Case Study Component 4_Team D5 Final

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1 Case Study Component 4 Team D5 Tonya Berry, Tyshon Johnson, Courtney Murray,Tondra Sneed Grand Canyon University Course: FIN-504-0501 Finance Principles Date Submitted: 12/19/2023 Instructor: Japheth Kessio Introduction

2 Apple Inc.’s future financial health for the next 3-5 years, includes contributions toward R&D and expanding jobs nationwide. There have been hidden vulnerabilities and strategies found within Apple’s 3-5 year plan which has impacted the flow of their funds. Debt and equity has been their best capital structure which helps maximize their market value. Financing has been determining how much Apple will spend now and in the future to achieve their objective . Viability of 3-5 Year Plan Apple Inc. is expected to continue its growth over the next 3-5 years and outperform competitors due to its strong organizational, financial, and competitive health. Apple Inc. uses innovative operations management to create profitable and customer-oriented technology products. These strategies relate to product design, quality management, process, capacity design, location strategy, inventory management, supply chain management, and other operational areas. (Rowland, 2023). Effective strategies involving technological innovation help Apple thrive despite competition with information technology and consumer electronics firms like Samsung, Google, and Microsoft, as well as competitors in Apple TV Plus's video-streaming services like Netflix, Disney, and Amazon. (Research, 2023). As of September 2023, Apple has invested $29.92 billion in research and development. These investments contribute to the resources needed for the company's growth. Apple is financially healthy, with a Debt-to-Revenue ratio of 0.29. Over the past five years, Apple Inc's Operating Margin has increased from 16.83% to 31.19%. Apple is committed to expanding its business, with a 3-Year Revenue Growth Rate of 20%, outperforming 85.93% of companies in the hardware industry. (Research, 2023). Additionally, Apple Inc.'s earnings before interest, taxes, depreciation, and amortization have increased significantly, with a three-year growth rate of 22.8% and a five-year rate of 17.4%. (See Appendix A) These trends demonstrate that the

3 company can achieve its strategic, competitive, and financial goals, thus ensuring continued growth. Stress Test Apple’s 4 strategic priorities (See Appendix B) are part of the company’s 5-year investment plan, which will create over 20,000 new jobs. Risk factors expose hidden vulnerabilities found within Apple’s 3-5 year plan as various scenarios of adversity impact the flow of funds. Legal & regulatory risk remains to be the greatest threat (See Appendix C) as the historical trade war between the U.S. and China resulted in tariff regulations that disrupted Apple’s cash flow. Dans (2023) states that Apple has lost $200B in capitalization because of the US and China trade war. Apple manufactures its products in China as the country remains to be one of the largest suppliers of Apple products. Gaines (2023) reports that over 95% of iPhones, Airpods, Macs, and iPads are still made in China as the company becomes exposed to political and supply chain risks within the country. If a war between China and the U.S were to occur, the entire supply chain would be disrupted. Apple continues to make efforts to diversify its supply chain (See Appendix D) in an effort to enhance resilience and minimize disruptions. Apple is exposed to other adverse conditions related to macroeconomics, higher interest rates, unemployment, and currency fluctuation as they offer scenarios that affect sales which ultimately impact the flow of funds. Hypothetical scenarios of adversity that could impact the flow of funds include political decisions that ban the iPhone. In efforts to strengthen cybersecurity, China has restricted the use of iPhones for work at certain government agencies, resulting in a 4% decrease in stock (See Appendix E). The iPhone serves as a key driver in product sales as Apple depends upon those customers who switch from Android to support its

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4 revenue growth. The new iPhone iteration comes with risks as it may fail to appeal to new customers, disrupting the company’s cash flow. Current Financing Plan Apple’s current and future expenses related to its carbon-neutral goal depend on financing. Zhang (2022) states that a combination of debt and equity is used to finance Apple’s projects. Apple uses a dual-class structure for its equity as well as its current cash flow, allowing the company to move forward with its business structure. Apple should continue to use debt and equity as this provides an optimal capital structure that maximizes the market value. Apple’s 10K forms (2023) show Apple’s shareholder's equity at the end of September was $62.15 billion. Its total debt in 2023 (See Appendix F) was $123.93 billion. Apple’s debt/equity ratio is 1.63 indicating the company can take care of its current and future debts. It can be concluded that Apple is currently in a financial position to finance current and future obligations as its stock value increases. The GuruFocus (GF) value of Apple’s stock is $175.5 (See Appendix G) which is fair valued compared to other companies. Conclusion Apple's current patterns show that the business can meet its financial, competitive, and strategic objectives, guaranteeing ongoing expansion. Apple is still working to diversify its supply chain to increase resilience and reduce interruptions. As the value of its stock rises, Apple is currently able to pay for its obligations both now and in the future. .

