Apple Incorporation Financial Performance

Introduction

Apple Incorporation is a publicly traded company which operates within the global personal computers industry. The firm was established in 1976 by Steve, Wozniak, Ronald Gerald and Steven Paul Jobs. Its headquarters are located in Cupertino, California. In its operation, the firm deals with designing, manufacturing and marketing diverse media and mobile communication devices such as portable digital music players, personal computers and related software. The firm also offers 3^rd party digital content and networking solutions. Some of its products and services include professional and consumer software applications, iOS operating systems, iPad, iPhone, Apple TV, iCloud, Mac OS X Operating System, storage devices, headphones, printers and iPod (Market Watch, 2011, para.1).

In its operation, the firm has integrated the concept of internationalization which has enabled it to venture in different markets. By September 24, 2011, Apple Incorporation had established 357 retail stores of which 112 of the stores were located in the international market while 245 were in the US. One of the ways through which it has attained this is by establishing value-added resellers, retail and wholesale stores in different markets. Some of the markets which it has ventured include the Americas, Asia-Pacific, Japan and Europe (Yahoo Finance, 2012, para. 1). The firm has managed to develop a relatively large human resource base in an effort to attain efficiency in its operation. Currently, the firm has employed 60,400 full time employees (Yahoo Finance, 2012, para. 1). The company has an effective management team which is composed of a number of executives headed by Timothy Cook as the Chief Executive Officer. The other executives include Eddy, Cue, Scott Forstall, Jonathan, Eve, Bob Mansfield, Peter Oppenheimer, Phillip W. Schiller, Bruce Sewell and Jeff, Williams. The company’s Board of Directors is composed of Arthur, Levinson, Albert Gore, Bill Campbell, Robert A. Iger, Millard Drexler, Timothy Cook, Andrea Jung and Ronald D. Sugar (Apple Incorporation, 2012, p.1).In its operation, Apple Incorporation faces intense competition from three main industry players which include Google Incorporation, Hewlett-Packard Company and Research In Motion Limited. The objective of this paper is to evaluate the performance of Apple Incorporation with regard to its financial performance. This is achieved by comparing the firm’s performance with that of Google Incorporation.

Comparison of Financial statements

Figure 1: Apple Incorporation Income statement For the year ending September 24, 2011

Total revenue	108,249,000
Cost of revenue	64,431,000
Gross Profit	43,818,000
Operating expenses
Research and development	2,429,000
Selling and administrative cost	7,599,000
Total operating expenses	10,028,000
Operating Income or Loss	33,790,000
Income from continuing operations
Total other income /expenses net	415,000
Earnings Before Interest and Tax	34,205,000
Interest expense	0
Income before tax	34,205,000
Income tax expense	8,283,000
Minority interest
Net Income from continuing operations	25,922,000
Non-recurring Events
Discontinued Operations
Extraordinary Items
Effects of Accounting Changes
Other items
Net Income	25,922,000
	Amount in thousand $

Figure 2: Google Incorporation Income Statement for the year ending December 31, 2011

Google Incorporation, Amount in thousand $
Total revenue	37,905,000
Cost of revenue	13,188,000
Gross Profit	24,717,000
Operating expenses
Research and development	5,162,000
Selling and administrative cost	7,813,000
Total operating expenses	0
Operating Income or Loss	11,742,000
Income from continuing operations
Total other income /expenses net	584,000
Earnings Before Interest and Tax	12,326,000
Interest expense	0
Income before tax	12,326,000
Income tax expense	2,589,000
Minority interest	0
Net Income from continuing operations	9,737,000
Non-recurring Events	0
Discontinued Operations
Extraordinary Items	0
Effects of Accounting Changes	0
Other items	0
Net Income	9,737,000

