Annual Report Project for Apple Inc.
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Annual Report Project for Apple Incorporated
Annual Report Project for Apple Incorporated:
Dayna C. Robertson
Casper College
Abstract
This annual report aims to provide a comprehensive summary of my financial
analysis of Apple Incorporated. It encompasses an examination of Apple’s
2
Annual Report Project for Apple Incorporated
balance sheet, income statement, and statement of cash flows, along with a thorough analysis of various financial ratios spanning from the year 2021 to 2022. Additionally, the report explores prospective information concerning Apple. Throughout my research, I encountered anticipated and unexpected insights regarding Apple Incorporated. The report not only highlights commendable aspects where Apple excels, but also pinpoints areas for improvement that could significantly contribute to the company’s enhanced profitability. The results of my discoveries and assessments regarding Apple Inc. are presented in the subsequent sections.
Executive Summary
Apple, a leading manufacturer of smartphones, multi-purpose tablets, personal computers, a wide range of accessories including home and wearable devices, while also providing services is located in Cupertino, California. The analysis of Apple’s financial performance reveals a mixed
3
Annual Report Project for Apple Incorporated
picture with positive and concerning aspects. The efficiency ratios demonstrate improvement indicating enhanced operational management. However, liquidity ratios declined signaling potential challenges in short-term
obligations. Solvency ratios indicate an increased reliance on debt, raising financial leverage concerns. Profitability measures present a mixed performance with a slight dip in profit margin, return on total assets, and return on common stockholders’ equity. Market prospects appear promising, with a slight decrease in the price-earnings ratio but an increase in dividend yield, reflecting a commitment to rewarding shareholders. Apple’s assumptions regarding sustained consumer demand, technological advancement, and a stable economic environment support their strategic decisions. Personally, I find Apple a striking company to work for given its reputation for innovation and commitment to environmental responsibility. As
for investing, personally I would choose not to invest, due to payouts for shareholders being lower than I would expect for a large company. Ernst & Young LLP have served as Apple’s accountants since 2009. The only concern from their accountants, Ernst & Young LLP, is uncertain tax positions that could potentially effect Apple’s tax rate. As of November 10
th,
2023, Apple’s stock price is $186.40 and the annual dividend per share is $0.96. Analysis Overview
Apple incorporated is one of the world’s most prominent technology companies, known for its innovation in consumer electronics, software, and
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Annual Report Project for Apple Incorporated
services. Apple was founded on April 1, 1976, by Steve Jobs, Steve Wozniak, and Ronald Wayne. Over the years, Apple has evolved into a multinational corporation with a diverse product and service portfolio. Apple operates in the technology industry which has seen continuous growth. The company’s economic setting is influenced by global economic conditions, consumer demand for high-quality electronic devices, and the competitive landscape. Apple’s letter to stockholders often emphasizes their commitment to innovation and environmental responsibility. The company has made significant strides in reducing its carbon footprint and aims to have their entire operation, including manufacturing, carbon neutral by 2030. Evidential Matter
Apple Incorporated,
2022 Income
Statement
September 24,
2022 (Millions)
September 25,
2021 (Millions)
Change
Net Sales
$394,328
$365,817
Increase
Cost of Goods
$223,546
$212,981
Increase
Net Sales – Cost of
Goods = Gross Profit
$394,328 –
$223,546 =
$170,782
$365,817 –
$212,981 =
$152,836
Increase
Operating Expenses
$51,345
$43,887
Increase
Other Income/(expense)
& Provision for Income
Taxes
$(384) & $19,300 =
$19,634
$258 & $14,527 =
$14,269
Increase
Gross Profit – Operating
Expenses, Other
Income/(expense), &
Provision for Income
Taxes = Net Income
$170,782 – $51,345
– $19,634 =
$99,803
$152,836 – $43,887
– $14,269 = $94,608
Increase
5
Annual Report Project for Apple Incorporated
Apple presents its income statement in a multi-step format within their annual report. In the fiscal years 2021 and 2022, Apple reported gross profits
of $152,836 million and $170,782 million, respectively, denoting a significant
