FAM II Roll Number 87 & 35

APPLE INC.S.Y. I

Arpit Jain 87Akash Mehta 35

ACKNOWLEDGEMENT

“It is not possible to prepare a project report without the assistance & encouragement of other people. This one is certainly no exception.”

On the very outset of this report, I would like to extend my sincere & heartfelt obligation towards all the personages who have helped me in this endeavour.

Without their active guidance, help, cooperation & encouragement, I would not have made headway in the project.

I am ineffably indebted to them for conscientious guidance and encouragement to accomplish this assignment. I am extremely thankful and pay my gratitude to the management faculties- Darshana Padia, Zalak Shah, Monaz Parekh, Nupur Shah & Kartikeya Tanna for their valuable guidance and support on completion of this project in its presently.

I extend my gratitude to HLIC-Ahmedabad University for giving me this opportunity.

I also acknowledge with a deep sense of reverence, my gratitude towards my parents and members of my family, who has always supported me morally as well as economically.

At last but not least gratitude goes to all of my friends who directly or indirectly helped me to complete this project report.

Any omission in this brief acknowledgement does not mean lack of gratitude.

Thanking You

ContentsABSTRACT..............................................................................................................................................4

INTRODUCTION.....................................................................................................................................5

SWOT ANALYSIS.....................................................................................................................................6

BCG Matrix..........................................................................................................................................10

PEST Analysis.......................................................................................................................................12

Ratio Analysis......................................................................................................................................14

Liquidity Ratios................................................................................................................................14

Profitability Ratios...........................................................................................................................15

Return on Investment..................................................................................................................15

Profit Margin...............................................................................................................................16

Observations.......................................................................................................................................17

Suggestions..........................................................................................................................................18

STRATEGY RECOMMENDATIONS.........................................................................................................21

CONCLUSION.......................................................................................................................................22

Annexure.............................................................................................................................................24

Annexure I Cash Flow Statement.....................................................................................................24

Annexure II Balance Sheet...............................................................................................................25

Annexure III Income Statement.......................................................................................................26

Bibliography.........................................................................................................................................27

ABSTRACT

This report is a Financial Report of Apple Inc. The study will help us to find out about the overall performance of the company. It will also help us to learn about the way of management of finance of Apple, Inc. By analysing the different financial ratios, we can know about the performance and the position of the company in the market. Apple brand's strengths, weaknesses, opportunities and threats can be known by using SWOT analysis tool. We can know how to segment the market, target the customers and position the products. Therefore, since the competition in the technology industry is increasing, BCG Matrix is a technique to classify products as low or high performers depending upon their market growth rate and relative market share. It is very useful tool to identify the product line of an organization. A PEST analysis tool will help in knowing about the different political, economic, social and technological factors affecting the performance of the company, to gain competitive edge, to attain goals set by the company, to make improvements for the future related to products, etc. Therefore, it will help us to evaluate whether the financial management will affect Apple Inc.’s success rate or not.

INTRODUCTION

Apple Inc., is an American manufacturer of personal computers, computer peripherals, mobile phones and computer software. It was the first successful personal computer company and the populariser of the graphical user interface. Its headquarters are located in Cupertino, California. Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne on April 1, 1976, to develop and sell personal computers. Apple is the world's second-largest information technology company by revenue after Samsung Electronics, and the world's third-largest mobile phone maker.

The company’s worldwide annual revenue in 2013 totalled $170 billion. As of Q1 2014, Apple's five-year growth average is 39% for top line growth and 45% for bottom line growth. In May 2013, Apple entered the top ten of the Fortune 500 list of companies for the first time to take the sixth position.

In its fiscal year ending in September 2011, Apple Inc. reported a total of $108 billion in annual revenues – a significant increase from its 2010 revenues of $65 billion – and nearly $82 billion in cash reserves. Apple achieved these results while losing market share in certain product categories. On March 19, 2012, Apple announced plans for a $2.65-per-share dividend beginning in fourth quarter of 2012, per approval by their board of directors.

On September 2012, Apple reached a record share price of more than $705 and closed at above 700. With 936,596,000 outstanding shares, it had a market capitalization of about $660 billion. At the time, this was the highest nominal market capitalization reached by a publicly traded company ever.

