Ratio analysis of apple inc.

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Executive Summery
The Past – Steve Jobs, Steve Wozniak and Ronald Wayne established Apple on
April 1, 1976 in order to sell the Apple 1 Computer Kit that was hand built by
Steve Wozniak. The Apple 1 was sold as a motherboard (with CPU, RAM and
basic textual video chips) – less than what is considered a personal computer
today.
The Present – January 2007, Steve Jobs, the CEO and Co-Founder of Apple,
announces that Apple Computer Incorporated would now be known as Apple Inc.
In June 2008, he announces that the iPhone 3G would be released in July 2008,
this newer version added support for 3G Networking and assisted GPS navigation,
among other things.

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Researchmethodology
The data collected by me is secondary data. Due to lack of time. It is difficult to
collect primary data cause my company is not in India. It is a Foreign company.
Objective of the study
 Helpful in analysis of Financial Statements.
 Helpful in comparative Study.
 Helpful in locating the weak spots of the business.
 Helpful in Forecasting.
 Estimate about the trend of the business.
 Fixation of ideal Standards.
 Effective Control.
 Study of Financial Soundness.
Limitations of the study
 Comparison not possible if different firms adopt different accounting
policies.
 Ratio analysis becomes less effective due to price level changes.
 Ratio may be misleading in the absence of absolute data.
 Limited use of a single data.
 Lack of proper standards.
 False accounting data gives false ratio.
 Ratios alone are not adequate for proper conclusions.
 Effect of personal ability and bias of the analyst.

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Ratios
What is Ratio Analysis?
DEFINITION of 'Ratio Analysis'
Ratio analysis is quantitative analysis of information contained in a company’s
financial statements. Ratio analysis is based on line items in financial statements
like the balance sheet, income statement and cash flow statement; the ratios of one
item – or a combination of items - to another item or combination are then
calculated. Ratio analysis is used to evaluate various aspects of a company’s
operating and financial performance such as its efficiency, liquidity, profitability
and solvency. The trend of these ratios over time is studied to check whether they
are improving or deteriorating. Ratios are also compared across different
companies in the same sector to see how they stack up, and to get an idea of
comparative valuations. Ratio analysis is a cornerstone of fundamental analysis.
Meaning
Financial statements aim at providing financial information about a business
enterprise to meet the information needs of the decision-makers. Financial
statements prepared by a business enterprise in the corporate sector are published
and are available to the decision-makers. These statements provide financial data
which require analysis, comparison and interpretation for taking decision by the
external as well as internal users of accounting information. This act is termed as
financial statement analysis. It is regarded as an integral and important part of
accounting. As indicated in the previous chapter, the most commonly used
techniques of financial statements analysis are comparative statements, common
size statements, trend analysis, accounting ratios and cash flow analysis. The first
three have been discussed in detail in the previous chapter. This chapter covers
the technique of accounting ratios for analyzing the information contained in
financial statements for assessing the solvency, efficiency and profitability of the
enterprises. 5.1 Meaning of Accounting Ratios As stated earlier, accounting ratios
are an important tool of financial statements analysis. A ratio is a mathematical
number calculated as a reference to relationship of two or more numbers and can
be expressed as a fraction, proportion, percentage and a number of times. When
the number is calculated by referring to two accounting numbers derived from the
financial statements, it is termed as accounting ratio.

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Historical Background
In the past decade of economic tendency, Malaysia as one of the developing
countries in Asia has confronted various changes and enlargement. Achievement
of Malaysia industry deeply affects the economic status of Malaysia. The
movement of foreign exchange will increase when investors involve in it.
Investors will always invest in good conduct industry because they will earn
revenue in the short time period. However, investors need to recognize or to
analyze the performance of the company properly before invest and it is not an
easy job for an outsider to understand.
By doing the financial statement analysis, it will help the analyst to understand the
performance of any company. The analysis of financial statement is a study of
establishing meaningful relationship between various financial facts and figure
given in financial statement. The basic financial statement included balance sheet
and income statement which is the indicating device of profitability and financial
soundness of business concern. Simple and valuable elements have been dissected
by complex figure that given in financial statement. In addition, significant
relationships are established between the elements of the same dissection.
Establishing relationships and interpretation thereof to understand the working
and financial position of a firm is called analysis of financial statement. Thus,
analysis of financial statement is the procedure of establishing and identifying the
financial weakness and strengths of the company.

