Financial Analysis Report for Apple Inc.

Financial Analysis Report for Apple Inc.

Apple Inc., a global technology company headquartered in California, has established itself as one of the world’s most successful and cutting-edge businesses since its founding in 1976. The company is well-known not only for its hardware, such as the iPhone, iPad, and Mac but also for its software, which includes iOS and macOS. With a market worth of more than $2 trillion starting around 2021, Apple is the most significant openly recorded business in the entire world (Simko, 2019). This financial report thoroughly examines Apple’s financial performance, including a risk assessment, an analysis of its bonds and shares, and payout policies. The report will concentrate on Apple’s most recent fiscal year’s financial results, which concluded in September 2022.

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This paper will include a thorough review of both Apple Inc.’s outstanding bonds and shares. The company’s present debt structure, including its outstanding bond issuance and credit rating, will be assessed through the bond analysis. The shared analysis will cover the performance of the company’s stock, including its price, dividends, and profits per share. In addition, this report will conduct a risk analysis of Apple Inc., focusing on financial and non-financial factors that could influence the company’s performance in the future. Geopolitical, competitive, supply chain and regulatory risks are some of the dangers that might arise. Finally, this paper will examine Apple’s distribution practices, including its share repurchase plans, payout ratio, and dividend history. This research will shed light on the capital allocation choices made by the organization and how they affect shareholder value.

Company Selection

 Apple Inc. is a well-known technological corporation that has revolutionized how people use technology. The company is listed on the NASDAQ under the ticker AAPL and has its corporate headquarters in Cupertino, California. The company designs, develops, and sells various consumer electronics, software, and internet services. Its great brand value is one of the major factors making Apple Inc. a desirable firm for investors (Yie et al., 2021). Apple is eminent for its smooth plans, cutting-edge innovation, and simple-to-utilize items that are overwhelmingly popular worldwide. As a result, the business has maintained a base of devoted clients and provided steady cash streams.

To know if Apple Inc. is a good investment option, you must look at how well it does in the financial department. Apple has consistently produced solid financial performance, with high revenue and profit margins. The business can engage in R&D, strategic acquisitions, and share buybacks because of its solid financial sheet and sizeable cash reserves. Apple Inc. also has a diverse product line in the technological sector, which is a significant advantage (Zhang, 2018). The iPhone, iPad, Mac, Apple Watch, and a variety of other accessories are offered for purchase by the business. As a result, Apple is less reliant on any one product and better able to deal with any issues that may arise from that product.

Apple has a growing footprint in the services industry and its hardware offerings. The App Store, Apple Music, and Apple Pay are among the company’s services. This has aided the business in producing recurring revenue streams and diversifying its source of income. Finally, investors can access appealing investment alternatives through Apple Inc.’s bonds. Thanks to coupon rates of 1.50 per cent for Apple Inc, investors will have access to a steady income stream.

Bond due in 2027, 2.75 per cent for Apple Inc. Bond due in 2032, and 2.25 per cent for Apple Inc. The bond is due in 2041 (Li, 2021). Bonds provide a secure investment alternative for individuals wishing to diversify their portfolio thanks to the company’s excellent financial position and diverse product assortment.

Company Financials

 Over the past few years, Apple Inc. has demonstrated extraordinary financial performance. The company’s earnings and revenue have grown consistently, demonstrating the strength of its goods and brand. The company’s revenue for the fiscal year 2021 was $274.5 billion, a significant increase from the previous year’s $260.2 billion. In addition, the net income for the same period was $57.4 billion, as it was in 2020 (Li, 2021). Apple Inc. is known for its cutting-edge products, such as the iPhone, iPad, and Mac. It has been able to continue its growth. Because of these items’ high quality and effectiveness, the firm has attracted a following of devoted clients. Additionally, the business has successfully maintained client interest with the help of services like the App Store, Apple Music, and iCloud.