Figure 3: Apple Incorporation Balance Sheet

Period Ending	Sep 24, 2011	Sep 25, 2010	Sep 26, 2009
Assets
Current Assets
Cash And Cash Equivalents	9,815,000	11,261,000	5,263,000
Short Term Investments	16,137,000	14,359,000	18,201,000
Net Receivables	13,731,000	11,560,000	6,192,000
Inventory	776,000	1,051,000	455,000
Other Current Assets	4,529,000	3,447,000	1,444,000
Total Current Assets	44,988,000	41,678,000	31,555,000
Long Term Investments	55,618,000	25,391,000	10,528,000
Property Plant and Equipment	7,777,000	4,768,000	2,954,000
Goodwill	896,000	741,000	206,000
Intangible Assets	3,536,000	342,000	247,000
Accumulated Amortization	–	–	–
Other Assets	3,556,000	2,263,000	2,011,000
Deferred Long Term Asset Charges	–	–	1,727,000
Total Assets	116,371,000	75,183,000	47,501,000
Liabilities
Current Liabilities
Accounts Payable	23,879,000	17,738,000	9,453,000
Short/Current Long Term Debt	–	–	–
Other Current Liabilities	4,091,000	2,984,000	2,053,000
Total Current Liabilities	27,970,000	20,722,000	11,506,000
Long Term Debt	–	–	–
Other Liabilities	10,100,000	5,531,000	3,502,000
Deferred Long Term Liability Charges	1,686,000	1,139,000	853,000
Minority Interest	–	–	–
Negative Goodwill	–	–	–
Total Liabilities	39,756,000	27,392,000	15,861,000
Stockholders’ Equity
Misc. Stocks Options Warrants	–	–	–
Redeemable Preferred Stock	–	–	–
Preferred Stock	–	–	–
Common Stock	13,331,000	10,668,000	8,210,000
Retained Earnings	62,841,000	37,169,000	23,353,000
Treasury Stock	–	–	–
Capital Surplus	–	–	–
Other Stockholder Equity	443,000	-46,000	77,000
Total Stockholder Equity	76,615,000	47,791,000	31,640,000
Net Tangible Assets	72,183,000	46,708,000	31,187,000

Figure 4: Google Incorporation Balance Sheet

Period Ending	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009
Assets
Current Assets
Cash And Cash Equivalents	9,983,000	13,630,000	10,198,000
Short Term Investments	34,643,000	21,345,000	14,287,000
Net Receivables	6,387,000	5,261,000	3,845,000
Inventory	–	–	–
Other Current Assets	1,745,000	1,326,000	837,000
Total Current Assets	52,758,000	41,562,000	29,167,000
Long Term Investments	790,000	523,000	129,000
Property Plant and Equipment	9,603,000	7,759,000	4,845,000
Goodwill	7,346,000	6,256,000	4,903,000
Intangible Assets	1,578,000	1,044,000	775,000
Accumulated Amortization	–	–	–
Other Assets	499,000	442,000	415,000
Deferred Long Term Asset Charges	–	265,000	263,000
Total Assets	72,574,000	57,851,000	40,497,000
Liabilities
Current Liabilities
Accounts Payable	7,148,000	6,137,000	2,462,000
Short/Current Long Term Debt	1,218,000	3,465,000	–
Other Current Liabilities	547,000	394,000	285,000
Total Current Liabilities	8,913,000	9,996,000	2,747,000
Long Term Debt	2,986,000	–	–
Other Liabilities	2,199,000	1,579,000	1,704,000
Deferred Long Term Liability Charges	331,000	35,000	42,000
Minority Interest	–	–	–
Negative Goodwill	–	–	–
Total Liabilities	14,429,000	11,610,000	4,493,000
Stockholders’ Equity
Misc. Stocks Options Warrants	–	–	–
Redeemable Preferred Stock	–	–	–
Preferred Stock	–	–	–
Common Stock	20,264,000	18,235,000	15,817,000
Retained Earnings	37,605,000	27,868,000	20,082,000
Treasury Stock	–	–	–
Capital Surplus	–	–	–
Other Stockholder Equity	276,000	138,000	105,000
Total Stockholder Equity	58,145,000	46,241,000	36,004,000
Net Tangible Assets	49,221,000	38,941,000	30,326,000

Figure 5: Cash flow statement

Apple Incorporation, Amount in thousand $
Period Ending	Sep 24, 2011	Sep 25, 2010	Sep 26, 2009
Net Income	25,922,000	14,013,000	8,235,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation	1,814,000	1,027,000	734,000
Adjustments To Net Income	4,036,000	2,319,000	1,750,000
Changes In Accounts Receivables	-1,791,000	-4,860,000	-353,000
Changes In Liabilities	8,664,000	8,302,000	452,000
Changes In Inventories	275,000	-596,000	54,000
Changes In Other Operating Activities	-1,391,000	-1,610,000	-713,000
Total Cash Flow From Operating Activities	37,529,000	18,595,000	10,159,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures	-4,260,000	-2,005,000	-1,144,000
Investments	-32,464,000	-11,075,000	-16,046,000
Other Cash flows from Investing Activities	-3,695,000	-774,000	-244,000
Total Cash Flows From Investing Activities	-40,419,000	-13,854,000	-17,434,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid	–	–	–
Sale Purchase of Stock	831,000	912,000	475,000
Net Borrowings	–	–	–
Other Cash Flows from Financing Activities	-520,000	-406,000	-82,000
Total Cash Flows From Financing Activities	1,444,000	1,257,000	663,000
Effect Of Exchange Rate Changes	–	–	–
Change In Cash and Cash Equivalents	-1,446,000	5,998,000	-6,612,000
Currency in USD.