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What is Ratio?
DEFINITION of 'Accounting Ratio'
A way of expressing the relationship between one accounting result and another,
which is intended to provide a useful comparison. Accounting ratios assist in
measuring the efficiency and profitability of a company based on its financial
reports. Accounting ratios form the basis of fundamental analysis.
Meaning
Ratio analysis is a process of determining and interpreting relationships between
the items of financial statements to provide a meaningful understanding of the
performance and financial position of an enterprise. Ratio analysis is an
accounting tool to present accounting variables in a simple, concise, intelligible
and understandable form.
Different modes of expressing an accounting ratio
Ratio may be expressed In different ways. They are as follows:
a) Simple or Pure Ratios,
b) Percentages,
c) Rate.
Comparison by Ratios
There are some simple balance sheet comparisons you can make to assess the
strength or performance of your business against earlier periods, or against direct
competitors. The figures you study will vary according to the nature of the
business. Some comparisons draw on figures from the profit and loss (P&L)
account.
Internal comparisons: If inventory (stock) levels are rising from one period to
the next, but sales in your P&L are not, some of your stock might be out of date.
You may also have a cashflow problem developing - see cashflow management:
the basics. If the amount trade debtors owe you is growing faster than sales, it
could indicate poor internal credit controls. Find out whether any of your
customers are having problems with cashflow, which could pose a threat to your
business. A positive relationship with your trade creditors is essential. Key to this

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is managing your cashflow effectively, so that payments can be made on time. For
example, trade creditors are more likely to be flexible about extending terms of
credit if you have built up a good payment record. Making early payments may
qualify you for a discount. However, early payment for the sake of it will have a
negative impact on your cashflow. Good payment controls will help prevent
imbalances in what you owe suppliers and in levels of stock and inventory.
Borrowing as a percentage of overall financing (gearing) is important - the
lower the figure, the stronger your business is financially. It's common for start-up
businesses to have high borrowing requirements, but if the gearing figure reaches
50 per cent you may have difficulty getting further loans.
External comparisons: You can also compare the above balance sheet figures
with those of direct or successful competitors to see how you measure up. This
exercise will highlight weaknesses in your business operation that may need
attention. It will also confirm strong business performance. See use accounting
ratios to assess business performance.
Objectives of Financial Ratio Analysis
The objective of ratio analysis is to judge the earning capacity, financial
soundness and operating efficiency of a business organization. The use of ratio in
accounting and financial management analysis helps the management to know the
profitability, financial position and operating efficiency of an enterprise.
Advantages of Ratio Analysis The advantages derived by an enterprise by the use
of accounting ratios are:
1) Useful in analysis of financial statements: Bankers, investors, creditors, etc
analysis balance sheets and profit and loss accounts by means of ratios.
2) Useful in simplifying accounting figures: Accounting ratio simplifies
summarizes and systematizes a long array of accounting figures to make them
understandable. In the words of Biramn and Dribin, “ Financial ratios are useful
because they summarize briefly the results of detailed and complicated
computation”
3) Useful in judging the operating efficiency of business: Accounting Ratio are
also useful for diagnosis of the financial health of the enterprise. This is done by
evaluating liquidity, solvency, profitability etc. Such a evaluation enables
management to access financial requirements and the capabilities of various
business units.

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4) Useful for forecasting: Helpful in business planning, forecasting. What
should be the course of action in the immediate future is decided on the basis of
trend ratios, i.e., ratio calculated for number of years.
5) Useful in locating the weak spots: Locating the weak spots in the business
even though the overall performance may quite good. Management cab then pay
attention to the weakness and take remedial action. For example if the firm finds
that the increase in distribution expense is more than proportionate to the results
achieved, these can be examined in detail and depth to remove any wastage that
may be there.
6) Useful in Inter-firm and Intra-firm comparison: A firm would like to
compare its performance with that of other firms and of industry in general. The
comparison is called inter-firm comparison. If the performance of different units
belonging to the same firm is to be compared, it is called intra-firm comparison.
Such comparison is almost impossible without accounting ratios. Even the
progress of a firm from year to year cannot be measured without the help of
financial ratios. The accounting language simplified through ratios are the best
tool to compare the firms and divisions of the firm.
The Advantages of Financial Ratios
Financial ratios are tools used to assess the relative strength of companies by
performing simple calculations on items on income statements, balance sheets and
cash flow statements. Ratios measure companies & operational efficiency,
liquidity, stability and profitability, giving investors more relevant information
than raw financial data. Investors and analysts can gain profitable advantages in
the stock market by using the widely popular, and arguably indispensable,
technique of ratio analysis.
Comparison
Financial ratios provide a standardized method with which to compare companies
and industries. Using ratios puts all companies on a relatively equal playing field
in the eyes of analysts; companies are judged on their performance rather than

