Introduction
Apple (AAPL) is under review in the current report, and the information below will present the financial analysis of this organization. Since the business is notable, Ernst & Young, one of the most famous accounting firms worldwide, audits Apple. The organization represents a broad consumer electronics industry, and the term covers many products and services. For example, Apple manufactures smartphones, tablets, personal computers, smartwatches, and accessories, as well as offers cloud services, a music subscription platform, and a specific payment service. The business is successful, and its market capitalization of $2.53 trillion proves this statement (Finance. Yahoo, n.d.). The company is listed on the NASDAQ Global Select Market.
Company’s Activities & Competition
Apple began as a garage start-up when Steve Wozniak and Steve Jobs decided to build their own computer in 1976. It is impossible to mention that the entrepreneurs easily achieved success, but no one can deny that Apple’s growth was exponential. The most significant change occurred in 1997 when Steve Jobs implemented innovation in hardware, software, and services, which allowed the company to increase its revenue from $7 billion in 1997 to $260 billion in 2019 (Podolny & Morten, 2020). In recent history, the major event is that in 2018, Apple became the first business to reach a capitalization of $1 trillion. These figures are even more notable when one understands that Apple’s competitors are such international corporations as Google, Microsoft, and IBM.
Industry Trends
Consumer electronics is a trillion-dollar industry that receives much investment and attention today. It is estimated that worldwide customers are going to spend more than $500 billion on such products (Statista, n.d.). One of the industry’s characteristic features is that every time when it seems that saturation levels are reached, an innovative product or service emerges and drives further growth (Statista, n.d.). That is why one can state that organizations always have some possibilities for improvement and success. Finally, it is worth admitting that smartphones are the most notable category in retail sales (Statista, n.d.). Thus, the desire to meet the market opportunities and satisfy a growing demand explains why Apple makes much effort to manufacture and advertise its iPhone series.
Ratio Analysis
A current ratio is a suitable metric to analyze the company’s liquidity. According to PitchBook (2022), this ratio reached its peak (1.54) in 2019 and has kept declining since then to 0.86 in 2022. The industry’s average value shows a similar trend, but the value was the highest (2.59) in 2020 (ReadyRatios, n.d.). It is reasonable to analyze a total asset turnover ratio to determine how Apple manages its assets. This indicator is good for the organization because it keeps rising from 0.67 in 2017 to 1.11 in 2022 (PitchBook, 2022). This value denotes that Apple can generate enough revenue for itself, and this figure is higher than the industry’s average of 0.66 in 2022 (CSI Market, n.d.).
Return on Assets is appropriate for analyzing profitability, and this figure has doubled from 14.16% in 2017 to 28.48% in 2022 (PitchBook, 2022). This ratio is significantly higher than the industry’s average of 9.8% in 2021 (ReadyRatios, n.d.). Even though Apple does not have a high debt-to-equity ratio (1.63 in 2022), a negative trend is that the ratio was rising from 2017 to 2021 (PitchBook, 2022). However, a positive feature is that the industry’s average value is 3.32 in 2022 (ReadyRatios, n.d.). Finally, it is rational to look at the price-to-earnings ratio to analyze the performance of the stock. This metric is 23.51 for Apple and 18.91 for Google (Macrotrends, 2022). This analysis reveals that Apple generally shows good financial ratios.
Performance & Financing
Apple’s Return on Equity (ROE) and Return on Invested Capital (ROIC) have significantly grown over the past 5 years. While the ROIC was steadily increasing from 19.93% in 2017 to 29.91% in 2020, significant growth occurred in 2021 (51.32%), reaching 53.37% in 2022 (PitchBook, 2022). A similar trend occurred with the ROE that doubled in 2021 (154.73%) from 79.86% in 2020 and reached its maximum of 164.72% in 2022 (PitchBook, 2022). One can conclude that improved operational and financial activities have significantly contributed to this profitable state of affairs.
Growth Analysis
Over the last 5 years, Apple has experienced significant growth. The ROIC and ROE presented above effectively support this statement. It is challenging to state that the company made any unprecedented financing decisions that promoted the exponential growth that occurred in 2021. One can suggest that the presented increase was driven by rising sales and, as a result of it, higher revenues and net income. The focus on innovations and perfect brand image helped Apple meet rising demand and receive a larger market share.
Conclusion and Recommendation
The analysis has demonstrated that Apple has many strengths regarding its financial performance. In fact, 2021 saw a significant increase in the Return on Equity and Return on Invested Capital ratios, and it seems that increasing demand was a leading driver of this process. However, a significant weakness refers to a low current ratio that keeps declining for a few years and is below the industry’s average. That is why a suitable recommendation for Apple is to invest more funds to increase its liquidity to improve its ability to cover short-term obligations.
References
CSI Market. (n.d.). Consumer electronics industry: Efficiency information & trends. Web.
Finance.Yahoo. (n.d.). Apple Inc. (AAPL). Web.
Macrotrends. (2022). Alphabet PE ratio 2010-2022 / GOOGL. Web.
PitchBook. (2022). Public Company Financials 2022 [Excel file].
Podolny, J. M., & Morten, T. H. (2020). How Apple is organized for innovation. Harvard Business Review. Web.
ReadyRatios. (n.d.). Radio, television, and consumer electronics stores: Average industry financial ratios for US listed companies. Web.
Statista. (n.d.). Consumer electronics. Web.