SWOT ANALYSIS (Strategic Management Insight, 2014)

STRENGTHS

Customer loyalty combined with expanding closed ecosystem. While at first Apple’s closed ecosystem was a weakness for the business, this has now changed. First, Apple now has a full range of apps, software and products that are interlinked and support each other. Second, new products and supplements will be released soon (iTV), hence expanding the ecosystem. Third, Apple has a strong customer loyalty, which increases due to Apple’s closed ecosystem, which, in turn, is supported by customer loyalty. So the combination of Apple’s expanding closed ecosystem and customers’ loyalty increases firm’s competitive advantage.

Apple is a leading innovator in mobile device technology. Apple has been chosen as the most innovative business in the world for the 3rd time in 2012. Company’s core competency of producing innovative products is the strength the company builds upon and is able to bring the most innovative products to the market. (The Times of India, 2012)

Strong financial performance ($10,000,000,000 cash, gross profit margin 43.9% and no debt). Apple’s financial performance is one of the best among many companies. Company currently (end of 2012) holds about $10,000,000,000 in cash, which can be used for acquisitions, buying back company shares and other matters. It also has higher gross profit margin than its main competitors, which is equal to 43.9%. Company has no debt and is not directly affected by interest rates or credit markets.

Brand reputation. Apple has a reputation of highly innovative, well designed, and well-functioning products and sound business performance. Apple brand is valued at $76.5 billion and was the second most valuable brand in the world in 2012.

WEAKNESSES

High price. Apple’s products cost much more than its competitors devices. Some critics argue that the price is not justified. When there’s such a fierce competition, Apple products price becomes a weakness because consumers can easily opt for similar quality but lower price products.

Incompatibility with different OS. The iOS and OS X are quite different from other OS and uses software that is unlike the software used in Microsoft OS. Due to such differences, both in software and hardware, users often choose to stay with their accustomed software and hardware (Microsoft OS and Intel hardware).

Decreasing market share. The less market share Apple has, the less it can influence its potential customers and persuade them to jump into using Apple’s closed ecosystem products. (CNN Money , 2012)

Patent infringements. The firm is often accused of infringing other companies’ patents and has even lost some trials. This damages Apple brand and its financial situation.

OPPORTUNITIES

High demand of iPad mini and iPhone 5. IPad mini sales will increase Apple’s market share in the tablet market and, will strengthen firm’s competitive advantage.

iTV launch. iTV launch will support Apple TV sales and the products’ ecosystem.

Emergence of the new provider of application processors. Samsung, the main Apple’s competitor, is also the only provider of application processors for Apple’s products. Apple has to find a new source for the component but could not find a suitable one yet. Nonetheless, new manufacturers with superior engineering capabilities are arising and it’s just a matter of time, when Apple will seize upon the opportunity of being less dependent on its direct competitors.

Growth of tablet and smartphone markets. Growth of tablet and smartphone markets is a good opportunity to expand firm’s share in these markets.

THREATS

Rapid technological change. One of the most severe threats Apple and the other tech companies are facing is rapid technological change. Companies are under the pressure to release new products faster and faster. The one that cannot keep up with the competition soon fails. This is especially hard when a business wants to introduce something new, innovative and successful. Apple was able to bring very innovative products to the market so far but for the moment, even Apple hasn’t unveiled any plans for the new products (except iTV) and may lack new introductions to keep up with competition.

Rising pay levels for Foxconn workers. Pay levels for Foxconn’s workers already rose 3 times from 2010 to 2012. Foxconn is the main manufacturer of Apple products and the rising pay level for Foxconn’s workers will likely raise the prices for Apple products. (The Telegraph, 2012)

Price pressure from Samsung over key components. Samsung has already asked Apple to pay higher price for its application processors. Due to intense competition and no viable substitutes, Apple may be asked to pay even more. (The Financial Times, 2012)

BCG Matrix (Luke R. A., 2013)

Question Mark- Apple TV makes a bit of money, but it’s not reaching its potential. If Apple can solve a few ecosystem problems, they could really own the TV space. There are tons of rumours of an Apple TV product that might just maybe dominate like the iPod/iPhone/IPad (Singleton, 2014)

Rising Star -The iPhone and IPad are rising stars. They can’t make enough of them. These products are so successful that their growth potential is really unknown. (Sullivan, 2011)

Cash Cows-The Mac Books are the portables of choice right now. The all-in-one I Mac is in that cash cow place. They make a lot of them, but computing is quickly shifting to portable and mobile so they are also in the dog section. (Dougherty, 2012)