Figure 6: Cash flow statement Google Incorporation

	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009
Net Income	9,737,000	8,505,000	6,520,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation	1,851,000	1,396,000	1,524,000
Adjustments To Net Income	2,347,000	1,279,000	786,000
Changes In Accounts Receivables	-1,156,000	-1,129,000	-504,000
Changes In Liabilities	2,048,000	1,444,000	728,000
Changes In Inventories	–	–	–
Changes In Other Operating Activities	-262,000	-414,000	262,000
Total Cash Flow From Operating Activities	14,565,000	11,081,000	9,316,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures	-3,438,000	-4,018,000	-810,000
Investments	-13,349,000	-7,956,000	-7,101,000
Other Cash flows from Investing Activities	-2,254,000	1,294,000	-108,000
Total Cash Flows From Investing Activities	-19,041,000	-10,680,000	-8,019,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid	–	–	–
Sale Purchase of Stock	–	-801,000	–
Net Borrowings	726,000	3,463,000	–
Other Cash Flows from Financing Activities	-5,000	294,000	143,000
Total Cash Flows From Financing Activities	807,000	3,050,000	233,000
Effect Of Exchange Rate Changes	22,000	-19,000	11,000
Change In Cash and Cash Equivalents	-3,647,000	3,432,000	1,541,000
Currency in USD.

From figure 1, Apple Incorporation’s total revenue during its 2011 fiscal year amounted to $108.249 billion while its cost of revenue amounted to $64.431 billion. As a result, the firm earned a gross profit of $ 43.818 billion. The firm’s operating income amounted to $ 33.79 billion which was obtained after subtracting operating expenses which amounted to $10.028 billion. After subtracting the income tax expense, the firm’s net income amounted to $ 25.922 billion.

On the other hand, figure 2 shows that Google’s total revenue amounted to $ 37.905 billion while its cost of revenue amounted to $13.188 billion giving a gross profit of $ 24.717 billion. The gross profit was further reduced to $ 11.742 billion as the operating income after subtracting operating expenses amounting to $12.975 billion. After subtracting interest and taxes from earnings before interest and tax, Google’s net income amounted to $ 9.737 billion.

From figure 3, it is evident that Apple Incorporation experienced an increment in the size of its total assets from $ 75.183 billion in 2010 to $ 116.371 billion in 2011. This represents a growth with a margin of 54.78%. The firm’s total liabilities increased from $ 27.392 billion to $ 39.756 billion during the same period which represents a 31.1% growth. Similarly, total stockholders’ equity increased with a margin of 60.3% from $47.791 billion in 2010 to $ 76.615 billion in 2011. Google’s total assets increased from $57.851 billion in 2010 to $72.574 billion in 2011 as illustrated figure 4. This represents a 25.4% growth. Its total liabilities increased from $ 11.61billion in 2010 to $14.429 billion in 2011 which represents a 24.3% growth. Google’s total stockholders’ equity amounted to $ 58.145 billion in 2011 up from $ 46.241 in 2010 which represents a 25.7% growth.

During their 2011 fiscal year, both Apple and Google experienced negative cash flows as illustrated by the cash flow statements in figure 5 and 6. This is evidenced by the change in their cash and cash equivalent for the year. Apple Incorporation’s change in cash and cash equivalent amounted to $(1.446) billion while that of Google Incorporation amounted to $(3.647). This means that the rate of earning to spending by the two companies was low. However, Apple Incorporations rate of earning to spending was relatively high compared to that of Google.

