Individual_Business_Analysis_Part_Ii-_Apple_Inc

Shaquita V. Stewart Week 5- MGT-521 Prof. Kim Hinton During the course of week 4, the beginning of a business analysis was presented from the viewpoint of a mutual fund manager who was debating whether to invest in Apple Incorporated. A Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis was performed revealing four different aspects that were relevant to the decision of whether or not to invest in Apple: (1) Design and Innovation, (2) Fluctuation within the Economy, (3) Price Competitiveness, and a (4) Loyal Customer Base. Last week's analysis further identified Apple's internal stakeholders [i.e. Apple Employees and Software Developers] and external stakeholders [i.e. preferred and common Lenders, Manufactures, Consumers, Suppliers, and the Music Industry], their wants, needs and whether or not Apple was succeeding in fulfilling those needs. This week the analysis of Apple Inc. goes further to explore the company's financial state, to include, Apple's income statement, balance sheet and statement of cash flows. Upon reflection of what Apple's financial information reveals, the company will then be compared to two of its competitors, Dell Incorporated and Microsoft Corporation. Prior to summarizing Apple Inc.'s financial health and how it compares to its competition, concerns, and the reasons behind those concerns, will be addressed. There will be a focus on how the information obtained can be utilized in moving forward in the decision making process. Moreover, a summary of Apple's technological advantages, as compared to Dell Inc. and Microsoft Corp., will be discussed. In addition to how globalization has affected Apple's business strategies, a benchmarking analysis will also be conducted to include, Apple Inc.'s best practices, operational processes/procedures and products and/or services. Beginning with Apple Inc. financial statements, upon review of the income statement it can be concluded that Apple Inc. has been able to grow revenues from $42.9B in 2007 to $65.2B in 2010. Most impressively, the company has been able to reduce the percentage of sales devoted to income tax expense from 8.93% in 2007 to 6.94% in 2010. This led to a bottom line growth from $8.2B in 2007 to $14.0B in 2010. (Businessweek, 2011) In reference to Apple's balance sheet, the company uses little or no debt in its capital structure and may have less financial risk than the industry collectively. Accounts Receivable is among the industry's worst with 24.75 days worth of sales outstanding in 2010. This implies that revenues are not being collected in an efficient manner. Last, Apple Inc. is among the least efficient in its industry at managing inventories, with 6.93 days of its Cost of Goods Sold tied up in Inventories. (Businessweek, 2011) In reference to Apple's statement of cash flows, since 2007 Apple's net income has increased from 3,495 to 14,013 million in 2010, setting the company at a 300% increase. Depreciation & amortization set well with a 211% increase from 314 million in 2007 to 979 million in 2010. Cash from operations set at 18, 595 million in 2010, an 239% increase from 2007. While cash from financing was left at 1,257 million, the net change in cash stood at 5,998 million in September of 2010. However, a concern lays in the cash from operations, with Capital Expenditure, Cash Acquisitions, Sale (Purchase) of Intangible Assets and Investments in Marketable & Equity Securities, which have remained in the negative from 2007 to 2010. In addition, cash from investing remained in the negative as well fluctuating by an average of 80% from 2007 to 2010. (Businessweek, 2011) In comparison to Dell Inc and Microsoft Corp, Apple Inc has been able to produce 3.7 billion dollars more in revenue then Dell, but trails behind Microsoft by a margin of 4.7 billion in revenue. In addition to reducing the percentage of sales devoted to cost of goods sold from a lower percentage than Dell and Microsoft, Apple has managed to establish a 6.94% percentage of sales devoted to cost of goods sold while Dell stood at 81.38% with Microsoft stands at 7.04% in September of 2010. (Businessweek, 2011) Apple further out paced both Dell and Microsoft in regards to debt capital ratio, using little or no debt in its capital structure, and accounts receivable. Although all three companies set with the industry's worst accounts receivable, Apple Inc.'s had the lowest between the three at 24.75, with Dell setting at 36.49 and Microsoft at 73.06 days worth of sales outstanding in September of 2010. (Businessweek, 2011) Microsoft's inventory seems to be better managed then Apple and Dell, as the Inventory Processing Period is typical for the industry, at 24.74 days in 2010. Apple and Dell stood as the least efficient in the industry, with 6.93 days of its Cost of Goods Sold tied up in Inventories at Apple and 8.55 days of this company's Cost of Goods Sold tied up in Inventories at Dell at the end of the fiscal year in 2010. (Businessweek, 2011) Apple's Net Income was lower than Microsoft by 9,137 million dollars and cash from operations set at 18,595 million in comparison to Microsoft's 26,994 million. However, with little to no