Apple's Financial Statement Analysis Essay
It also sells a variety of third-party Macintosh (Mac), iPhone and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content and applications through the iTunes Store. It sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. The Group operates in the United States, Europe and Japan.
Key Factors Influencing the Current Financial Condition From the Thomson Financial Annual Financial Summary, we can get that total assets, total liabilities, net income, net cash flow operating/investing/financing and dividends per share are the key factors influencing the current financial condition and results of operations. Apple Inc. (Nasdaq: AAPL) has decided to postpone the launch of its iPad in international markets to the end of May 2010 (initially expected to be launched by the end of April).
The company cited strong U. S. demand, which exceeded supply, as the reason for the postponement. The company is expected to announce international pricing and begin taking online pre-orders on May 10. International markets have become an important driver of growth for AAPL as it has increased its presence in international markets via iPhones and iPods. International sales accounted for 58% of total revenue in the first quarter of 2010 (most recent quarter) compared to 46% of total revenue in the first quarter of 2009.
Apple’s shares are now trading at an all-time high, as investors are more focused on the rising demand for the iPad, accepting the near-term delay in shipments. According to sources, Vodafone (Nasdaq: VOD) will be the carrier for iPad in Australia, Germany, Italy, Spain and the UK. Telefonica’s (NYSE: TEF) O2 will offer the iPad in the UK only while France Telecom’s (NYSE: FTE) Orange will offer the iPad in France, UK, Spain and Switzerland. All the three carriers will offer their pricing plans by the end of May.
We believe that the international rollout will help it grow higher revenues in 2010 and higher margins from additional sales. The iPad is available only in the U. S. for now and is priced at just $499 for the 16GB model, going up to $599 for the 32GB model and $699 for 64GB (only for the Wi-Fi model). The 3G version of the same device will sell for $629 and will not include monthly fees to AT&T (NYSE: T) for wireless service. Recently, market research firm iSuppli estimated that the raw materials used for the 16 GB WiFi iPad will cost $260, compared to its earlier estimate of $230.
This implies that overall gross margins for the iPad may be lower than previously expected. Part II. Competitors Asustek Computer Inc and Cisco Systems Inc are the two companies in the peer set. Asustek Computer Inc operates in Semiconductors industry. The Group’s principal activities are designing, manufacturing and selling computer products and other electronic products. Products include computer motherboards, computer software, supplemental and upgrading cards, optical instruments, wired and wireless telecommunication apparatus.
Operations are carried out in Taiwan, Asia Pacific and other countries. The Group exports its products to Canada, Asia Pacific, the United States of America, Europe and South Africa. Cisco Systems Inc operates in Telecommunications Equipment industry. The Group’s principal activities are to design, manufacture and sell Internet Protocol (IP)-based networking and other products related to the communications and information technology (IT) industry and provide services associated with these products and their use.
The Group’s products are installed at enterprise businesses, public institutions, telecommunications companies, commercial businesses and personal residences. The Group offers its products in five categories: Switches, Advanced Technologies, Routers, Service, and Other. Its service offerings include technical support services and advanced services. It operates in the United States, Canada, European Markets, Eastern Europe, Latin America, the Middle East and Africa, Russia, Asia Pacific and Japan.
During Fiscal 2009, the Group acquired PostPath, Inc. , Pure Digital Technologies, Inc. , Pure Networks, Inc. and Tidel Software, Inc. Part III. Summary of Significant Accounting Policies Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, peripherals, and service and support contracts. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable.
Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U. S. , and for certain other sales, the Company defers recognition of revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit. The Company recognizes revenue from the sale of hardware products (e. g. Mac computers, iPhones, iPods and peripherals), software bundled with hardware that is essential to the functionality of the hardware, and third-party digital content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The Company recognizes revenue in accordance with industry specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the functionality of the hardware.
Part IV. Corporate Financial Filings The 8-K appears to be extremely useful to understand the current condition of AAPL. California—April 20, 2010—Apple today announced financial results for its fiscal 2010 second quarter ended March 27, 2010. The Company posted revenue of $13. 50 billion and net quarterly profit of $3. 07 billion, or $3. 33 per diluted share. These results compare to revenue of $9. 08 billion and net quarterly profit of $1. 62 billion, or $1. 79 per diluted share, in the year-ago quarter.
Gross margin was 41. 7 percent, up from 39. 9 percent in the year-ago quarter. International sales accounted for 58 percent of the quarter’s revenue. Apple sold 2. 94 million Macintosh computers during the quarter, representing a 33 percent unit increase over the year-ago quarter. The Company sold 8. 75 million iPhones in the quarter, representing 131 percent unit growth over the year-ago quarter. Apple sold 10. 89 million iPods during the quarter, representing a one percent unit decline from the year-ago quarter. We’re thrilled to report our best non-holiday quarter ever, with revenues up 49 percent and profits up 90 percent,” said Steve Jobs, Apple’s CEO. “We’ve launched our revolutionary new iPad and users are loving it, and we have several more extraordinary products in the pipeline for this year. ”
“Looking ahead to the third fiscal quarter of 2010, we expect revenue in the range of about $13. 0 billion to $13. 4 billion and we expect diluted earnings per share in the range of about $2. 28 to $2. 39,” said Peter Oppenheimer, Apple’s CFO. Part V. Quality of Earnings AAPL | |Earnings Quality Assessment (EQA) | |Criteria |Score | |Revenue recognition issues |5 | |Gross margin/sales ratio |4 | |Operating earnings/sales |5 | |Earnings variability |4 | |CF from operations exceeds NI |3 | |Expense recognition issues |4 | |Operating leases |3 | |R&D |4 | |Pension expenses and gains |4 | |Employee stock option expense |3 | |Gain (loss) from asset sales |3 | |Acquisitions/dispositions |4 | |Discontinued operations |4 | |Ongoing restructuring changes 4 | |One-time items |5 | |Extraordinary items |4 | |Accounting changes |5 | |Reverses prior charges/provisions |4 | |Tax-rate percentage |4 | |Share buyback/issuance |2 | |Total Rating |78 | |Total Possible Rating |100 | |Quality |Good – AB | According to the score, it is believed that AAPL is classed as a good company. Part VI. Financial Health The analysis of financial data employs various techniques to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.
These techniques include ratio analysis, common-size analysis, study of differences in components of financial statements among industries, review of descriptive material, and comparisons of results with other types of data. As to the AAPL, current ratio determines short-term debt-paying ability. The traditional benchmark is 2. 00. The trend of this ratio becomes better from 2007 to 2009. It indicates that AAPL has a good short-term debt-paying ability in year 2009. Receivables turnover indicates the liquidity of receivables. From year 2007 to 2009, it presents a positive trend of receivables turnover, and it shows that AAPL becomes better in it. Estimate the operating cycle: The time period between acquisition of goods and the final cash realization from sales. Operating Cycle= Accounts Receivable Turnover in Days + Inventory Turnover in Days.
From year 2007 to 2009, the ratios are 65. 61, 57. 78 and 54. 31. In year 2009, the company is in a good condition. The competitor Cisco Systems Inc also has a good financial condition. From 2007 to 2009, the trend of current ratio becomes better, from 2. 36 to 3. 24. Moreover, the receivables turnover has a large improvement from year 2007 to 2009. And it seems that company is in a stable condition from the three years data. Part VII. Overall Assessment AAPL is in a good financial condition and in a stable condition. From the common-size financial statements, we know that the three companies are all in a good condition. Appendices