5 Reference List Apple Inc. (2023). Risk overview. Tip Ranks. https://www.tipranks.com/stocks/aapl/risk-factors Bajarin, T. (2022, August 9). Apple’s key to success goes beyond products and services and includes world class operations. Forbes . https://www.forbes.com/sites/timbajarin/2022/08/09/apples-key-to-success-goes-beyond- products-and-services-and-includes-world-class-operations/?sh=166e9c9922ec CB Insights. (2022 July 20). Analyzing Apple’s growth strategy: The business moves hinting at the secretive $2T+ gigantic strategic future . https://www.cbinsights.com/research/apple- strategy-map-investments-partnerships-acquisitions/ Chen, Y., Cyran, R. (2023, September 7). Apple’s high valuation exposes it to China’s whims. Reuters. https://www.reuters.com/breakingviews/apples-high-valuation-exposes-it-chinas- whims-2023-09-07/#:~:text=China%20accounts%20for%2019%25%20of,fiscal%20year %20ending%20in%20September Dans, E. (2023, September 10). Apple takes a big hit in Washington’s trade war with China. Medium . https://medium.com/enrique-dans/apple-takes-a-big-hit-in-washingtons-trade- war-with-china-cccfbd861f4#:~:text=Apple%20has%20lost%20about%20%24200,and %20employees%20from%20using%20the Gaines. C. (2023, Sept 13). Apple has a big China problem that’s 22 years in the making. Business Insider . https://www.businessinsider.com/apple-dependent-on-china-economy- manufacturing-problem-2023-9#:~:text=Apple's%20dependency%20on%20China %20goes%20back%202%20decades&text=And%20Apple%20enjoyed%20the %20ride,help%20create%20Apple's%20supply%20chai .

6 Horwitz, J. (2022, November 29). Apple’s supply chain data shows receding exposure to China as risk mount. Reuters. https://www.reuters.com/technology/apple-supply-chain-data- shows-receding-exposure-china-risks-mount-2022-11-30/ Leswing, K. (2019, May 13). Here’s why Apple is so vulnerable to a trade war with China. CNBC. https://www.cnbc.com/2019/05/13/why-is-apple-so-vulnerable-to-a-trade-war- with-china.html Martins, D. (2022, December 7). How Apple’s supply chain has transformed since 2019. The Street. https://www.thestreet.com/apple/other-products/how-apple-supply-chain-has- transformed-since-2019 Piper, T. R. (2010). Assessing a company's future financial health. Harvard Business School. Research, G. (2023, September 20). Apple Inc (AAPL): A deep dive into its financial metrics and competitive strengths. Yahoo Finance. https://finance.yahoo.com/news/apple-inc-aapl- deep-dive-170333276.html?fr=sycsrp_catchall Rowland, C. (2023, October 25). Apple Inc. operations management: 10 decisions, productivity . Panmore Institute. https://panmore.com/apple-inc-operations-management-10-decisions- areas-productivity Sarada, B. (2023, July 28). The inside story of Apple’s accounts receivable. High Radius . https://www.highradius.com/insights/finsider/apple-story/? utm_source=linkedin&utm_medium=social&utm_content=apple- story&utm_campaign=newsletter&utm_term=

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7 Securities and Exchange Commission. (2023). Apple inc. https://www.sec.gov/Archives/edgar/data/320193/000032019323000106/aapl- 20230930.htm Wang, J. (2023, August 24). Is Apple Inc (AAPL) fairly valued? An in-depth analysis . Yahoo! Finance. https://finance.yahoo.com/news/apple-inc-aapl-fairly-valued-161907108.html? guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer _sig=AQAAACDf2Qxrf1gjvqlEYxf8WFIk0j7xo9PZxatvDLdt0kKMsmUxcIDZ_XsM2x xk24URnu43hnsbhP1MOiKlA4H9a1XrVuxZmxq10u8mmUbDMpTcW_nlSJm-g- GBmsXyHsjnj8h0J1ZjtXxUoov- DGuWSMZnLSmC6ZFA9PQfAgH9WqIM#:~:text=Apple’s%20Financial %20Strength&text=Apple%20has%20a%20cash%2Dto,10%2C%20indicating%20fair %20financial%20health . Wilowski, M. (2023 September 6). Apple’s shares slide 4% on report China banned its officials from using iPhones. Investopedia. https://www.investopedia.com/apple-shares-slide-on- china-report-7966290 Zhang, X. (2022). Analysis of business model and financial operation: Evidence from Apple. Atlantis Press . https://www.atlantis-press.com/proceedings/icemed- 22/125975490#:~:text=Download%20article%20(PDF)