debt in its capital structure, Apple stood above both Dell and Microsoft in regards to total debts issued and repaid, having none or too little to report. Moreover, Apple possessed higher net change in cash at 5,998 million with Dell maintaining at 3,278 million and Microsoft at 4,105 million in September of 2010. Upon review and comparison of Apple's financial statements with Dell and Microsoft, two concerns remain (1) Low Accounts Receivable turnover and (2) Poor Inventory Management. A low accounts receivable turnover means that Apple has a weak credit collection policy and does poorly collecting cash quickly from accounts. Low accounts turnover shows that Apple is not generating enough cash flow to keep up with short-term capital requirements such as current liabilities, expenses and investment in growth. Moreover, inventory management plays a major role in the health of sufficient cash flows. (Kokemuller, 2011) Inventory is a Business Investment, Apple should reevaluate how their inventory is managed, and what type of business system is utilizes to do so. Overall, financially, Apple is looks very healthy. Focusing on growth potential, Apple Inc. is the most compelling of the three companies to invest in. (Machlis, 2011) Microsoft's fiscal year 2006 revenue was more than double Apple's FY '06 revenue: $44.3 billion to $19.3 billion. What has happened since' Apple's revenues have more than tripled, while Microsoft's have grown by less than 50%. Apple's fiscal year 2010 revenue edged Microsoft's, $65.2 billion to $62.5 billion. (Note: Microsoft's fiscal year is July through June, and Apple's is October through September.) (Machlis, 2011) Moreover, while Microsoft's profits were six times larger than Apple's in their respective 2006 fiscal years. Apple's net income has subsequently grown sevenfold, while Microsoft's has increased roughly 50%. Microsoft still generates more profits than Apple, but the gap has narrowed significantly. If current trends continue, Apple would likely top Microsoft's profits in a couple of years by the end of 2012. (Machlis, 2011) (Elmer-DeWitt, 2011) In comparison to Dell Inc. Apple is far more profitable, taking in more revenue and holding very little debt. Furthermore, with Apple shifting its focus from personal computers to the creation and development of other products [i.e. the iPhones, IPads, IPods, and technologies like the iCloud], if the market trends continue the way they are, not only will Microsoft continue in its struggle to keep up with Apple's innovation, Apple will continue to overlap Dell as well. Apple Inc. has introduced many different technological advances, like the examples given previously, that its competition is left scrambling to recreate and imamate the Apple brand in order to gain the competitive edge in a market that is slowly being defined and cornered by Apple. The main hindrance crippling Apple's ability to surpass Microsoft, and Dell in computer sales, is their unwillingness to adapt outside technology to the products they produce. The Microsoft Office software, which is also utilized by Dell, is hurt Apple's bottom line in personal computer sales. Management can utilize the information retrieved from Apple's financial statements to decide not only what the company's strengths and weaknesses are, but determine whether or not, money invested in this organization would be money well spent. In regards to how globalization has affected the company's business strategies, the modern economy is largely responsible for Apple's merge into the global market. Apple's competition with Compaq, Dell, and IBM drove the company to venture into new markets. Apple targeted Japanese and Chinese markets, and further branched into Europe. A great example of Apple's global success is the iTunes Music Store. iTunes has enabled users from all over the world to download songs for as little as .99 cents per song. The iTunes store makes purchasing music, fast easy and fun. Despite the fact that, the music industry may not be so excited about how iTunes has revamped their products and rocked their industry, iTunes is where the consumers are. Therefore, the change will remain inevitable. (Vladimir, 2010) When benchmarking Dell and Microsoft with Apple, one of the company's best practices is constant innovation. Apple continues to develop new products that hold their consumers attention. While Microsoft may hold, the lead in computer sales there has been no new products to come out of its doors since the Xbox 360 and the 2010 Microsoft office up grade. Dell's main advantage is that it produces competitively priced, chic computers, which appeal the young students on a budget. However, as far as innovation is concerned they are in the same boat as Microsoft. Another great practice that Apple employs is it focuses on creating products that are easy to acquire, learn, and integrate into you daily life. There is a practical fun factor to Apple's products, they are not only useful, but they are trendy and make a statement. Microsoft and Dell have practicality but have yet to master, trendsetting creativity. Lastly, Apple strives to keep their customers happy with its extensive, evolving product