Dogs- The big multi-part desktop is fading away. Hard drive based iPods peaked a while ago as well and there are just so may competitors that can create a simple product such as an ipod now. Apple's Macs could be considered in the dog category as Apple is not a market leader in this market segment as their competitors have the desktop market in a monopoly. (Kim, 2012)

BCG MATRIX

(Luke R. a., 2013)

PEST Analysis (Luke R. A., 2013)

PoliticalIn 2005, 52% of sales were outside of America. Apple has no control over relations with other countries due to America's war on Terrorism. Apple produces many of their products outside of the USA. This includes a list such as Ireland, China, Czech Republic, and Korea. Political conflicts with any of these countries will have terrible effects on Apple INC. Once again, Apple has no control of the wars, and lack of communication or failed public relations with corresponding countries to the USA. (Jamalov, 2014)

EconomicThe Economic depression may have a serious impact on Apple sales and improvements in the company. Apple's products may be viewed by some as "luxury" products and the inflation rate is high, while income is low and unemployment rates are increased the company could risk a severe loss in sales. As the U.S.D (us dollar) has lost some value the Apple corporation does not risk economic breakdown as they have purchased foreign currency. In fact, the decrease in the U.S.D has actually increased Apple's revenue on the market. (Fadaei, 2013)

Socio-CulturalThe people's interactions from around the world has to do with globalization. Today's world is the way it is due to technology and a lot of it is due to Apple. It is the leader in computers, software, and cell phones and this is due to the quality and designs of the products. Another large factor is the music industry, it has grown into the cyber world. iTunes is ahead of any other competitor in its class. Web piracy is a threat but most countries punish and have laws against this. Apple's image displays the modern person's lifestyle, they are the leader in their class and are known around the world. Therefore sociological effects benefit the company. (Isaacson, 2011)

Technological Environment

The technological environment for Apple's market has grown substantially over past years. Most specifically, phones and computers have become a hot commodity. Apple is on top of the market for innovating products and the main thing about these products is that their life cycles are very short, making it inevitable for more products to be sold later. The increase in technology is encouraging competitors to improve, which then keeps Apple improving. (Belic, 2012)

Overall, Apple is a very well established company with a firm grasp on all sections in a PEST analysis. They are established politically by having a "plan B' in case something that they cannot control happens and it is still maintaining success while the depression is prevalent, they are knowledgeable in economics. Apple uses the modern person to depict their product as well as create new ingenuity and design. They seem to have all bases covered and will always be a leader in technology.

Ratio AnalysisLiquidity Ratios1

2010 2011 2012 20130

0.5

1

1.5

2

2.5

Liquidity Ratios

Current Ratio Quick Ratio Cash Ratio

(Google Finance, 2014)

Ratio Description The company

Current ratio

A liquidity ratio calculated as current assets divided by current liabilities.

Apple Inc.'s current ratio deteriorated from 2011 to 2012 but then improved from 2012 to 2013 exceeding 2011 level.

Quick ratio

A liquidity ratio calculated as (cash plus short-term marketable investments plus receivables) divided by current liabilities.

Apple Inc.'s quick ratio deteriorated from 2011 to 2012 but then improved from 2012 to 2013 exceeding 2011 level.

Cash ratio

A liquidity ratio calculated as (cash plus short-term marketable investments) divided by current liabilities.

Apple Inc.'s cash ratio deteriorated from 2011 to 2012 but then improved from 2012 to 2013 exceeding 2011 level.

1 Annexure I Cash Flow Statement

Profitability Ratios2

Return on Investment

2008 2009 2010 2011 2012 20130

5

10

15

20

25

30

35

40

Return on Investment

ROA ROE

Year

Perc

enta

ge

(Apple Investors, 2014)

Rati

oDescription The company

ROE A profitability ratio calculated as net

income divided by shareholders'

equity.

Apple Inc.'s ROE improved from 2011 to

2012 but then deteriorated significantly from

2012 to 2013.

ROA A profitability ratio calculated as net

income divided by total assets.

Apple Inc.'s ROA improved from 2011 to

2012 but then deteriorated significantly from

2012 to 2013.