increase of $17,946 million in gross profit. The company’s operating income for these respective years was reported as $108,949 million in 2021 and $119,437 million in 2022, representing a noteworthy increase of $10,488 million in operating income. Lastly, Apple disclosed net income figures of $94,680 million in 2021 and $99,803 million in 2022, reflecting a year-over-
year increase in net income. Apple Incorporated,
2022
Balance Sheet
September 24, 2022
(Millions)
September 25, 2021
(Millions)
Assets $352,755
$351,002
Liabilities +
Stockholder’s Equity
$302,083 + $50,672 =
$352,755
$287,912 + $63,090 =
$351,002
Liquidity and Efficiency Apple
Incorporated
2021
2022
Change
Current Ratio
1.08
0.88
Decrease
Acid-Test Ratio
0.91
0.71
Decrease
Accounts
Receivable
Turnover
13.43 times
14.43 times
Increase
6
Annual Report Project for Apple Incorporated
Days’ Sales
Uncollected
26.22 days
26.09 days
Decrease
Inventory Turnover
36.96 times
38.79 times
Increase
Days’ Sale in
Inventory
11.28 days
8.08 days
Decrease
Total Asset
Turnover
1.04 times
1.12 times
Increase
Apple’s financial ratios in 2022 compared to 2021 raised both positive and concerning points. The decrease in the current ratio and acid-test ratio from 2021 to 0.88 and 0.71, respectively, indicates a potential challenge in covering short-term liabilities without relying on inventory. However, Apple improved its accounts receivable turnover and reduced days’ sales uncollected, signifying more efficient and faster payment collection. Moreover, the increase in inventory turnover and decrease in days’ sales in inventory is a positive trend, suggesting strong demand for their products and efficient inventory management. Finally, the rise in total asset turnover in 2022 emphasizes Apple’s improved proficiency in utilizing assets to generate revenue, reflecting enhanced operational efficiency.
Solvency Apple
Incorporated
2021
2022
Change
Debt Ratio 0.82
0.86
Increase
Equity Ratio 0.18
0.14
Decrease Debt-to-Equity
Ratio 4.56
5.96
Increase
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Annual Report Project for Apple Incorporated
Times Interest
Earned 42.3
41.6
Decrease Apple’s solvency ratios, which provide insights into the company’s ability to meet its financial obligations and the structure of its financing, demonstrate notable shifts from 2021 to 2022. The debt ratio increased from 0.82 to 0.86,
indicating that Apple took on more debt relative to its total assets in 2022. This suggests that the company relied more on borrowed funds for their operations and investments. On the contrary, the equity ratio decreased from 0.18 to 0.14, signifying a decrease in equity financing. The debt-to-
equity ratio experienced a substantial increase, rising from 4.56 to 5.96, which confirms the increased reliance on debt as a source of financing. Furthermore, the Times Interest Earned ratio decreased slightly from 42.3 to 41.6, indicating a modest reduction in Apple’s ability to cover their interest expense from their operating earnings. These changes in solvency ratios reflect a shift in Apple’s financing structure.
Profitability Apple
Incorporated
2021
2022
Change
Profit Margin
Ratio
25.8%
25.3%
Decrease
Gross Margin
Ratio
41.7%
43.3%
Increase
Return on Total
26.9%
28.3%
Increase
8
Annual Report Project for Apple Incorporated
Assets
Return on
Common
Stockholders’
Equity
166.4%
175.4%
Increase
Book Value per
Common Share
$3.84 per share
$3.18 per share
Decrease
Basic Earnings
per Share
$5.67 per share
$6.15 per share
Increase
Apple’s profitability measures for 2022 showed a mixed performance with changes in key ratios. The profit margin ratio, although still strong at 25.3%, experienced a slight decrease from 25.8% in 2021, indicating a reduction in Apple’s ability to convert revenue into profit. On a positive note, the gross margin ratio improved from 41.7% to 43.3%, suggesting that Apple was able to maintain a higher percentage of their revenue as gross profit, which is a reassuring sign for pricing and cost management. Return on total assets (ROA) also increased from 26.9% to 28.3%, signifying that Apple generated more profit from their total assets in 2022, highlighting their efficiency in asset utilization. The return on common stockholders’ equity (ROE) presented growth, rising from 166.4% to 175.4% reflecting Apple’s ability to generate improved returns for their common stockholders. However, the decrease in book value per common share from $3.84 to $3.18 is a potential concern. On a positive note, basic earnings per share increased from $5.67 to $6.15. Overall Apple’s profitability measures present with strengths in
9
Annual Report Project for Apple Incorporated
gross margin, ROA, ROE, tempered by a slight dip in profit margin and a reduction in book value per common share. Market Prospects
Apple
Incorporated
2021
2022
Change
Price-Earnings
Ratio 25.89
24.46
Decrease
Dividend Yield 0.58% 0.60%
Increase The building block market prospects appear promising, as evidenced by the financial performance of Apple Incorporated, a company often regarded as a leader in the tech industry and a company that often reflects broader market