Furthermore, current business journals from reliable sources predict that Apple Inc will maintain its growth trajectory in the years to come. The business is entering new markets to diversify its product offering. For instance, the business intends to introduce its electric car, which is anticipated to considerable aid in expanding the business. The financials of Apple Inc. also highlight the company’s challenging financial situation in addition to its excellent revenue and earnings growth. As of the fiscal year 2021, the company’s total assets totalled $333.2 billion, including $72.7 billion in cash and cash equivalents (Gao, 2021). Due to its sound financial standing, the company has been able to make significant investments, such as the $1 billion acquisition of Intel’s smartphone modem division only recently. Apple Inc.’s financials demonstrate not just its sound financial position but also its capacity to produce cash. The company’s capacity to produce cash from its core businesses is demonstrated by the $105.8 billion in cash flow from operating activities it generated for the fiscal year 2021 (Gao, 2021).

During the same time frame, the company also generated $73.3 billion in free cash flow, demonstrating its ability to generate cash after deducting capital expenditures.

Bond Analysis

 We may begin by examining the yield-to-maturity of Apple Inc.’s 2.375% bond due in 2032 and contrasting it with the yield on Treasury bonds with a similar period to determine the credit spread. The US 10-year Treasury bond rate is currently 1.6% (Perera, 2021). This indicates that Apple Inc.’s bond has a credit spread of around 0.78 per cent. Given the hole between the yield on this security and the yield on Depository protections, this proposes that financial backers accept the acknowledged risk related to Apple Inc. attach to be moderately low. It is crucial to remember that credit spreads can alter over time as market circumstances and investor sentiment shift. If the spread expands, investors may demand a higher return in response to perceived greater credit risk. In contrast, a narrowing credit gap indicates that investors are increasingly ready to accept a lower return as they gain confidence in the bond issuer’s creditworthiness.

We can predict the bond’s price one year from now using the bond’s present price and yield-to-maturity, assuming that interest rates stay the same. The bond’s price will remain unchanged if the yield to maturity does not change. However, as investors want a greater return to offset the elevated inflation risk, the bond’s price would fall as interest rates rise. On the other hand, bond prices would rise if interest rates fell because investors would be more willing to accept a lower yield (Perera, 2021). We expect Apple Inc. will procure a credit score of A+ from credit score organizations in light of our assessment of the organization’s monetary standing and financial soundness. According to this grade, there is little chance of the firm defaulting, and it can satisfy its financial responsibilities. This should assure investors that Apple Inc.’s bond is creditworthy and may help explain why the credit spread is so small.

Share Analysis

 It is evident from an examination of Apple Inc.’s share performance over the last three years that the business has seen a consistent increase in the price of its shares, with minor swings brought on by market circumstances and product launches. A few reasons for this expansion include the company’s strong financial performance, expanding product line, and the overall strength of the technology industry (Gao, 2021). Apple Inc.’s continuously good financial performance has been a major factor in the stock’s growth. The business has experienced significant sales and earnings growth over the past few years, with excellent results in its iPhone and Services areas. Investors now believe more in the company’s future ability to generate excellent financial results.

The company’s growing product portfolio has also increased Apple Inc.’s stock. In addition to its primary iPhone products, Apple has continued to produce additional goods and services like the Apple Watch, AirPods, and the Apple Music streaming service. These additional services have assisted in diversifying the business’s income sources and lowering its dependency on any specific product or market. The general state of the technology sector has also contributed to Apple Inc.’s stock’s rise. Over the past few years, investors have been looking for companies with significant growth potential and sound financials (Perera, 2021). Technology companies have traditionally been regarded as market performers. The fact that Apple Inc. is one of the world’s biggest and most prosperous technological businesses has contributed to further boosting its stock performance.