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their size, sales volume or market share. Comparing the raw financial data of two
companies in the same industry offers only limited insight. Ratios go beyond the
numbers to reveal how good a company is at making a profit, funding the
business, growing through sales rather than debt and a wide range of other factors.
An older company, for example, might boast 50 times the revenue of a new small
business, which would make the older company seem stronger at first glance.
Analyzing the two companies with ratios such as return on equity (ROE), return
on assets (ROA) and net profit margin may reveal that the smaller company
operates much more efficiently, generating substantially more profit per dollar of
assets employed.
Industry Analysis
Ratios can reveal trends in particular industries, creating benchmarks against
which the performance of all industry players can be measured. Small businesses
can use industry benchmarks to craft organizational strategy and clearly measure
their own performance against the industry as a whole. As an example, analysis
may reveal that the average debt-to-equity ratio in the widget industry is .85; a
company with a debt-to-equity ratio of 1.3 would be much more heavily
leveraged than other widget manufacturers, even though its total debt may be
vastly smaller than larger debt.
Stock Valuation
The common language and understanding of ratios helps investors and analysts to
evaluate and communicate the strengths and weaknesses of individual companies
or industries. Fundamental analysis is the term given to the use of financial ratios

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in determining the relative strength of companies for investing purposes. A
careful analysis of a company’s ratios can reveal which companies have the
fundamental strength to increase their stock value over time ;a potentially
profitable opportunity while pointing out the weaker players in the market as well.
Planning and Performance
Ratios can provide guidance to entrepreneurs when creating business plans or
preparing presentations for lenders and investors. Using industry trends as a
baseline, small-business owners can set time-bound performance goals in terms of
specific ratios to give investors a glimpse into the potential of the new company.
Ratios can also serve as an impetus for strategic change within an organization,
providing management with relevant guidance and feedback as ratio valuations
shift in response to organizational changes. Ratios keep managers on their toes by
revealing financial weaknesses and opportunities.

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Limitations of Ratio Analysis
Since the ratios are derived from the financial statements, any weakness in the
original financial statements will also creep in the derived analysis in the form of
Accounting Ratios 205 ratio analysis. Thus, the limitations of financial statements
also form the limitations of the ratio analysis. Hence, to interpret the ratios, the
user should be aware of the rules followed in the preparation of financial
statements and also their nature and limitations. The limitations of ratio analysis
which arise primarily from the nature of financial statements are as under:
1. Limitations of Accounting Data: Accounting data give an unwarranted
impression of precision and finality. In fact, accounting data “reflect a
combination of recorded facts, accounting conventions and personal judgments
which affect them materially. For example, profit of the business is not a precise
and final figure. It is merely an opinion of the accountant based on application of
accounting policies. The soundness of the judgment necessarily depends on the
competence and integrity of those who make them and on their adherence to
Generally Accepted Accounting Principles and Conventions”. Thus, the financial
statements may not reveal the true state of affairs of the enterprises and so the
ratios will also not give the true picture.
2. Ignores Price-level Changes: The financial accounting is based on stable money
measurement principle. It implicitly assumes that price level changes are either
non-existent or minimal. But the truth is otherwise. We are normally living in
inflationary economies where the power of money declines constantly. A change
in the price-level makes analysis of financial statement of different accounting
years meaningless because accounting records ignore changes in value of money.
3. Ignore Qualitative or Non-monetary Aspects: Accounting provides information
about quantitative (or monetary) aspects of business. Hence, the ratios also reflect
only the monetary aspects, ignoring completely the non-monetary (qualitative)
factors.
4. Variations in Accounting Practices: There are differing accounting policies for
valuation of inventory, calculation of depreciation, treatment of intangibles Assets
definition of certain financial variables etc. available for various aspects of
business transactions. These variations leave a big question mark on the cross-
sectional analysis. As there are variations in accounting practices followed by
different business enterprises, a valid comparison of their financial statements is
not possible.

