000 - 21,973,000, Research and Development Expenses - 16,217,000,000 - 18,752,000,000 - 21,914,000, Total Operating Profit/Loss 63,930,000,000 66,288,000,000 108,949,000, Non-Operating Income/Expenses, Total 1,807,000,000 803,000,000 258,000, Total Net Finance Income/Expense 1,385,000,000 890,000,000 198,000, Net Interest Income/Expense 1,385,000,000 890,000,000 198,000, Interest Expense Net of Capitalized Interest - 3,576,000,000 - 2,873,000,000 - 2,645,000, Interest Income 4,961,000,000 3,763,000,000 2,843,000, Other Income/Expense, Non-Operating 422,000,000 - 87,000,000 60,000, Pretax Income 65,737,000,000 67,091,000,000 109,207,000, Provision for Income Tax - 10,481,000,000 - 9,680,000,000 - 14,527,000, Net Income from Continuing Operations 55,256,000,000 57,411,000,000 94,680,000, Net Income after Extraordinary Items and Discontinued Operations 55,256,000,000 57,411,000,000 94,680,000, Net Income after Non-Controlling/Minority Interests 55,256,000,000 57,411,000,000 94,680,000, Net Income Available to Common Stockholders 55,256,000,000 57,411,000,000 94,680,000, 3, Cash Flow Statement AAPL_cash- flow_Annual_As_Originally_Reported 2019 2020 2021 Cash Flow from Operating Activities, Indirect 69,391,000,000 80,674,000,000 104,038,000, Net Cash Flow from Continuing Operating Activities, Indirect 69,391,000,000 80,674,000,000 104,038,000, Cash Generated from Operating Activities 69,391,000,000 80,674,000,000 104,038,000, Income/Loss before Non-Cash Adjustment 55,256,000,000 57,411,000,000 94,680,000, Total Adjustments for Non-Cash Items 17,623,000,000 17,573,000,000 14,269,000, Depreciation, Amortization and Depletion, Non-Cash Adjustment 12,547,000,000 11,056,000,000 11,284,000, Depreciation and Amortization, Non-Cash Adjustment 12,547,000,000 11,056,000,000 11,284,000, Stock-Based Compensation, Non- Cash Adjustment 6,068,000,000 6,829,000,000 7,906,000, Taxes, Non-Cash Adjustment - 340,000,000 - 215,000,000 - 4,774,000, Other Non-Cash Items - 652,000,000 - 97,000,000 - 147,000, Changes in Operating Capital - 3,488,000,000 5,690,000,000 - 4,911,000, Change in Inventories - 289,000,000 - 127,000,000 - 2,642,000,

Change in Trade and Other Receivables 3,176,000,000 8,470,000,000 - 14,028,000, Change in Trade/Accounts Receivable 245,000,000 6,917,000,000 - 10,125,000, Change in Other Receivables 2,931,000,000 1,553,000,000 - 3,903,000, Change in Other Current Assets 873,000,000 - 9,588,000,000 - 8,042,000, Change in Payables and Accrued Expenses - 1,923,000,000 - 4,062,000,000 12,326,000, Change in Trade and Other Payables - 1,923,000,000 - 4,062,000,000 12,326,000, Change in Trade/Accounts Payable - 1,923,000,000 - 4,062,000,000 12,326,000, Change in Deferred Assets/Liabilities - 625,000,000 2,081,000,000 1,676,000, Change in Other Current Liabilities - 4,700,000,000 8,916,000,000 5,799,000, Cash Flow from Investing Activities 45,896,000,000 - 4,289,000,000 - 14,545,000, Cash Flow from Continuing Investing Activities 45,896,000,000 - 4,289,000,000 - 14,545,000, Purchase/Sale and Disposal of Property, Plant and Equipment, Net - 10,495,000,000 - 7,309,000,000 - 11,085,000, Purchase of Property, Plant and Equipment - 10,495,000,000 - 7,309,000,000 - 11,085,000, Purchase/Sale of Business, Net - 624,000,000 - 1,524,000,000 - 33,000, Purchase/Acquisition of Business - 624,000,000 - 1,524,000,000 - 33,000, Purchase/Sale of Investments, Net 58,093,000,000 5,335,000,000 - 2,819,000, Purchase of Investments - 40,631,000,

