Apples

Apple Benchmark Mai Chao Thao MGT 521 June 22, 2011 John Farley Apple Benchmark Apple was considered to be underdog of the technology industry, but now it is considered to be the largest technology company in the universe. This dramatic change has been attributed to many factors like the leadership abilities CEO, the marketing strategies, and products of the company. However, there seems to be many lingering questions about Apple’s financial health and ability to survive. Therefore, this paper will examine the financial health of the company by comparing it to its competitors and discussing Apple’s globalization attributes. Apple became a company in 1977 and was introduced to the public in 1980 (Finkle, 2010). Since its introduction, Apple has experience many uprising and downfalls, including the demise of $150 million in 1997 (Manjoo, 2010). Today Apple is considered to be one of the largest technological company, manufacturing personal computers, mobile communications, and portable music players like Macintosh, iPhones, iPods, and iPads, (Morningstar, 2010). The financial health of the company is reflected by the company’s income statement, balance sheet, and cash flow. Thus an examination of these documents is needed to understand the financial health of the company. An income statement is a financial statement summarizing all the resources within the company and designed to reveal whether the company is making a profit or not (Nickels, McHughs, McHughs, 2010). According to Apple’s 2010 annual report, the company made a net income is $14, 013 million, which was $5, 778 million more than what was obtained in 2009 (Morningstar, 2010). Apple’s 2010 net income indicates that the company is making a profit in oppose to obtaining a lost. However, the profit made by Apple is still minimal in comparison to its competitors, Microsoft, and Nokia. In 2010, Microsoft received a net income of $18, 760 million while Nokia gained a $ 540 million in Euros (Morningstar, 2010). Both Nokia and Microsoft were making double the amount, or more than what Apple was making. Thus the financial condition of Apple is not better than its competitors. A balance sheet is a financial statement reporting the company assets, liabilities, and owner’s equity financial condition (Nickels & et., 2010). The balance sheet is used by manager to evaluate what the company owns and owe to its lenders via the equations: Assets = Liabilities + Owners’ Equity (Nickels & et., 2010). From this equation, it is clear that the sum of the company’s liabilities and owners’ equity has to equal the total assets own by the company. If there is a difference, a mistake can either be made by the accountants or managers of company or there is some expenses unaccounted for by the company. Thus it is essential that the numbers for assets, liabilities, and owners’ equity adds up. According to the 2010 annual report of all three companies, Apple’s total assets are worth $75,183 million, Nokia’s are $21,189 Euro million and Microsoft’s are $86,113 million. A comparison of data indicates that Apple is still far off from its competitors, which is sad because Apple is company who markets in both industries - personal computer and mobile phone industry (Morningstar, 2010). A statement of cash flow is a financial statement reporting the company’s ability to handle in three categories- operations, financing, and investments (Nickels & et., 2010). The statement of cash flow is a tool, used by managers, to determine if money should be borrowed or invested by the company at specific times. By looking at Apple’s cash flow statement, it is clear that the company does not need to borrow money from lenders because the company still has total of $11,261 million dollars remaining from 2010 (Morningstar, 2010). This data also indicates that Apple is good at handling their cash flow and provides readers with an insight into the company expenditures. Apple generated $18,595 million from their operating activities and $1,257 million from financing activities (Morningstar, 2010). However, $13,854 million were used toward investments (Morningstar, 2010). Thus only $5,998 million were left for the company to add to the company’s starting balance of $5,263 million, giving the company and $11, 261 million in cash to spend for the upcoming year (Morningstar, 2010). The cash amount obtained by Apple in comparison to those made by Microsoft and Nokia suggest that the company is doing better than some of its competitors Microsoft started the year with $6,076 million and end the year with only $5,505 million (Morningstar, 2010). This data tells the reader that Microsoft has poor expenditure skills because of the decrease in cash flow from $6,076 million to $5,505 million (Morningstar, 2010). Nokia, on the other hand, obtaining a total of $244 Euro million, which is double the company’s starting cash amount of $105 Euro million (Morningstar, 2010). Based on the data present in the 2010 annual report, Apple’s financial health is fair, not hitting bankruptcy but making enough to survive and moving forwards only. Apple is making a profit from their products, $14,013 million in 2010 and $8,235 million in 2009 (Morningstar, 2010). However, the company is not able to retain the profits made because of numerous expenditures made by the company needs to keep the company functioning. However, the