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5. Forecasting: Forecasting of future trends based only on historical analysis is not
feasible. Proper forecasting requires consideration of non-financial factors as
well.
Nature of Ratio Analysis:
Ratios are designed to show how one number is related to another. It is worked
out by dividing one number by another. Ratios are customarily presented either in
the form of a coefficient or a percentage or as a proportion. For example, the
current assets and current liabilities of a business on a particular date are Rs.2
lakhs and Rs.1 lakh respectively. The resulting ratio of Current Assets and
Current Liabilities could be expressed as 2 (i.e., 2, 00,000/1, 00,000) or as 200 per
cent. Alternatively in the form of a proportion the same ratio may be expressed as
2:1, i.e., the current assets are two times the current liabilities. Ratios are
invaluable aids to management and others who are interested in the analysis and
interpretation of financial statements. Absolute figures may be misleading unless
compared, one with another. Ratios provide the means of showing the relationship
that exists between figures. Though there is no special magic in ratio analysis,
many prefer to base conclusions on ratios as they find them highly useful for
making judgments more easily. However, the numerical relationships of the kind
expressed by ratio analysis are not an end in themselves but are a means for
understanding the financial position of a business. Generally, simple ratios or
ratios compiled from a single year’s financial statements of a business concern
may not serve the real purpose. Hence, ratios are to be worked out from the
financial statements of a number of years. Ratios, by themselves, are meaningless.
They derive their status partly from the ingenuity and experience of the analyst
who uses the available data in a systematic manner. Besides, in order to reach
valid conclusions, ratios have to be compared with some standards that are
established with a view to represent the financial position of the business under
review. However, it should be borne in mind that after computing the ratios one
cannot categorically say whether a particular ratio is good or bad as the
conclusions may vary from business to business. A single ideal ratio cannot be
applied for all types of business. Speedy compiling of ratios and their presentation
in the appropriate manner is essential. A complete record of ratios employed is
advisable; and explanation of each and actual ratios year by year should be
included. This record may be treated as a part of an Account Manual or a special
Ratio Register may be maintained.

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Classification of Ratios
Traditional Classification of Ratios
Balance Sheet Ratios or Financial Ratios: Balance Sheet Ratios are those ratios
the components of which are taken from Balance Sheet values/figures as appeared
in a published annual statement of a firm, i.e. assets and liabilities. Practically,
these ratios measure the relationship between various assets and liabilities and
present very useful information to the users of financial statement.
Some of the important Balance Sheet ratios are:
 Current Ratio;
 Liquid Ratio;
 Proprietary Ratio;
 Debt-Equity Ratio;
 Capital Gearing Ratio, etc.
Revenue Statement Ratios or Operational Ratios:
Revenue Statement Ratios are those the components of which are taken from
Profit and Loss Account/Revenue Statement which appeared in a published
annual statement. These ratios measure the relationship between the operating
expenses and operating incomes. That is why they are also called Operational
Ratios. These ratios also present very useful information about the profit abilities
and otherwise of the enterprise.
Some of the important ratios are:
 Operating Ratio;
 Gross Profit Ratio;
 Net Profit Ratio;

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 Operating Net Profit Ratio, etc.
Composite Ratios:
Composite ratios are those the components of which are taken from Revenue
Statement and Balance Sheet. In other words, one variable is taken from values of
Revenue Statement and the other from the Balance Sheet. They also supply
significant information to the users of financial statements. These ratios measure
the relationship between the operating expenses and the assets/liabilities of a firm.
Some of the important ratios are:
 Stock-Turnover Ratio;
 Debtors’ Turnover Ratio;
 Creditors’ Turnover Ratio;
 Return on Capital Employed, etc.
Functional Classification of Ratios:
According to the needs of the users of Financial Statements, the ratios are
also classified as:
(a) Liquidity Ratios/Short-term Liquidity Ratios:
Liquidity ratios are those which measure the short-term liquidity position of a
firm. In short, it measures the relationship between short-term or current liabilities
and current assets, i.e., short-term paying capacity of the firm, or to meet current
obligation or to meet current liabilities as soon as they mature for payment. Some
of the important liquidity ratios are: Current Ratio, Liquid Ratio, Absolute Liquid
Ratio, etc. In addition to the above, Debtors’ Turnover Ratio and Creditors’
Turnover Ratio should also be given due importance. They are also very
important for measuring the liquidity position.

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(b) Profitability Ratios:
These ratios measure the relationship between operating profit to sales and
operating profit to investments. They measure also the rate of earning or rate of
return on Capital Employed for the various users of Financial Statement. These
ratios help the users or the financial analyst to know the rate of return and reasons
of such occurrences. Some of the important profitability ratios in relation to sales
are: Gross Profit Ratio, Net Profit Ratio, Operating Ratio, Operating Profit Ratio,
Expenses Ratio, etc. Whereas, in relation to investment: Rate of Return on Capital
Employed, Return on Shareholders’ Equity, Price Earnings Ratio, Earning Per
Share (EPS), etc.
(c) Activity Ratios/Turnover Ratios:
These ratios are also known as Turnover Ratios as they measure the efficiency by
which the resources of the firm are being utilized, i.e. whether the assets have
been properly used or not. They inform us the speed at which assets have been
turned over into sales. Some of the important activity ratios are Debtors’ Turnover
Ratio; Creditors’ Turnover Ratio, Stock-Turnover Ratio, Capital Turnover Ratio,
Total Assets Turnover Ratio, Fixed Assets Turnover Ratio, etc.
(d) Leverage Ratios/Long-Term Solvency Ratios:
Leverage Ratios or Long-term Solvency Ratios measure the ability of the firm to
meet the cost of interest and repayment capacity of its long-term loans, e.g. Debt-
Equity Ratios, Interest Coverage Ratios, Proprietary Ratio, Debt Service Ratio,
etc. In short, these ratios measure the relationship between debt financing and
equity financing or contributions made by outsiders and equity shareholders.

