Financial Analysis Report for Apple Inc.
Since its founding in 1976, Apple Inc., a multinational technological firm with its headquarters in California, has made a name for itself as one of the world’s most prosperous and cutting-edge companies. The business is well-known for its software, which consists of iOS and macOS, and its hardware, which includes the iPhone, iPad, and Mac. Apple will have a market worth of over $2 trillion starting around 2021, making it the largest publicly traded company in the entire world (Simko, 2019). This financial report analyses Apple’s financial performance in great detail, including a risk assessment, an examination of its bonds and stock, and a breakdown of its payout practices. The financial results of Apple’s most recent fiscal year, which ended in September 2022, will be the report’s main focus.
This essay will provide a comprehensive analysis of the outstanding bonds and shares of Apple Inc. The bond analysis will evaluate the company’s current debt structure, including its existing bond issuance and credit rating. The performance of the company’s stock, including its price, dividends, and profits per share, will be included in the shared analysis. This research will also do a risk analysis of Apple Inc., concentrating on both financial and non-financial aspects that may affect the company’s future performance. Among the potential risks are geopolitics, competition, supply chains, and regulations. This study will also examine Apple’s distribution methods, including its dividend history, payout ratio, and share repurchase intentions. This study will offer insight into the organization’s capital allocation decisions and how they affect shareholder value.
Apple Inc., a renowned technological company, has transformed the way individuals utilize technology. The business is based in Cupertino, California, and is traded on the NASDAQ under the ticker AAPL. The business creates, produces, and markets a range of consumer electronics, software, and online services. One key element that makes Apple Inc. appealing to investors is its strong brand value (Yie et al., 2021). Apple is renowned for its fluid designs, cutting-edge technology, and easy-to-use products that are enormously well-liked worldwide. As a result, the company has continued to attract loyal customers and generate consistent revenue.
You must consider Apple Inc.’s financial performance to determine if it is a wise investment choice. High revenue and profit margins have regularly been created by Apple, resulting in strong financial performance. Because of its strong financial position and sizable cash reserves, the company can do R&D, strategic acquisitions, and share buybacks. In the technical industry, Apple Inc. also has a broad range of products, which is a distinct advantage (Zhang, 2018). The company sells a number of accessories, including the iPhone, iPad, Mac, Apple Watch, and more. As a result, Apple is less dependent on a single product and is better equipped to handle any problems that might develop from it.
Apple’s presence in the services sector is expanding, as are its hardware offerings. Among the services offered by the corporation are Apple Pay, Apple Music, and the App Store. This has helped the company create regular revenue streams and diversify its revenue sources. Finally, with the bonds issued by Apple Inc., investors have access to enticing investment options. Investing in Apple Inc. will provide investors with a coupon rate of 1.50 percent, which will provide a consistent income stream.
2.75 percent bond with a 2027 maturity for Apple Inc. 2032 bond with a 2.25 percent interest rate for Apple Inc. (Li, 2021). The bond is due in 2041. Due to the company’s strong financial condition and wide range of products, bonds offer a safe investment opportunity for those looking to diversify their portfolio.
Apple Inc. has displayed exceptional financial performance over the last few years. The growth of the company’s earnings and sales shows how strong its products and brand are. The business’s revenue for the fiscal year 2021 increased significantly from the prior year’s $260.2 billion to $274.5 billion. Additionally, the same as in 2020 (Li, 2021), the net income for the time period was $57.4 billion. Innovative products from Apple Inc. include the iPhone, iPad, and Mac. It has been able to keep expanding. The company has gathered a following of committed customers as a result of the exceptional quality and efficacy of these products. Additionally, with the aid of services like the App Store, Apple Music, and iCloud, the company has effectively kept customers’ interest.
Furthermore, trustworthy sources’ current business journals forecast that Apple Inc. will continue to grow in the years to come. The company is expanding into new areas in an effort to broaden its product line. For instance, the company plans to launch its electric vehicle, which is expected to significantly help the business grow. In addition to highlighting the company’s outstanding revenue and earnings growth, Apple Inc.’s financials also reveal its precarious financial status. The company’s total assets as of the fiscal year 2021 were $333.2 billion, which included $72.7 billion in cash and cash equivalents (Gao, 2021). The business has made considerable investments as a result of its strong financial position, including the recent $1 billion purchase of Intel’s smartphone modem division. The financial statements of Apple Inc. show not just the company’s good financial standing but also its ability to generate revenue. The $105.8 billion in cash flow from operational operations the company produced for the fiscal year 2021 illustrates its ability to earn cash from its main industries (Gao, 2021).