trends. In 2022, Apple’s price-earnings ratio decreased slightly from 25.89 to 24.46, suggesting that investor’s may become slightly more cautious in their valuation of the company’s earning potential. However, the noteworthy development is the increase in Apple’s dividend yield from 0.58% to 0.60%. This indicates that Apple is dedicating more of its profits to rewarding shareholders through dividends. These shifts in Apple’s financial metrics can provide valuable insights into overall market response. Assumptions
In planning for its future, Apple relies on a set of crucial assumptions regarding its industry and economic environment. Leading among these is the expectation of sustained and growing consumer demand for innovative technology products. Apple assumes a continued pace of technological
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Annual Report Project for Apple Incorporated
advancement to maintain their reputation for cutting-edge products and to outpace competitors. Apple operates with the assumption of a stable and supportive global economic environment, factoring in considerations such as gross domestic product growth, consumer spending patterns, and stable currency exchange rates. When creating estimates and future plans, Apple factors in assumptions about sales projections, revenue growth, cost structures, the ability to enter new markets or expand into existing ones, and
customer retention. These assumptions support the company’s strategic decisions and guide their efforts to stay at the forefront of technological innovation while navigating the complexities of the global economic stage. Key Factors Apple showcased several positive aspects in its recent performance, featuring favorable improvements in efficiency ratios, significant profitability growth, increased earnings per share, and a favorable uptick in dividend yield. Conversely, the company faced certain challenges, leading to unfavorable results including liquidity issues, concerns in inventory management efficiency, a heightened reliance on debt, a reduction in equity,
and a slight decrease in profitability margin. In essence, Apple’s performance
is influenced by a combination of strengths and challenges, emphasizing the critical importance of continuous strategic management. Inferences
11
Annual Report Project for Apple Incorporated
Based on a thorough examination of Apple’s financial report, several key inferences and conclusions can be drawn. The company’s positive trajectory is evident in the improved efficiency ratios, showcasing proficient operational
management and strengthened profitability measures. With consistent growth in profitability, Apple maintains a strong financial position. Earnings per share saw a commendable increase, reflecting Apple’s commitment to enhancing shareholder value, further emphasized in dividend yield. However,
challenges are evident in liquidity, inventory management, and increased reliance on debt. Apple’s ability to navigate these challenges will be instrumental in ensuring their sustained prominence in the dynamic technology industry. Investors and stakeholder should closely monitor the company’s strategic responses and financial adjustments to mitigate potential risks and capitalize on its strengths.
References
Apple Inc. (2022). Annual Report.
Form 10-K, Cupertino, CA. Retrieved From https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K-
2022-(As-Filed).pdf Apple Inc. (2022, October 27). Apple Reports Fourth Quarter Results. September quarter record for Revenue and EPS
. Cupertino, California: Apple Media. Retrieved From https://www.apple.com/newsroom/2022/10/apple-reports-fourth-
quarter-results/
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Annual Report Project for Apple Incorporated
Bajarin, T. (2022, August 09). Apple's Key To Success Goes Beyond Products and Services and Includes World Class Operations. Forbes. Retrieved From https://www.forbes.com/sites/timbajarin/2022/08/09/apples-key-
to-success-goes-beyond-products-and-services-and-includes-world-
class-operations/?sh=5760a55722ec
Podolny, J. M., & Hansen, M. T. (2020, November 01). Organizational Culture. How Apple Is Organized for Innovation
(November-December 2020), pp.
4-11. Retrieved From https://www.apple.com/jobs/pdf/HBR_How_Apple_Is_Organized_For_Inn
ovation-4.pdf
Ponciano, J. (2022, May 12). The World's Largest Tech Companies in 2022: Apple Still Dominates as Brutal Market Selloff Wipes Trillions in Market Value. Forbes. Retrieved From https://www.forbes.com/sites/jonathanponciano/2022/05/12/the-worlds-
largest-technology-companies-in-2022-apple-still-dominates-as-brutal-
market-selloff-wipes-trillions-in-market-value/?sh=41b307553448
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