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Leverage ratios are further classified as:
 Financial Leverage,
 Operating Leverage,
 Composite Leverage.
These leverage ratios help the financial analyst to obtain some important
information about the financial health of an enterprise.
(e) Market Evaluation Basis:
For understanding the market conditions, ratio analysis helps a lot to the analyst
for assessing market condition, e.g., EPS, Market Price per share, PIE Ratio,
Dividend Yield, etc.
Balance sheetRatios:
Current Ratios. The Current Ratio is one of the best known measures of
financial strength. It is figured as shown below:
Current Ratio = Total Current Assets
____________________
Total Current Liabilities
Quick Ratios. The Quick Ratio is sometimes called the "acid-test" ratio and is
one of the best measures of liquidity. It is figured as shown below:
Quick Ratio = Cash + Government Securities + Receivables
______________________________________
Total Current Liabilities
Working Capital: Working Capital is more a measure of cash flow than a ratio.
The result of this calculation must be a positive number. It is calculated as shown
below:

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Working Capital = Total Current Assets - Total Current Liabilities
Leverage Ratio: This Debt/Worth or Leverage Ratio indicates the extent to which
the business is reliant on debt financing (creditor money versus owner's equity):
Debt/Worth Ratio = Total Liabilities
_______________
Net Worth
Income StatementRatio Analysis
Gross Margin Ratio: Comparison of your business ratios to those of similar
businesses will reveal the relative strengths or weaknesses in your business. The
Gross Margin Ratio is calculated as follows:
Gross Margin Ratio = Gross Profit
_______________
Net Sales
(Gross Profit = Net Sales - Cost of Goods Sold)
Net Profit Margin Ratio This ratio is the percentage of sales dollars left after
subtracting the Cost of Goods sold and all expenses, except income taxes. It
provides a good opportunity to compare your company's "return on sales" with the
performance of other companies in your industry. It is calculated before income
tax because tax rates and tax liabilities vary from company to company for a wide
variety of reasons, making comparisons after taxes much more difficult. The Net
Profit Margin Ratio is calculated as follows:
Net Profit Margin Ratio = Net Profit Before Tax
_____________________
Net Sales
Management Ratios
Other important ratios, often referred to as Management Ratios, are also derived
from Balance Sheet and Statement of Income information.
Inventory Turnover Ratio: This ratio reveals how well inventory is being
managed. It is important because the more times inventory can be turned in a
given operating cycle, the greater the profit. The Inventory Turnover Ratio is
calculated as follows:

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Inventory Turnover Ratio = Net Sales
___________________________
Average Inventory at Cost
Accounts Receivable Turnover Ratio: This ratio indicates how well accounts
receivable are being collected. If receivables are not collected reasonably in
accordance with their terms, management should rethink its collection policy. If
receivables are excessively slow in being converted to cash, liquidity could be
severely impaired. The Accounts Receivable Turnover Ratio is calculated as
follows:
Net Credit Sales/Year
__________________ = Daily Credit Sales
365 Days/Year
Accounts Receivable Turnover (in days) = Accounts Receivable
_________________________
Daily Credit Sales
Return on Assets Ratio This measures how efficiently profits are being
generated from the assets employed in the business when compared with the
ratios of firms in a similar business. A low ratio in comparison with industry
averages indicates an inefficient use of business assets. The Return on Assets
Ratio is calculated as follows:
Return on Assets = Net Profit Before Tax
________________________
Total Assets
Return on Investment (ROI) Ratio. The ROI is perhaps the most important ratio
of all. It is the percentage of return on funds invested in the business by its
owners. In short, this ratio tells the owner whether or not all the effort put into the
business has been worthwhile. If the ROI is less than the rate of return on an
alternative, risk-free investment such as a bank savings account, the owner may
be wiser to sell the company, put the money in such a savings instrument, and
avoid the daily struggles of small business management. The ROI is calculated as
follows:
Return on Investment = Net Profit before Tax
____________________
Net Worth