line. Representatives from the company are accessible to customers via the Apple Store, online assistance and on the phone. The company works hard to make sure that customers are educated on how to obtain the maximum out of Apple's products, i.e. in stores tutorials. In addition, Apple continually releases updates for existing hardware. Apple's operational processes and procedures are such that, they do not share, or acquire, information to develop their products outside of their own ranks. All retailers who carry or wish to carry Apple products must have approval from Apple Inc. The company keeps a strict handle on their technology and the company is very strict about where their products are made available to the public. Microsoft and Dell share common software and are not very strict about where their products are made available to the public. With products like iPhone, Pod, Pad, and technological advances like iCloud, Apple make itself available to consumers when troubleshooting devices, providing warranties, technical support , product replacement and software upgrades. Apple provides an "Action Plan" for consumers that enables them to keep their products running like new and allows them to enjoy their devices for as long as possible. Microsoft offers courses for anyone, consumer or otherwise, who wishes to learn more about their software and how to use it correctly. Moreover, Apple sales personal are well versed on product knowledge in order to assist customers with any concerns they may have. The only issue that my result is that, Apple, extensively trains and retrains its personal on the products that are on the market, whereas, a sale associate at Wal-Mart may only know as much as the label on the package states, which could discourage a consumer who may purchase an Apple device for that retailer. In summary, Apple Inc. receives a clean bill of financial health in comparison to Dell Inc. and Microsoft Corp. With the company's net income on the rise and very little debt to retire, the only concerns that investors may have is the low accounts receivable turnover and poor inventory management that can affect the generation of cash flow into the company. However, the present and future for the company still look bright. Globalization has benefited Apple quite well, with the modern economy being largely responsible for Apple's merge into the global market and its competitors driving the company to venture into new markets. Lastly, when benchmarking Apple Inc. with Dell Inc. and Microsoft Corp we find that Apple's main best practice, innovation, surpasses that of the other two computer giants. Further, research revealed that Apples Operational processes and procedures, of keeping their technology, and their products under tight control, are a catch 22. The unwillingness of Apple to adapt its products to other products that are on the market does give them uniqueness that no one can match, however, the same isolation leads to some consumers passing up Apple products because they are not compatible with common software applications, i.e. Microsoft Office. Conversely, in regards to products and services Apple provide, the company takes pride in producing its products and making them available to the public, they also want to insure that consumers have the support they need troubleshooting and protecting them. There is no other company in the industry that goes as far as Apple does to create and then protect the products from fruition to consumer. In conclusion, once again, Here's to Apple, you can quote them, disagree with them, glorify or vilify them, about the only thing you can't do is ignore them. - Apple Inc. ("Apple inc.," 2011) Apple has its faults; however, at the end of the day, the profits and research speak for themselves. Consumers from Main Street to Wall Street cannot get enough of the trailblazing products that keep the people in aw, and with the sky as the limit, there is much more to come. Apple Incorporated is definitely worth the risk, investing in the company would be a wise business decision. references (1) Businessweek. (2011, September 25). Apple inc (aapl:nasdaq gs). Retrieved from http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp'ticker=AAPL:US&dataset=incomeStatement&period=A¤cy=native (2) Machlis, S. (2011, April 19). Apple vs. microsoft by the numbers. Retrieved from http://www.computerworld.com/s/article/9215786/Apple_vs._Microsoft_by_the_numbers'taxonomyId=126&pageNumber=2 (3) Vladimir. (2010, August 01). http://www.articlesbase.com/history-articles/apple-way-of-development-2943373.html. Retrieved from http://www.articlesbase.com/history-articles/apple-way-of-development-2943373.html (4) Kokemuller, N. (2011). What does it mean if a company's accounts receivable turnover is very high'. Retrieved from http://smallbusiness.chron.com/mean-companys-accounts-receivable-turnover-very-high-10623.html (5) Apple inc. (2011, September 18). Retrieved from http://en.wikiquote.org/wiki/Apple_Inc. (6) Elmer-DeWitt, P. (2011, September 13). Apple's cash is already burning a hole in Wall Street's pockets. Retrieved from http://tech.fortune.cnn.com/2011/09/13/apples-cash-is-already-burning-a-hole-in-wall-streets-pockets/