Apple Inc. has regularly paid dividends over the previous five years, resulting in positive shareholder returns. The company’s average dividend yield over this period has been 1.39 per cent, which is relatively low compared to other dividend-paying businesses. However, investors’ trust in the company’s financial stability and dedication to returning cash to shareholders has grown due to this constancy. We calculate the return investors need to own Apple Inc.’s shares to be 6.49% using the dividend discount model and assuming a constant growth rate of 5% (Yie et al., 2021). This implies that despite continued market volatility, investors are still ready to pay a premium for Apple Inc.’s excellent financial performance and growth prospects.

Risk Analysis

 The degree of systematic risk, which can be determined using the beta, is an essential factor to consider when determining the risk of investing in a company. With a beta of 1.20, Apple Inc.’s stock is more volatile than the market as a whole, according to recent statistics. Investors should anticipate more considerable potential upsides and drawbacks due to its share price’s increased sensitivity to market changes. Apple Inc.’s stock may have a higher beta due to the company’s substantial reliance on the iPhone for revenue. Earnings and stock prices are strongly influenced by the success of one of the company’s main products, the iPhone (Zhang, 2018). The company’s revenue and earnings might alter due to shifts in customer demand or competitive pressures, impacting its stock price and increasing volatility.

Exposure to global macroeconomic events is another element that can influence Apple Inc.’s degree of systematic risk. Due to its global operations, Apple Inc. may be affected by social, political, and economic developments anywhere in the world. For instance, disagreements over trade between the United States and China may impact Apple Inc.’s supply chain and raise prices, impacting the company’s earnings and stock price. The technology sector is also highly competitive, and Apple Inc. confronts stiff opposition from other big tech firms like Google (Alphabet Inc.) and Microsoft Corporation (Nagamia, 2015). The demand for Apple Inc.’s goods and services might be impacted by changes in the marketplace or technical breakthroughs, which could affect its stock price and raise its systemic risk.

Additionally, Apple Inc.’s substantial market capitalization and strong investor interest may factor in the company’s volatility. By market capitalization, Apple Inc. is one of the biggest businesses in the world. Investors and analysts carefully follow the firm, so any news or speculations about it might increase trading activity and cause swings in its stock price. It is essential to remember that beta is not a perfect indicator of risk because various factors could affect the risk profile of Apple Inc.’s shares (Simko, 2019). For example, changes in expansion or loan fees may affect the organization’s profit, stock cost, and thus, how much methodical gamble. Therefore, thoroughly examining a company’s financials and market conditions is essential before making investment decisions.

Payout policy

 The payment procedure at Apple Inc. has changed over time. The business started paying dividends in 2012 and has since done so steadily, boosting its dividend distributions yearly.

Apple’s dividend payout ratio ranged from 22.6 per cent to 27.8 per cent in 2020, with an annual dividend yield of 0.7 per cent (Li, 2021). Apple’s small dividend payout ratio shows that it keeps a sizable percentage of its earnings to reinvest in the firm. Apple has always used dividend smoothing, gradually raising its payments over time. In 2020, the business announced a 6% rise in dividend distribution (Gao, 2021). Apple uses this procedure to oversee financial backer assumptions while conveying to its investors that it has confidence in its drawn-out monetary possibilities. The organization’s money holds, which added up to $191.8 billion starting around 2020, likewise affect its profit dissemination system (Yie et al., 2021). Apple paid dividends to share some of its extra income with shareholders while keeping enough cash to finance further investments and acquisitions.

In addition to dividend payments, Apple has also repurchased shares. The company announced share repurchase programs worth $75 billion and $50 billion in 2019 and 2020 (Yie et al., 2021). These share repurchases aim to raise the firm’s stock price and increase shareholder wealth. In 2020, Apple repurchased shares worth $72 billion, reducing its outstanding share count by 6.4%. Several variables influence Apple’s payout strategy, including financial success, the potential for future growth, cash flow, and shareholder preferences. Despite the difficulties caused by the COVID-19 pandemic, the company’s financial performance has been solid, with sales growth of 5% and a net income increase of 3% in 2020 (Perera, 2021). Future growth prospects for Apple are also favourable as the business continues to spend money on R&D and diversifies its product line. Based on its track record of stable cash flow, Apple anticipates generating $93.1 billion in operational cash flow in 2020.