2 Annexure II Balance Sheet

Profit Margin3

2008 2009 2010 2011 2012 201305

101520253035404550

Profitability

Gross Profit Margin Net Profit Margin

Year

Perc

enta

ge

(Yahoo Finance, 2014)

Ratio Description The company

Gross

profit

margin

Gross profit margin indicates the

percentage of revenue available to

cover operating and other

expenditures.

Apple Inc.'s gross profit margin

improved from 2011 to 2012 but then

deteriorated significantly from 2012

to 2013.

Net profit

margin

An indicator of profitability,

calculated as net income divided by

revenue.

Apple Inc.'s net profit margin

improved from 2011 to 2012 but then

deteriorated significantly from 2012

to 2013.

Observations

Based on the findings in the trend and common size analysis, Apple’s overall performance is above average.

3 Annexure III Income Statement

Analysis of company’s Balance Sheet showed that Apple’s growth in Total Assets, Common Equity, and Retained Earnings was above industry average.

Analysis of company’s Income Statement showed that Apple’s growth in Net Sales, and Gross Income was above its competitors.

Analysis of company’s Cash Flow Statement showed that Apple’s Net Cash Flow from Operating Activities was above the industry average, and that resulted in a positive Net Change in Cash.

Suggestions

For Company

Lowering the cost of products and maintaining the same quality

standards.

Can form joint – ventures.

Knowledge Management.

More number of retail stores for easy access.

Continuous innovation to expand.

For Others

Do not compromise on price for quality.

Choose the products based on individual needs.

Be unique and different.

Scale up its production capabilities. Every time Apple releases a

hot new gadget, customers can't get it. This is a consequence of Apple's

legendarily precise just-in-time manufacturing system. Apple never wants

to make more devices than it will sell, so it ramps up manufacturing in

lock step with demand. That reduces its inventory costs and thus boosts

its profit, but Apple's production is still too slow to keep up with instant

spikes in demand. Is it possible for Apple to build products any faster

than it does now? If money is no object, sure: It could set up factories in

many different countries and it could invest in next-generation production

capabilities that might pump out iPhones even faster (for instance, robotic

assembly lines, which have the added benefit of not raising any concerns

about factory conditions).

Build or buy a cellular carrier. The iPhone is Apple's biggest

product, but Apple sells almost all of its phones in partnership with

carriers whose prices it doesn't control. Those costs are the biggest piece

of a smartphone purchase, and, in the U.S. and many other places around

the world, they have remained relatively stable for years. Your cellular

carrier's technology and customer service also leave a lot to be desired.

Steve Jobs once said that Apple's goal is to "own and control the primary

technology in everything we do." Cellular data service is a key such

technology, and Apple should make it a goal to own and improve that

service. It could start small, building infrastructure that boosts iPhone

service in congested cities, but with enough investments it could build a

network of its own, thus improving current carriers' service and prices

through competition.

High demand of iPad mini and iPhone 5. iPad mini sales will

increase Apple’s market share in the tablet market and, will strengthen

firm’s competitive advantage.

iTV launch. iTV launch will support Apple TV sales and the products’

ecosystem.

Growth of tablet and smartphone markets. Growth of tablet

and smartphone markets is a good opportunity to expand firm’s share in

these markets.

Provide value for the products offered-If a perception is created that Apple is offering its customers with fine products with premium quality in the industry, which is not being offered by others; than Apple should be able to differentiate themselves from their competitors in order to still keep premium pricing for their products.

Conduct more aggressive promotion-Increasing promotional programs never proves to be damaging for any firm, but only proves to be beneficial, it not only helps to attract potential customers, but also new customers boosting customer traffic and sales. Apple should also start creating 'TV commercials', in such a way that educate the customers about the latest technological product, making it seem more appealing. Also, they should start focusing on advertising all products not only new products in order to meet the sales target for all products.

Make maximum innovations-Technology market is a highly competitive market, it’s very easy for competitors to clone your products and sell as new products by making small innovations. Therefore, it has become very important to keep making constant innovations in design, features and specifications in order to differentiate your product from competitive brands and to be able to dominate the market.

Offer price reduction offers from time to time-Instead of not charging premium, price reductions, free gifts, vouchers, VIP cards, etc. can be made for a limited period of time, to allow customers to buy from Apple more often. Thus, this may help Apple to attract new target group customers increasing its fan base, along with sky rocketing its brand loyalty and sales.