Sale of Investments 98,724,000,000 120,483,000,000 106,870,000, Other Investing Cash Flow - 1,078,000,000 - 791,000,000 - 608,000, Cash Flow from Financing Activities - 90,976,000,000 - 86,820,000,000 - 93,353,000, Cash Flow from Continuing Financing Activities - 90,976,000,000 - 86,820,000,000 - 93,353,000, Issuance of/Payments for Common Stock, Net - 66,116,000,000 - 71,478,000,000 - 84,866,000, Proceeds from Issuance of Common Stock 781,000,000 880,000,000 1,105,000, Payments for Common Stock - 66,897,000,000 - 72,358,000,000 - 85,971,000, Issuance of/Repayments for Debt, Net - 7,819,000,000 2,499,000,000 12,665,000, Issuance of/Repayments for Short Term Debt, Net - 5,977,000,000 - 963,000,000 1,022,000, Issuance of/Repayments for Long Term Debt, Net - 1,842,000,000 3,462,000,000 11,643,000, Proceeds from Issuance of Long Term Debt 6,963,000,000 16,091,000,000 20,393,000, Repayments for Long Term Debt - 8,805,000,000 - 12,629,000,000 - 8,750,000,

increased not as fast as cash. Specifically, account cash decreased from 29.71% to 17.85% while inventory only increased from 1.21% to 1.87%. Long term asset shows a good signal as it increased from 51.9% to 61.59%. Taking a closer look at the table we can see that this increase mainly came from total long term investment and other non current assets as it increased from 31.12% to 36.43% and from 9.74% to 13.92%. Net property, plant and equipment remained virtually unchanged 11.04% in 2019 and 11.24% in 2021 Current almost unchanged, only slightly increased from 42.62% to 43.58%, the increase mainly came from accounts payable and accrued expenses when it increased from 18.64% to 19.02% and other current liabilities increased from 15.21% to 16.5% Long term liability showed a good signal when it decreased from 57.38% to 56.42% although the reduction ratio was not significant. The reason is because account payables and accumulated expenses, non current decreased from 11.91% to 8.58%. In the equity account structure, there was a strong fluctuation when paid in capital increased sharply from 49.92% to 90.93%, while retained earnings dropped sharply from 50.72% to 8.82%. Shows that the company paid more dividends and reinvested less. This is a very good news for investors who want to invest in the company.

2. Common-size Income Statement AAPL_income- statement_Annual_As_Originally_Reported 2019 2020 2021 Gross Profit 37.82% 38.23% 41.78% Total Revenue 100.00% 100.00% 100.00% Cost of Goods and Services - 62.18% - 61.77% - 58.22% Operating Income/Expenses - 13.25% - 14.09% - 12.00% Selling, General and Administrative Expenses - 7.01% - 7.25% - 6.01% Research and Development Expenses - 6.23% - 6.83% - 5.99% Total Operating Profit/Loss 24.57% 24.15% 29.78% Non-Operating Income/Expenses, Total 0.69% 0.29% 0.07% Total Net Finance Income/Expense 0.53% 0.32% 0.05% Net Interest Income/Expense 0.53% 0.32% 0.05% Interest Expense Net of Capitalized Interest - 1.37% - 1.05% - 0.72% Interest Income 1.91% 1.37% 0.78% Other Income/Expense, Non-Operating 0.16% - 0.03% 0.02%

Pretax Income 25.27% 24.44% 29.85% Provision for Income Tax - 4.03% - 3.53% - 3.97% Net Income from Continuing Operations 21.24% 20.91% 25.88% Net Income after Extraordinary Items and Discontinued Operations 21.24% 20.91% 25.88% Net Income after Non-Controlling/Minority Interests 21.24% 20.91% 25.88% Net Income Available to Common Stockholders 21.24% 20.91% 25.88% AAPL's gross profit has grown well over the past 3 years, increasing from 37.82% to 41.78%. This increase comes from the cost of goods and service account, which decreased its weight from 62.18% to 58.22%. This is a good point that the company has tried to reduce the selling price so that the product reaches more customers. Account expenses also showed a good signal when it decreased from 13.25% to 12%. The company has made efforts to reduce its operating costs thereby increasing profits. Account operating profit increased from 24.57% to 29.78%, continuing to show an optimistic signal about the business. When the profit from business activities has increased within the past 3 years. III. Perform Ratios analysis. Profitability Ratios 2019 2020 2021 Net Margin % 21.24 20.91 25. Return on Asset % 15.69 17.33 28. Return on Equity % 55.92 73.69 147. Efficiency Ratios 2019 2020 2021 Days Sales Outstanding 32.35 25.96 21. Days Inventory 9.09 8.79 9. Recievables Turnover 11.28 14.06 17. Inventory Turnover 40.13 41.52 40. Fixed Assets Turnover 6.61 7.4 9. Asset Turnover 0.74 0.83 1. Liquidity Ratios 2019 2020 2021 Current Ratio 1.54 1.36 1. Quick Ratio 1.38 1.22 0. Leverage Ratios 2019 2020 2021 Debt/Equity 1.01 1.51 1. Interest Coverage 19.38 24.35 42.