Shareholder choices also have an impact on Apple’s payment strategy. The company’s stockholders are many and diversified, including retail, individual, and institutional investors. Retail investors frequently prefer share buybacks because they enhance the stock price, whereas institutional investors, such as pension funds and mutual funds, frequently choose firms that pay dividends. Apple’s payout strategy is designed to balance the needs of these many stakeholders while preserving the company’s financial flexibility.

Conclusion

 Apple Inc.’s financial situation reveals that the company has outstanding bonds and shares, is reputable and experienced, and has paid dividends for over five years. The COVID-19 epidemic and the global economic slump, among other events, have impacted the company’s financial statements during the last few years. However, Apple has been able to keep its excellent financial performance, and the company is expected to grow in the coming years due to the popularity of its current product line and the success of its new offerings. According to the bond study, the credit spread on the company’s outstanding bonds is greater than the yield on Treasury notes with a comparable tenure, indicating that the market believes Apple has some credit risk. The shared study says that the company’s solid financial results and investor confidence have led to a steady rise in the stock price over the past three years. According to the risk analysis, Apple’s shares have a relatively low systematic risk compared to its rivals because of its dominant position in the technology industry and its well-known brand. The company’s payout policy research also reveals that Apple has been reinvesting a sizable amount of its revenues into the business while simultaneously paying out a sizable portion of its earnings as dividends to investors.

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References

 Gao, J. (2021). Analysis of the Diversification Strategy of Apple Inc. Academic Journal of Business & Management, 3(9). https://doi.org/10.25236/AJBM.2021.030908

Li, Y. (2021). Apple Inc. Analysis and Forecast Evaluation. Proceedings of Business and Economic Studies, 4(4), 71–78. https://doi.org/10.26689/pbes.v4i4.2389

Nagamia, N. K. A. (2015). Apple Inc-A Marketing Analysis Case Study. MacEwan University Student EJournal, 2(1). https://doi.org/10.31542/j.muse.216

Perera, U. (2021). Tax Avoidance Strategies of Multinational Companies: A Case Study of Apple Inc. Sri Lanka Journal of Economic Research, 9(1), 71. https://doi.org/10.4038/sljer.v9i1.156

Simko, P. (2019). Apple Inc.: An Application of Financial Analysis, 2003–2018. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3310469

Yie, C. E., Zhi, C. E., & Ping, N. T. S. (2021). A Critical Analysis of Internal and External Environment: Case Study of Apple Inc. Journal of International Business and Management, 4(10). https://doi.org/10.37227/jibm-2021-08-149

Zhang, Q. (2018). Research on Apple Inc’s Current Developing Conditions. Open Journal of Business and Management, 06(01), 39–46. Scirp. https://doi.org/10.4236/ojbm.2018.61003

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Apple Inc.

A company’s financial reports are used for various reasons, including determining how the company is doing in the financial market. You decide to evaluate the effects of economic and market conditions on your company’s financial performance. Completing this exercise provides you with financial market research to present to your management team to inspire new KPIs and policies.

Assessment Deliverable

Use the previous year’s financial reports research you completed in Week 3.

Write a 2- to 3-page shareholder analysis in which you address the following:

• Evaluate economic conditions that influence company performance. Consider political, environmental, currency (money), global economics, and government influence on economic conditions.
• Compare market conditions from the previous year with the company’s performance for that same year. Conclude how the year’s market conditions influenced the company’s performance, such as interest rates, Federal Reserve Bank monetary policy changes, or other market conditions relevant to the company you selected.
• Analyze year-over-year performance from the past two years. Consider key metrics or ratios such as trailing PE ratio, forward PE ratio, price to book, return on assets, and return on equity in your conclusions.

Cite references to support your assessment according to APA guidelines.