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Company’s Profile
APPLE INC.
Apple Inc. (commonly known as Apple) is an American multinational technology
company headquartered in Cupertino, California, that designs, develops, and sells
consumer electronics, computer software, and online services. Its best-known
hardware products are the Mac personal computers, the iPod portable media
player, the iPhone Smartphone, the iPad tablet computer, and the Apple Watch
smartwatch. Apple's consumer software includes the OS X and iOS operating
systems, the iTunes media player, the Safari web browser, and the iLife and
iWork creativity and productivity suites. Its online services include the iTunes
Store, the iOS App Store and Mac App Store, and iCloud.
Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne on April 1,
1976, to develop and sell personal computers. It was incorporated as Apple
Computer, Inc. on January 3, 1977, and was renamed as Apple Inc. on January 9,
2007, to reflect its shifted focus towards consumer electronics. Apple (NASDAQ:
AAPL) joined the Dow Jones Industrial Average on March 19, 2015. Apple is the
world's second-largest information technology company by revenue after
Samsung Electronics, the world's largest technology company by total assets, and
the world's third-largest mobile phone manufacturer. On November 25, 2014, in
addition to being the largest publicly traded corporation in the world by market
capitalization, Apple became the first U.S. company to be valued at over US$700
billion. As of March 2015, Apple employs 98,000 permanent full-time
employees; maintains 453 retail stores in sixteen countries and operates the online
Apple Store and iTunes Store, the latter of which is the world's largest music
retailer. Apple's worldwide annual revenue in 2014 totaled $182 billion for the
fiscal year ending in October 2014. The company enjoys a high level of brand
loyalty and, according to the 2014 edition of the Interbrand Best Global Brands
report, is the world's most valuable brand with a valuation of $118.9 billion.[9]
By the end of 2014, the corporation continued to receive significant criticism
regarding the labor practices of its contractors and its environmental and business
practices, including the origins of source materials.
Steve Jobs' inventions and innovations of the computer technology industry have
changed it forever. Steve changed the computer industry by making personal
computers that are sleek and easy to use. He developed breakthrough technology
that is user friendly and high quality like the iPhone, iPod, iPad, and operating

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systems like Mac OS and Mac OS X. Steve supervised the production of "Toy
Story" which was the first completely animated movie. Animated movies are
now a huge market in the movie industry.
Customer loyalty combined with expanding closed ecosystem. While at first
Apple’s closed ecosystem was a weakness for the business, this has now changed.
First, Apple now has a full range of apps, software and products that are
interlinked and support each other. Second, new products and supplements will be
released soon (iTV), hence expanding the ecosystem. Third, Apple has a strong
customer loyalty, which increases due to Apple’s closed ecosystem, which, in
turn, is supported by customer loyalty. So the combination of Apple’s expanding
closed ecosystem and customers’ loyalty increases firm’s competitive advantage.
Apple is a leading innovator in mobile device technology. Apple has been chosen
as the most innovative business in the world for the 3rd time in 2012. Company’s
core competency of producing innovative products is the strength the company
builds upon and is able to bring the most innovative products to the market. (The
gross profit margin 43.9% and no debt). Apple’s financial performance is one of
the best among many companies. Company currently (end of 2012) holds about
$10,000,000,000 in cash, which can be used for acquisitions, buying back
company shares and other matters. It also has higher gross profit margin than its
main competitors, which is equal to 43.9%. Company has no debt and is not
a reputation of highly innovative, well designed, and well-functioning products
and sound business performance. Apple brand is valued at $76.5 billion and was
the second most valuable brand in the world.
High price. Apple’s products cost much more than its competitors devices. Some
critics argue that the price is not justified. When there’s such a fierce competition,
Apple products price becomes a weakness because consumers can easily opt for
iOS and OS X are quite different from other OS and uses software that is unlike
the software used in Microsoft OS. Due to such differences, both in software and
hardware, users often choose to stay with their accustomed software and hardware
(Microsoft OS and Intel hardware). Decreasing market share. The less market
share Apple has, the less it can influence its potential customers and persuade
them to jump into using Apple’s closed ecosystem products. (CNN Money , 2012)
companies’

