Financial Analysis Of Apple Inc Research Paper

Background and Industry

Apple is one of the most successful multinational corporations headquartered in the United States in the State of California. Steve Jobs, Steve Wozniak and Ronald Wayne founded the company back in 1977 as the Apple Computer Company. It served to sell and develop personal computers. The company operates in an industry that defines its operations into the world of technology. Having being renamed to Apple Inc. in January 2007, this name change predominantly defined the change the company had taken to include consumer electronics in their line of manufacture. In description of the company’s operations, they design, develop and sell personal computers and software. The history for the apple brand goes deep into the brand products selling on the Mac line of computers. Some of the most reputable brands for the company are iPod, the iPhone, and the iTunes and iOS operating system that runs on their computer products.

Financial Performance

One of the most dominant competitors in the industry for technology in which Apple operates is Google. The rivalry between these two companies goes deep into the similarity of product that the brands sell.
Looking at the table above, the two companies are virtually competing in the market with similar products for the same clientele. This creates a description of very stiff and high competition. A look at their 10k reports and the following evidence on the company’s financial performance is revealed on their revenues, income, working capital and their total assets.
Looking at the revenues and the other items presentation in the table above, the market dominance of Apple is noted over the Google Company. The working capital is normally a presentation of the company’s liquidity levels. Here, Google scores very low to the industry average that can be seen from Yahoo Finance. Equally, looking at the other market players like Microsoft, the scene is still dominated by Apple. As Nazarpour, Fischl, Sohrabpour, and Fynes (2014) argue, this dominance is owned to specialization. The diction by economics also advocates for specialization in an industry for competitive advantages. Looking at the incomes and the revenues for the two companies, one will note that the incomes for Apple are steadily dropping. In sharp contrast, those for Google are on the rise with an almost similar margin. With all facts to rationality, one can very easily predict a trade of in sales income revenues all fronted from competition.

Financial Ratios Analysis for Apple and Google

The concept of ratios develops to identify the profitability of a company with reference to the sectored performance in the industry. In comparison, this is what presents for the two companies.
Comparing these two companies is very evident of the technology market. The profitability of investment is evenly spread. As Morningstar (2015) defines the reality behind the beta, it is considered the propensity of return in the investment of a company’s stock. Looking at the table, the figure for Apple stands at 1.06 and that of Google stands at 1.07, which settles the industry’s average at the same figures. Therefore, the beta will not be very influential in settling on the best performing company.
The dividends’ yields are also inconclusive, but looking at the profitability the same industrial analogy is depicted. Nevertheless, Apple comes out with an upper hand on a number of issues. First is the total volume of shareholder that the company has. In the attempts to compute the shareholders profitability, the shares of Google will be at more risks of imperative losses compared to those of apple.
Equally, the earning per share ratios for the two companies reveal a similar bias of good performance for the apple brand. The brand record a 7.39 verses that of Google at 0.74. This primarily present apple as one of the most profitable brands in the industry. Equally, looking at the price to earnings ratio the same is also evident with Google giving in a 4.18% compared to apples 17.90% record.

Dupont Analysis

The DuPont analysis breaks down the return on equity into three constituent stages. These elements are the returns that the investors receive from the company. In simple terms, the most important elements of the DuPont analysis are the net income after taxes, the shareholders equity and the earnings before taxes. Conventionally, the calculations for the return on equity are normally based on the calculations of
R.O.E = net income/ share holder equity

With this traditional approach the valuation for the return on equity for Google and Apple will be tabled as;

The rational and conventional analysis of the return on equity presents the ratio of Google as stabilizing, which will be implicit that the company’s growth prospects are almost stagnating. Equally, looking at the presentation for apple the figure fluctuates with a high of 39% in 2012. Nevertheless, the table also reveals that the figure one rethinks are almost going back to the 39% figure with the year 2014 recording a R.O.E 33%, which is 6% lower than that of 2012. Nevertheless, comparing the volume of turnover for these two years, one will be very assertive of the 33% being overly better than the 39% for 2102 owing to the DuPont consideration of the volume of income considered.
Putting emphasis on the incomes, it will be important to note that the incomes are incomes before tax. Factoring the tax liability that the companies are subjected to one will be affirmative of the figure dropping to a realistic figure and equally settling down to the industries average.
If the management of the Apple Company wishes to present a better performance in reality to their return on equity, the considerations of the DuPont Analysis will have to be considered. In true reflection, this will be to implore that the company will have to watch on the income tax liability before declaring the company’s profitability. They will also have to watch on their operating activities, which take most of their incomes related expenses therefore deepening the effects of the computations of their true R.O.E ratios.