Open more Apple outlets in different areas-Since Apple relies on online, direct and retail distribution methods, it’s important for Apple to

expand its direct reach through its own stores and retail stores by locating stores in a more reachable district, like residential areas so that people can have an easy access to the stores.

STRATEGY RECOMMENDATIONS

Strategy 1

Open six computer retail stores (not just peripheral and accessories). Apple currently has stores opened throughout the United States with only peripheral and accessories for their computers. Adding the hardware should generate more hands-on awareness and use already established locations. This will increase product accessibility for those who wish to view items other than just accessories and increase awareness of the originality of Apple’s products. 2 percent increase over the next 2 years in sales representatives for the computer hardware.

Strategy 2

Contract music spokesperson to attract the upcoming generation who are attending high school and college. This will invoke a sense of style and linking apple with a distinctive and memorable top 10 hit. This will stay in the customer’s awareness and influence future purchase decisions. Contracting one music spokesperson estimated $6 million.

Strategy 3

Add more features to current products for greater Wintel compatibility. Features such as iTunes software compatible with windows based computers, Office programs loadable from PC installation disk (This would require a software agreement with Microsoft). In late October 2003 Apple released an iTunes software package that is PC ready. It will increase the United States market share at least 30 percent for the next 2-3 years. $50 million is the estimated cost for Research and Development.

CONCLUSION

It is concluded from the strategic management analysis at APPLE Inc. that technological industries are never easy to compete with. They have a lot invest at R&D and have to be proactive in order to compete with their competitors in the industry. As for APPLE is concerned they have been working so well as it is shown form their products. As Apple Inc. is increasing also, those other businesses are increasing and trying to do something interesting for their own good. APPLE needs to make a drastic change. They don’t need to wait for people buy their products only when they are on sale but they need to focus more on the customer support and improve the areas they already have problems.

Based on the performed analysis, Apple Inc. is financially healthy and strong. The company’s growth has been extraordinary during the past five years. Apple is able to finance its operations by current liabilities only. Its financial structure is outstanding with 100% Equity. Apple Inc. does not have any long-term debt, which makes the company very financially independent. Revenues and Net Income are increasing each year. Retained Earnings reached $9.101 billion in 2007, which is an indicator for the financial power of Apple. Due to the fact that sales are constantly increasing, and backed by $9.352 billion (2007) in Cash and equivalents, the company can afford future acquisitions.During the years, Apple has substantially improved in its key measures of profitability. In terms of ROA, ROE, and profit margins, Apple strengthened financially and now has better ratios than its competitors and the overall computer hardware industry.Based on the facts presented above, it may be concluded that Apple Inc. is performing better than the industry average, including Dell, and HP. This dramatic success in performance is primarily due to the increase in sales from iPod product line, and most recently from iPhone sales.(O'grady, 2009)

I feel that Apple must focus on several key aspects to continue to grow and

succeed. They must continue a stable commitment to licensing, push for

economies of scope between media and computers, and become a learning

organization.

Although it should continue, Apple may want to consider other forms of

strategic alliances. An equity strategic alliance may offer Apple the opportunity

to obtain additional competencies. An effective way for a company like Apple

to accomplish this would be in the form of a joint venture.

Apple should continue pushing the new line of media-centric products.

Meanwhile, Apple should not lose focus on its computers. Macintosh

computers were 59% of Apple’s sales in 2012. (Burrows)This very innovative

company exploits its second-mover position. In the future, they will need to

continue innovating to expand the boundaries of both media and computers.

Apple apparently made a commitment to licensing. Although it should

continue, Apple may want to consider other forms of strategic alliances. An

equity strategic alliance may offer Apple the opportunity to obtain additional

competencies. An effective way for a company like Apple to accomplish this

would be in the form of a joint venture. Apple should continue push for

economies of scope between media and computers, and become a learning

organization, pushing the new line of media-centric products. This very

innovative company exploits its second-mover position. In the future, they will

need to continue innovating to expand the boundaries of both media and

computers. This will allow the company to withstand a departure by Jobs.

Based on the actions of the organization, we feel that the mid-term

performance of Apple will be strong. This period allows Apple time to

overcome their challenges if they move swiftly. For this reason, we feel that

they will continue to succeed and will continue to outperform their peers.

AnnexureAnnexure I Cash Flow Statement

Annexure II Balance Sheet

Annexure III Income Statement

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Word Count

Abstract – 201 Words Report – 3800 Words (Approximate)