Days inventory has barely changed in the past 3 years, 9.09 in 2019 and 9.12 in 2021 show that the sales ability of enterprises has always remained at a stable and high level. Receivable turnover increased from 11.28 to 17.26, although the increase is still acceptable, not too high, so this is still a good indicator of the company. Liquidity ratios Both the current ratio and the quick ratio showed negative signs as the current ratio decreased from 1.54 to 1.07, while the quick ratio decreased from 1.38 to 0.91. Curren ratio decreased because current liabilites increased from $105.718,000,000 to $125,481,000,000, while current asset decreased from $162,819,000,000 to $134.836,000,000. However, the current ratio is still greater than 1, so it is still acceptable. Quick asset showed a more negative signal when it fell below 1. The reason was because the company's inventory increased from $4,106,000,000 to $6,580,000,000. Leverage ratios The company's D/E ratio is greater than 1 and increased over the past 3 years, from 1.01 to 1.73. Because the total debt of the company increases and the total equity of the company decreases. Specifically, total debt increased from 108.05B USD to 124.72B USD while total equity decreased from 90.49B USD to 63.09B USD. The company's interest coverage increased from 19.38 to 42.29 which is a good sign that the company's ability to pay interest is getting better. Market value ratios The overall P/E of the company increased, specifically from 24.7 to 31.65, this is a sign that investors are expecting the company to have more development prospects in the future. IV. Perform Dupont analysis.

Dupont Ratios 2019 2020 2021 Net Margin % 21.24 20.91 25. Asset Turnover 0.74 0.83 1. Equity Multiplayer 3.56 4.25 5. Return on Equity % 55.92 73.69 147. Looking at the table, ROE increased sharply because all three metrics net margin, asset turnover and equity multiplayer increased. Specifically, net margin increased from 21. to 25.88, asset turnover increased from 0.74 to 1.08. and multiplayer equity increased from 3.56 to 5.28. Therefore, it can be concluded that the main factor driving the strong growth of ROE is net margin. V. Comment on trend and compare with peer group AAPL GOOGL MSFT ROE 149.27% 30.80% 48.72% Interest Coverage 44.72 251.38 39. P/E 31.65 19.8 26. D/E 1.78 0.11 0. From the above table it can be seen that although the company's D/E is the highest among the three companies, 1.78 compared to 0.11 of Google and 0.38 of Microsoft. However, if we look closely at the table, we can see that Apple's ROE is outstandingly high, even having an extremely good index when reaching 149.27 percent. From there, it can be inferred that the reason Apple's P/E is the highest is because the company's ability to generate profit on a dollar of capital is superior to the competition. Along with that, the company's ability to pay interest is also very good when interest coverage is 44.72, higher than MSFT 39.98, and lower than GOOGL 251.38. In summary, even though the company's D/E is greater than 1, its ROE is 149.27%, a very good sign. It can be predicted that the company's ROE, D/E ratio is high because the company has taken on debt to expand production, reducing total equity. Despite such high debt, the company's net income from borrowing is very good when it generates healthy cash flow and the ability to pay interest also shows a positive signal.

Interest Paid account has remained virtually unchanged over the past 3 years, - 14,119,000,000 USD in 2019 and - 14,467,000,000 USD in 2021. Part 3. Conclude Through the report analyzed above, I draw a few comments as follows: Firstly, Apple's business has grown very well in the past 3 years, not only maintaining net income but also increasing profits every year. Thereby maximizing the profits of shareholders and stakeholders. Second, looking more deeply at the income statement, the company's net income mainly comes from its main business, so it can be said that Apple's cash flow is very good, not from loans. Thirdly, the company's profit potential is high when apple's D/E ratio is the highest in the technology industry in the US, but it comes with the biggest risk when the company has to take on large debt. Fourth, in its development process, the company has expanded its revenue not only from iphone products but also imac, ipad, ipod and especially the ios user ecosystem and user files belonging to the company. in the world's leading category, this should be seen as the company's future exploitation potential. References https://www.morningstar.com/stocks/xnas/msft/quote https://www.morningstar.com/stocks/xnas/aapl/quote https://www.morningstar.com/stocks/xnas/goog/quote