Strengths and Weakness of the Company

Apple maintains a good direction of the market dominance in the technology field. A Look at their records, especially for the 2012 to 2013 period’s revenues, reveals some improvement. One notes that the company at this stage is about five years old after getting rebranded and commencing operations into the larger household technology market. With this reality, their performance is most definitely a very good show of perfect and effective management compared to the other competitors. This valuation comes from the revelation that the market a level playing field with the overall beta values for investment standing at about 1.07. This out rightly cuts competition to the proprieties of the company, Apple is deemed better owing to its market capitalization, which according to (Yahoo Finance, 2015) records have been raising.
Equally considering what this text had reported earlier on the comparative advantages of specialization, Apple seems to ride on the success of specialization into personal computer manufactures. In essence, this made them make more solid rooting into the consumer confidence. Equally, this is revealing in their yearly revenues for the year 2012 (156,506 billion), 2013 (170,910 billion) and 2014 (182,795 billion). In essence, the comparison roots out competition from Google. The company records revenues for the three years at 2012 (44,039 billion), 2013 (55,519 billion) and 2014 (66,001 billion). These revenues are simply half the revenues record for apple. Any attempts to edge them out will be very hard. Seemingly, Apple products are more expensive in the market. Nevertheless, they sell better that the conventionally fairly priced product. In this affinity, the brand appeals to either quality or lifestyle.

Stock Data Performance

The stock performance for Apple and its close competitor Google reflects two very contrasting information. The value of these two stocks do not have an equal measure. Google’s stock averagely rates above the $ 500 mark. Nevertheless, the performance of the stock in the last financial year reflects very insignificant valuation for their stock value. Starting at $ 556 high that stock closes the year at a lower mark of $ 526. In the rational evaluation of the stocks performance, one will be very valid in arguing that the company fails to have a good return on its stocks as was revealed by the price to earnings ratio of only 4.18% compared to that of apple at 17.9%.
On the other hand, the share value the apple stocks cannot be directly compared to that of Google. Apple closes the year on a high of $ 118.46, which is also one of the highest stock performance for the year. Nevertheless, with this low figure comparatively, the stock item seems to be the most profitable. This is with the ratios recording thus at a 17.9% the reflection form this trend is equally true. The price to earnings ratio also shows very good performance, which is evident from the trend in the stock ratios.

Investing in Apple

Looking at the text by Nazarpour et al., (2014), any detailed financial investment will implore on the recommendation of the company’s profitability and the return that the company gives to its shareholder. Looking at the shares of the two companies, one will also rationally note that it is easier to buy this Apple than Google. The same ideology generates with the reality that a lower priced stock is more likely to grow in value that the high valued one even as the trends of these two stocks reveal. Looking at the probability of returns that the Google stocks investment posts appears as one of those stocks that a person will hold for security of liquidity. The stock price is relatively stable and does not seem to be easily shifted. If one is therefore, interested with long time security then Google is the way to go.
On the other hand, if the investor is risk averse, the difference will be presented that the investment in the Apple stock will be worth will. Apple is paying good dividends; the company’s expansion programs are profitable too. Looking at the growth in stock value in the year 2014. The stock appreciates by almost 40%. This is the only rationale for investing in the Apple. Therefore, this text holds that the position of an investor into apple is highly advised based on the management and the profitability rations shown.
 

References

Apple. (2014). 10 K Report. Washington: United States Securities and Exchange Commission.
Google. (2014). 10 K 2014:Annual Report. Washington : United States Securtites and Exchange Commision.
Morningstar. (2015). Morningstar Investment Glosarry: Beta. Retrieved from Morningstar: http://www.morningstar.com/InvGlossary/beta.aspx
Nazarpour, A., Fischl, M., Sohrabpour, V., & Fynes, B. (2014). The impact of investments in innovation practices on competitive advantage. In 21st EurOMA Conference.
Weerawardena, J., & Mavondo, F. T. (2011). Capabilities, innovation and competitive advantage. Industrial Marketing Management, 40(8), 1220-1223.
Yahoo Finance. (2015). Yahoo Finance. Retrieved from finance.yahoo.com/q/hp?a=00&b=1&c=2014&d=11&e=31&f=2014&g=m&s=AAPL%2C+&ql=1