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patents and has even lost some trials. This damages Apple brand and its financial
mini sales will increase Apple’s market share in the tablet market and, will
strengthen firm
of application processors. Samsung, the main Apple’s competitor, is also the only
provider of application processors for Apple’s products. Apple has to find a new
source for the component but could not find a suitable one yet. Nonetheless, new
manufacturers with superior engineering capabilities are arising and it’s just a
matter of time, when Apple will seize upon the opportunity of being less
Growth of tablet and smartphone markets is a good opportunity to expand firm’s
share in these markets.
Rapid technological change. One of the most severe threats Apple and the other
tech companies are facing is rapid technological change. Companies are under the
pressure to release new products faster and faster. The one that cannot keep up
with the competition soon fails. This is especially hard when a business wants to
introduce something new, innovative and successful. Apple was able to bring very
innovative products to the market so far but for the moment, even Apple hasn’t
unveiled any plans for the new products (except iTV) and may lack new
introdu
workers. Pay levels for Foxconn’s workers already rose 3 times from 2010 to
2012. Foxconn is the main manufacturer of Apple products and the rising pay
level for Foxconn’s workers will likely raise the prices for Apple products. (The
has already asked Apple to pay higher price for its application processors. Due to
intense competition and no viable substitutes, Apple may be asked to pay even
more.
History of Apple Inc.
Apple Inc. formerly Apple Computer, Inc. is a multinational corporation that
creates consumer electronics, personal computers, computer software,
and commercial servers, and is a digital distributor of media content. The
company also has a chain of retail stores known as Apple Stores. Apple's core
product lines are the iPhone smart phone, iPad tablet computer, iPod portable
media players, and Macintosh computer line. Founders Steve Jobs and Steve
Wozniak created Apple Computer on April 1,1976, and incorporated the
company on January 3, 1977, in Cupertino, California. For more than three

21. 21
decades, Apple Computer was predominantly a manufacturer of personal
computers, including the Apple II, Macintosh, and Power Mac lines, but it faced
rocky sales and low market share during the 1990s. Jobs, who had been ousted
from the company in 1985, returned to Apple in 1996 after his
company NeXT was bought by Apple. The following year he became the
company's interim CEO, which later became permanent. Jobs subsequently
instilled a new corporate philosophy of recognizable products and simple design,
starting with the original iMac in 1998.
With the introduction of the successful iPod music player in 2001 and iTunes
Music Store in 2003, Apple established itself as a leader in the consumer
electronics and media sales industries, leading it to drop "Computer" from the
company's name in 2007. The company is now also known for its iOS range of
smart phone, media player, and tablet computer products that began with
the iPhone, followed by the iPod Touch and then iPad. As of 2012, Apple is
the largest publicly traded corporation in the world by market capitalization, with
an estimated value of US$626 billion as of September 2012. Apple Inc's market
cap is larger than that of Google and Microsoft combined. Apple's worldwide
annual revenue in 2010 totaled US$65 billion, growing to US$127.8 billion in
2011 and $156 billion in 2012.

22. 22
Balance sheet of asset:

23. 23
Balance sheet of Liabilities:

24. 24
Income statement:

25. 25
1. Liquidity Ratios:
Current Ration
In 2013
Current assets
−−−−−−−−−−− = 73,286 / 43,658= 1.67
Current liabilities
In 2012 = 1.49611
Interpretation: Measures ability to meet current debts with it current
assets.
2. Acid-Test (Quick)
In 2013
Current Assets - Inv = 73,286- (1,764)
43,658
Current Liabilities
= 1.63
In 2012 = 1.24825
Interpretation: Measures ability to meet current liabilities with most liquid
current asset.
3. Financial Leverage Ratios
Debt-to-Equity In 2013
Total debt = $16,960
Share holder’s Equity $123,549
= 0.13

26. 26
In 2012
Total debt = 0.00
Shareholder’s fund
Interpretation: Indicates the extent to which debt financing is used relative to
equity financing.
4. Debt-to-Total-Assets
In 2013
Total debt = $16,960
Total asset $207,000
=0.08
In 2012 = 0.00
Interpretation: Shows the relative extent to which the firm is using borrowing
money
5. Total Capitalization
In 2003
Total debt = $16,960,000
Total Capitalization $140509000
= 0.12
In 2012 = 0.00
Interpretation: Shows the relative importance of long-term debt to the long-term
financing of the firm.