company, compared to its competitors, is doing fairly well because the company can make a profit and handle cash wisely, not resulting in over expenditures. In addition to making profits and handling cash, Apple is a global business; marketing innovations worldwide and influencing the lives of various cultures. Apple markets its products to Europe, Asian-Pacific, Africa, Middle East and Japan via Apple’s online and retail stores (Morningstar, 2010). According to 2010 annual report, Apple’s international sales make up 56.1% of the total sales made by Apple, which implies that the company is successful worldwide (Morningstar, 2010). However, there are still many weaknesses holding the company from reaching maximum success rate. Among those weaknesses are company practices, procedures, and products. Apple is a company with a mission to improve the technological experience of customers but the company is investing too much money and time in marketing the company’s products. As Manjoo (2010) mention in his article the extent in which Apple market its products is very detailed. For instance a poster marketing Apple’s iPad even indicates the time, 9:41 a.m., when Steve Jobs, CEO, revealed the iPad to the public (Manjoo, 2010). This keenness to marketing detail, included in operating expenses, by Apple is where most of the company’s money goes, $7,299 million to be exact for 2010 (Morningstar, 2010). Another practice the company greatly invests besides in is the concept of reinventing. In September 2010, Apple launched the iPad. More than year later, Apple released the iPad2, a thinner version of the iPad1 with a new dual-core processor and built-in camera (Connolly, 2011). This product generated numerous amount of income for the company, but it also brought a handful of criticism as well. One of the major arguments made by consumer was that the iPad2 did not provide better service but offer more accessories like the built-in camera, AV adapter, and SIM card (Connolly, 2011). In another words, the iPad2 was designed to improve the design of its accessory, which resulted in utter failure according to Connolly (2011). Thus Apple’s mission to reinvent its products resulted in dissatisfaction by consumers. Another weakness within the company is the company’s decision-making procedures. In an article, written by Lashinsky, and Burke (2011), Steve Jobs, CEO of the company, is the core decision maker. He chooses the designs of the company’s products and decides when each product is released and marked to the public. This dictatorship way of running the company is very dangerous, especially when the CEO of the company is not in good health. In 2008 news about Steve Job was released to the public via rumors and news reports (Finkle, 2010). Since the release, there were many controversy debates about the survival of the company after the Steve Jobs regime. Many people include Steve Jobs, say that the company is like a multi-cellular organism; thus, it will survive without Steve Jobs as its CEO (Lashinsky, Burke, 2011). However, others argue that even though the company is multi-cellular organism, comprised of many departments, it is Steve Jobs is the source of the organism (Lashinsky, Burke, 2011). Thus Apple’s decision-making process, which revolves around the company’s CEO, is not successful one or strong process to keep the company moving forward because no human being can live forever. By examining the company’s practices, procedures, and products, it is obvious that Apple even though it is largest technological company is not the leading company because the company does not have the best practices or products. Apple’s concept of reinventing their products only puts Apple on the dissatisfaction board because there are little changes made to the company’s innovations like the iPad1 and iPad2. Additionally, the concept of reinventing products also brings about many patent lawsuits for the company, leading to an increased in expenditures and decrease in income (Manjoo, 2010). Through the financial analysis, it is clear that Apple is not experience any loss but is making a profit off its products, which explain many of the Apple craze exhibited by the public today. However, Apple’s financial condition is not the best in the industry because it does not obtaining a high level of profit like its competitors are acquiring. Through the benchmark analysis, which examines the practices, procedures, and products of the company, it is obvious that the company is not at the top of the list because it is not operating on the best practices or producing the best products. In another word, Apple is not setting the standard for its products or similar products produces by the company’s competitors. References Finkle, T.A., & Mallin, M. L. (2010). Steve Jobs and Apple. Journal of the International Academy of Case Studies, 16(7), 31-40. Lashinsky, A., & Burke, D. (2010). Inside Apple. Fortune International (Europe), 163 (7). Manjoo, F. (2010). Apple Nation. Fast Company, 147 (). Morningstar (2010). Apple Inc. Retrieved from http://www.morningstar.com Morningstar (2010). Nokia in2010. Retrieved from http://www.morningstar.com Morningstar (2010). Microsoft Annual Report2010. Retrieved from http://www.morningstar.com Nickels, W.G., McHugh, J.M., & McHugh, S.M. (2010). Understanding Business (9th Ed.). New York, NY: McGraw-Hill/Irwin.