The business also produced $73.3 billion in free cash flow over the same period, indicating its capacity to do so even after subtracting capital outlays.
To assess the credit spread, we can start by comparing the yield on Treasury bonds with a similar maturity period to the yield on Apple Inc.’s 2.375% bond due in 2032. Currently, the yield on US 10-year Treasury bonds is 1.6% (Perera, 2021). This suggests that the bond issued by Apple Inc. has a credit spread of approximately 0.78 percent. Given the discrepancy in yield between this security’s yield and that of depository safeguards, it is suggested that investors consider the acknowledged risk associated with Apple Inc. to be of a moderately low level. Credit spreads can change over time as market conditions and investor sentiment change, and this is an important thing to keep in mind. Investors may request a bigger return if the spread widens because they believe the credit risk to be higher. A decreasing credit gap, on the other hand, shows that investors are becoming more willing to accept a lesser yield as they become more confident in the creditworthiness of the bond issuer.
Assuming that interest rates stay the same, we can forecast the bond’s price one year from now using its current price and yield-to-maturity. If the yield to maturity does not change, the bond’s price will not also change. The bond’s price would drop as interest rates rose, though, as investors sought a higher yield to make up for the enhanced inflation risk. Conversely, if interest rates dropped, bond prices would increase as investors would be more ready to accept a lower yield (Perera, 2021). Given our evaluation of Apple Inc.’s financial health and standing, we predict that the company will receive an A+ credit rating from rating agencies. This grade indicates that there is little possibility of the company defaulting and that it can meet its financial obligations. This should reassure investors that the bond issued by Apple Inc. is creditworthy and may shed some light on why the credit spread is so narrow.
Analysis of Share
An analysis of Apple Inc.’s share performance over the past three years reveals that the company has had a constant rise in the price of its shares, with only slight fluctuations caused by changes in the market and the introduction of new products. The company’s solid financial performance, growing product line, and overall health of the technology sector are a few factors that contributed to its expansion (Gao, 2021). The continued success of Apple Inc.’s finances has been a key driver of the stock’s rise. Over the past few years, the company has seen a considerable increase in revenues and profitability, with a particularly strong performance in its iPhone and Services segments. Investor confidence in the company’s ability to produce strong financial outcomes in the future has increased.
The stock price of Apple Inc. has also increased due to the company’s expanding product line. Apple has continued to manufacture additional products and services, including the Apple Watch, AirPods, and the Apple Music streaming service, in addition to its main iPhone offerings. These extra services have helped the company’s income streams diversify and lessen its reliance on any one product or market. The advancement of Apple Inc.’s stock has also been aided by the general status of the technology industry. Investors have been seeking out businesses with great growth potential and strong financials over the past several years (Perera, 2021). Technology companies have historically been seen as top achievers in the market. One factor driving Apple Inc.’s stock performance is the company’s status as one of the biggest and most successful technology enterprises in the world.
Over the preceding five years, Apple Inc. has consistently paid dividends, generating favorable shareholder returns. In comparison to other dividend-paying companies, the company’s average dividend yield over this time period was only 1.39 percent. However, because of this consistency, investors’ faith in the company’s financial health and commitment to repaying capital to shareholders has increased. Using the dividend discount model and a constant growth rate of 5%, we determine that investors need a return of 6.49% in order to buy shares in Apple Inc. (Yie et al., 2021). This suggests that investors are still willing to pay a premium for Apple Inc.’s exceptional financial performance and growth potential in spite of ongoing market turmoil.
When assessing the risk of investing in a company, the amount of systematic risk, which can be calculated using the beta, must be taken into account. According to recent data, Apple Inc.’s stock is more volatile than the market as a whole, with a beta of 1.20. Due to the heightened sensitivity of its share price to changes in the market, investors should be prepared for more significant potential upsides and downsides. The stock of Apple Inc. may have a greater beta as a result of the company’s heavy reliance on iPhone sales. The popularity of the iPhone, one of the company’s flagship products, has a significant impact on earnings and stock prices (Zhang, 2018). Due to changes in consumer demand or pressure from the competition, the company’s revenue and earnings may change, which could affect its stock price and increase volatility.