Financial ratios

Ratio		Company	2009	2010	2011
Liquidity ratio (Dollars are in billions)
Cash ratio	(Cash+ Cash equivalent) ÷ Current Liabilities	Apple	$5.263÷$11.506 =0.46	$11.261/$ 20.722 =0.54	$9.81÷$27.970 =0.35
		Google	$10.198/$2.747 =3.71	$13.63/$9.996 =1.36	$9.983/$8.913 =1.12
Current ratio	Current Asset ÷ (Current Liabilities)	Apple	$31.555/$47.501 = 0.66	$41.678/$20.722 =2.01	$44.988/$27.97 =1.61
		Google	$29.167/$2.747 =10.62	$41.562/$9.996 =4.16	$52.758/$ 8.913= 5.92
Quick ratio	(Cash and equivalents + short term investment + account receivable)/Current Liabilities	Apple	$29.656/$11.506= 2.6	$37.18/$20.722=1.8	$39.683/$27.97=1.4
		Google	$28.33/$2.747=10	$40.236/$9.996=4	$51.013/$8.913= 5.7
Profitability ratio
Return on Asset	(Net income + Interest expense ) ÷ Total assets	Apple	$8.235/$47.501 =0.17	$14.013/$75.183 0.19	$25.922/$116.371 =0.22
		Google	$6.52/$40.4497=0.16	$8.505/$57.851=0.15	$9.737/$72.574=0.13
Return on equity	Net Income /Shareholder’s equity	Apple Inc.	$8.235/$31.64=0.26	$14.013/$47.791=0.29	$25.922/$76.615=0.34
		Google	$6.52/$36.004=0.18	$8.505/$46.241=0.18	$9.737/$58.145=0.17
Profit margin	Net income/Sales	Apple	$8.235/$42.905 =0.19	$14.013/$65.225 =0.21	$25.922/$108.249 =0.24
		Google	$6.52/$23.651=0.28	$8.505/$29.321=0.29	$9.737/$37.905=0.26
Debt Ratio
Debt to equity	Total liabilities/Share-holders’ equity	Apple	$15.861/$31.64= 0.12	$27.392/$47.791=0.57	$37.756/$76.615=0.49
		Google	$4.493/$36.004=0.12	$11.61/$46.241=0.25	$14.429/$58.145=0.25
Debt ratio	Total assets/Total debts	Apple	3	2.5	4
		Google	2	1.4	3
Asset utilization
Inventory turnover	Cost of goods sold/Current period inventory	Apple	$25.683/$455 =0.06	$ 39.541/$1,051=0.04	$64.431/$776 =0.08
		Google
Accounts receivable turnover	Net credit sales /Average accounts receivables

Comparison of Five year averages

	Google Incorporation	Apple Incorporation
Return on equity	17.3%	29.5%
Return on assets	14.6%	18.6%
Gross profit margin	68.7%	40.5%
Total Debt to equity ratio	0.02	0.00
Post profit tax margin	25.7%	20.7%

By comparing the five year averages of the two companies, it is evident that Apple Incorporations’ performance over the past five years has been very effective. Apple Incorporation has a beta value of 0.92 compared to that of Google Incorporation which is 0.97. This means that the Apple Incorporation’s shares have a relatively low degree of market risk compared to that of Google.

Additionally, the price of Apple Incorporation’s share has been increasing over the past few years as illustrated in appendix 1. Currently, Apple’s share price has been on an upward trend as illustrated by the chart below. The graph below shows that the price of Apple’s shares has been on an upward trend during the first few months of 2012.

Conclusion

Analysis of the two company’s financial statements shows that Apple’s financial performance is better than that of Google Incorporation. This is further enhanced by analysis of the financial ratios. For example, Apple Incorporation’s rate of return on equity is relatively high compared to that of Google Incorporation. This means that Apple Incorporation is more effective in utilizing the shareholder’s equity thus translating to a higher profitability compared to Google. Apple’s return on assets is relatively high compared to that of Google. This shows that the management team of Apple Incorporation is effective in ensuring that the firm’s assets are effectively utilized in order to generate high returns. Analysis’ of the companies’ liquidity ratios shows that the two companies can be able to meet their current financial obligations more effectively. Additionally, an analysis of the historical share price indicates that the price of Apple Incorporation share has been increasing over the years as illustrated by appendix 1.

Recommendations

From the analysis of Apple Incorporation financial performance, I would advise investors to consider purchasing Apple Incorporation’s shares. This arises from the fact that there is a high probability of the shares continuing to experience positive performance considering the firm’s current financial performance. As a result, investors will be able to maximize their wealth.

Reference List

Market Watch. (2011). Annual financial for Apple Incorporation. Web.

Yahoo Finance. (2012). Google Incorporation. Web.

Yahoo Finance. (2012). Apple Incorporation. Web.