27. 27
6. Coverage Ratio
In 2013
EBIT = $50,155 = 368.7 time
Interest Charge $136
In 2012 $55,763
7. Activity Ratios
Receivable Turnover In 2013
Annual Net Credit Sales = $10,830,000
Receivables $1,949,000 = 5.5 times
In 2012= 2.1 time
Interpretation: Measures how many times a receivable have been turnover into
cash during the year provide insight into quality of the receivable.
8. Average Collection Period
In 2013
Days in the year = 365 = 66days
Receivable Turnover 5.5
In 2012= 173 days
Interpretation: Measures how many times the receivable have been turnover into
cash during the year provide insight into quality of the receivable.
9. Inventory Turnover
In 2013
Cost of goods sold = 106,606000 = 60
Inventory 1,764000

28. 28
In 2012 = 50
Interpretation: measures how many times the inventory has been turned over
(sold) during the year; provides insight into liquidity of inventory and tendency to
overstock .
10. Average collection
 Collection average for 2012=7.3
 Collection average for 2013= days
Inventory turnover Ratio= 365 = 6
60
Interpretation: measures relative efficiency of total assets to generate sale
11. Total Assets Turnover Ratio
• Total assets turnover ratio for 2012 = 26.67
• Total assets turnover ratio for 2013 = net sales
Total assets
= $170,910,00
20,7000
= 52.3
Interpretation: measures relative efficiency of total assets to generate sale.
12. Average collection
Average collection for 2012 = 13.6
Average collection for 2013 = Days / total asset turnover ratio = 365 /52.3 = 6.97
Interpretation: measure profitability with respect to sales generated net income
per dollar of sales

29. 29
13. Return on investment
Return on investment in 2012= 0.2
Return on investment in 2013= Net profit after taxes
Total assets
= $37,037,000
$207,000,000
= 0.1
$207,000,000
Interpretation: : measure profitability with respect to sales generated net income
per dollar of sales.
14. Return on Equity
Return on equity in 2012=0.35
Return on equity in 2013= Net profit after taxes
share holder’s equity
= $37,037,000
$19,764,000
= 1.8
15. Du Pont approach
• Du Pont approach for 2012 = 1o9.3
• Du Pont approach for 2013 = net profit margin*total asset turnover ratio
3.4*52.3 = 177.82

30. 30
16.
Index analysis
particulars Current year of
2013/base year of
2011*100
Amount Current year of 2012/
base year of 2011*100
Amount
Property, plant and
equipment of 2013, 21012/
property, plant and
equipment of 2011 *100
16,597
7,777*100
=213.41 15,452 *100
7777
=198.68
Current assets of
2013,2012/ current assets
of 2011*100
73,286
57,653*100
=127.11 44,9881,
57,653*100
=780
Total assets of 2013, 2012/
total assets of 2011*100 $207,000
116,371 *100
=177.87 1,767,168
116,371 *100
=1.518
Share capital-ordinary of
2013,2012/ share capital-
ordinary of 2011*100
61,576
61,576*100
=100 61,576
61,576*100
=100
Reserves of 2013,2012/
reserves of 2011*100
388,153
420,085*100 =92.39
534,202
420,085*100 =127.16
Non-current liabilities of
2013,2012/ non-current
liabilities of 2011*100
43,658
10,100*100
=432.25 16,664
10,100*100
=16.47
Current liabilities of
2013,2012/ current
liabilities of 2011*100
43,658
27,970*100
=156.08 38,542
27,970*100
=381.60
Total liabilities of
2013,2012/ total liabilities
of 2011*100
83,451
39,756*100
=209.90 57,854
39,756*100
=145.52
Total shareholders’
equity2013,2012/ Total
shareholders’
equity2011*100
123,549
76,615*100
=161.25 118,210
76,615*100
=154.29

31. 31
Conclusion
Apple must focus on several key aspects to continue to grow and succeed. They
must continue a stable commitment to licensing, push for economies of scope
between media and computers, and become a learning organization. Although it
should continue, Apple may want to consider other forms of strategic alliances.
An equity strategic alliance may offer Apple the opportunity to obtain additional
competencies. An effective way for a company like Apple to accomplish this
would be in the form of a joint venture. Apple should continue pushing the new
line of media-centric products. Meanwhile, Apple should not lose focus on its
computers. Macintosh computers were 59% of Apple’s sales in 2012.
(Burrows)This very innovative company exploits its second-mover position. In
the future, they will need to continue innovating to expand the boundaries of both
media and computers. Apple apparently made a commitment to licensing.
Although it should continue, Apple may want to consider other forms of strategic
alliances. An equity strategic alliance may offer Apple the opportunity to obtain
additional competencies. An effective way for a company like Apple to
accomplish this would be in the form of a joint venture. Apple should continue
push for economies of scope between media and computers, and become a
learning organization, pushing the new line of media-centric products. This very
innovative company exploits its second-mover position. In the future, they will
need to continue innovating to expand the boundaries of both media and
computers. This will allow the company to withstand a departure by Jobs.

32. 32
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