Exposure to global macroeconomic events is another factor that might have an impact on the level of systematic risk Apple Inc. faces. Apple Inc. may be impacted by social, political, and economic developments anywhere in the world as a result of its global operations. For instance, trade disputes between the US and China may have an effect on Apple Inc.’s supply chain and drive up costs, which may then have an effect on the company’s profitability and stock price. Apple Inc. faces fierce competition from other major tech companies like Google (Alphabet Inc.) and Microsoft Corporation since the technology sector is so competitive (Nagamia, 2015). Changes in the market or technological advancements may have an impact on the demand for Apple Inc.’s products and services, which may have an impact on its stock price and increase its systemic risk.
The volatility of Apple Inc. may also be influenced by its substantial market capitalization and robust investor interest. Apple Inc. is one of the largest companies in the world by market capitalization. Because investors and analysts closely monitor the company, any news or rumors about it could increase trading activity and result in fluctuations in the stock price. The risk profile of Apple Inc.’s shares could be affected by a number of factors; therefore, it is important to keep in mind that beta is not a perfect measure of risk (Simko, 2019). Changes in expansion or borrowing fees, for instance, could also have an impact on the organization’s stock price, earnings, and, therefore, how much systematic gambling is done. Therefore, before making any investment decisions, it is imperative to carefully review a company’s financials and market environment.
At Apple Inc., the payment process has evolved over time. The company began paying dividends in 2012 and has done so steadily since then, increasing its dividend payouts yearly.
With an annual dividend yield of 0.7 percent, Apple’s dividend payment ratio in 2020 varied from 22.6 to 27.8 percent (Li, 2021). Apple’s low dividend payout ratio demonstrates that it retains a substantial portion of its earnings for corporate reinvestment. Apple has consistently increased its dividend payouts over time by using dividend smoothing. The company declared a 6% increase in dividend payment year 2020 (Gao, 2021). This process is used by Apple to monitor financial backer assumptions and show its investors that it is confident in its long-term financial prospects. The organization’s cash reserves, which reached $191.8 billion starting around 2020, also have an impact on how profits are distributed (Yie et al., 2021). Apple maintained a sufficient cash reserve to fund more investments and acquisitions while paying dividends to share part of its additional income with shareholders.
Besides paying dividends, Apple has also bought back shares. In 2019 and 2020, the corporation disclosed share repurchase plans totaling $75 billion and $50 billion, respectively (Yie et al., 2021). The purpose of these share repurchases is to drive up the stock price of the company and boost shareholder wealth. Apple bought back $72 billion worth of shares in 2020, bringing its total number of outstanding shares down by 6.4%. Apple’s payout strategy is influenced by a number of factors, including financial performance, the likelihood of future growth, cash flow, and shareholder preferences. The company’s financial performance has been strong despite the challenges brought on by the COVID-19 pandemic, with revenues growing by 5% and a net income gain of 3% in 2020 (Perera, 2021). As the company invests in R&D and expands its product line, Apple’s prospects for future growth are likewise promising. Apple projects an operating cash flow of $93.1 billion in 2020, based on its history of consistent cash flow.
The decisions made by shareholders also affect Apple’s payment policy. Stockholders of the corporation are numerous and diverse, and they include retail, individual, and institutional investors. Institutional investors, including pension funds and mutual funds, typically choose companies that pay dividends, whereas retail investors frequently choose share buybacks since they increase the stock price. The goal of Apple’s payout strategy is to strike a balance between the demands of all of these different stakeholders and keep the company financially flexible.
The financial analysis of Apple Inc. reveals that the business has outstanding bonds and shares, is respected and experienced, and has paid dividends for more than five years. The company’s financial results over the past few years have been damaged by various events, including the COVID-19 outbreak and the global economic downturn. However, thanks to the success of its new products and the continued success of its current product line, Apple has been able to maintain its stellar financial performance, and in the years to come, the firm is anticipated to expand. The credit spread on Apple’s outstanding bonds is higher than the yield on Treasury notes with a comparable term, according to the bond study, suggesting that the market perceives considerable credit risk. The company’s strong financial performance and investor confidence, according to the pooled study, have caused a consistent increase in the stock price over the previous three years. Because of its strong position in the technology sector and its well-known brand, Apple’s shares have a relatively low systematic risk when compared to those of its competitors, according to the risk study. The company’s payout policy analysis also shows that Apple has been paying out a substantial share of its earnings as dividends to investors while reinvesting a sizable chunk of its revenues into the business.
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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A company’s financial reports are used for a variety of 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.
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 market conditions that year 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.
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