Running head: APPLE INC.

’S FINANCIAL ANALYSIS 1

Apple Inc.'s Financial Analysis

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APPLE INC.’S FINANCIAL ANALYSIS 2

1. Introduction
Apple Inc. (AAPL) is a multinational organization that designs, produces, and markets personal
computers, smartphones, wearables, tablets, and accessories, including selling different related services.
The organization operates in different geographical segments like Japan and Greater China, Rest of Asia
Pacific, Europe, and Americas. Apple's products include the iPhone, Mac, iPad, wearables, accessories,
and homes. It is worth mentioning that iPhone is the enterprise's line of smartphones primarily based on
its iOS. Accordingly, Mac products include personal computers with mac OS, including but not limited to
13-inch MacBook, Mac mini, MacBook Air, and redesigned iMac. iPad products include the new iPad Air,
iPad Pro, and iPad mini (Security and Exchange Commission, 2021). Services provided by Apple include
advertising, and AppleCare, which entails services like access to global Apple, Apple technical support,
and replacement services. Other services include cloud services, digital content, and payment services
like Apple Pay and Apple Card.
Like many organizations operating in the Consumer electronics Software Online services industry, Apple,
Inc. is among the leading consumer electronics manufacturers relying on the nation's economy for profits
and sustainability. Therefore, some economic factors affecting the organization for the past two years
include recession, government regulations, unemployment, and inflation attributed to the COVID-19
global pandemic. Accordingly, government regulations, such as restrictions to travel, affected the
company's supply chain, limiting the company from accessing supplies and logistics services. The
government regulations disrupted the supply chain, leading to the closure of the company's retail stores
and points of sale.
2. Income Statement Analysis
Income statement demonstrates the financial information from a company's business activity in a selected
period. The income statement communicates the generated amount of revenues and the related
expenses incurred, thereby depicting whether a company made profits or losses in a selected period,
often a fiscal year. Apple Corporation's income statement for the financial years ending 2020 and 2021
depicted a revenue growth of 33.3 percent from $274,515 to $365,817, which is higher compared with a
percent increase recorded by Dell Technologies, one of Apple's primary competitors, reporting a 2.2% in
the same period (See Appendix Table 1). Besides, Apple's gross profit margin increased by 45.6% from
$104,956 to $152,836 in FY 2020 and FY 2021, respectively. The percentage increase is highly
significant for Apple Corporation, given that Dell Technology reported a decline in gross profits in the
same period by -2.4 percent. Noteworthy, Apple Inc.’s growth in gross profit margin is attributed to the
company's remarkable growth in revenues in the Fiscal year ending 2021. Subsequently, the operating
expenses reported by Apple Inc. in FY 2020 and FY 2021 increased by 13.5% due to an increase in the
company's expenditures in R&D and SG&A expenses from $38,688 to $43,887 million. In the Contrary,
Dell technology operating expenses declined in the same period by -10 percent (See Appendix Table 1),
attributed to reduced S, G & A expenditures from $15,819 to $14,000 in FY 2020 and FY 2021. Moreover,
the four-year trend analysis for Apple Inc. reveals a robust growth in the company's total net sales and net
income in the last 2-financial years (See Appendix Figure 2). However, the company reported a decline in
revenues and net income in FY 2019, an economic phenomenon attributed to the COVID-19 outbreak in
China affecting the company's operations and later spreading globally.
3. Revenue Recognition
The company's net sales encompass revenues generated from selling Mac, iPad, iPhone, and Services
and other items. Notably, the firm recognizes revenues as the aggregate amount it anticipates to be titled
to when the control of the services or products is moved to clients. Apple allocates its revenue to all
separate “performance obligations” predicated in their relative “stand-alone selling prices (SSPs)." Hence,
when available, the enterprise utilizes observable prices to assess the SSPs. In the sales of the iPhone,
the company has three performances. The first performance included a significant portion of hardware
and buddle software sales. The second performance duty is receiving particular item-related bundled
services, such as Maps and Siri, while the third “performance obligation” is the right to get future
undetermined software upgrades associated with software bundled with every device. The firm assigns
revenues and any associated discounts to the above “performance obligations” predicated in their
respective SSPs. Noteworthy or the sale of third-party items where the enterprise attains merchandise
control before moving to clients, the firm recognizes these revenues predicated on the gross amount
billed to clients.
4. Balanced Sheet Analysis
APPLE INC.’S FINANCIAL ANALYSIS 3

A company's balance sheets communicate the book value while illustrating the company's assets,
liabilities, and shareholders' equity. The balance updates informs the stakeholders about the company's
financial position. Apple Inc. recorded a growth in total assets by 8.4 percent, from $323,888 in FY 2020
to 351,002 in FY 2021. Dell corporation reported total assets growth of 3.8 % in the same period, from a
total asset of $118 861 to $123,415 in FY 2020 and 2021, respectively (See Appendix Table 3). The
growth in Apple's total assets is attributed to the increase in the company's non-current assets value,
such as marketable securities mainly.
On the other hand, Apple Inc. recorded total liabilities amounting to $287,912 in FY 2021, an 11.4 %
increase from the proceeding financial year liability amount of $258,549. In the same financial period, Dell
Corporation, recorded an increase of 0.3 % in total liabilities. Nonetheless, Apple Inc. shareholders' equity
declined by -3.4%, from $65,399 to $63,090, which is significantly better than Dell Technologies'
stockholder equity, which declined by -362.3% (See Appendix Table 3) in the same period. Moreover,
Apple Inc.’s balance sheet items, average shareholders' equity, have declined for the last three
consecutive years. The average account payables, average account receivables, and average net fixed
assets declined from FY 2019 to FY 2020 and increased significantly in FY 2021 ( See Appendix Figure
3).
5. Statement of Cash Flows Analysis
Cash flow statement is one of the financial statements prepared by a company to provide information
regarding the cash inflows from the corporate operations and external investment and the corresponding
cash outflow used to pay for business activities and investments within a selected period. Therefore, a
cash flow statement is a vital financial metric that provides essential information about the movement of
cash in and out of an institution while helping the investor and shareholders comprehend how much cash
a business is making and spending simultaneously. Apple Inc.’s cash flow statement depicted that the
company operating activities generated $104,038 in FY 2021, a 29 % increase from $80,674 in FY 2020
(See Appendix Table 5). Subsequently, Apple reported - $ 14,545 cash used in investing activities, which
increased from the proceeding financial year 2020 to $ 4,289 million. The cash outflow for the investing
activity indicated that Apple made some investments for future growth. The difference is attributed to
payments for acquisition of property, plant and equipment. Besides, the company used $93,353 in
financing activities in FY 2021 compared to $86,820 in FY 2020, depicting an 10% increase in spending
on financing activities. Apple Inc. performed exceptionally in cash generated from operating activities
compared to Dell Corporation. In FY 2021, Dell Inc. generated $ 11,407 compared to Apple’s $104,038 in
the same period (See Appendix Table 5). In terms of the evolution year-by-year, Apple’s cash flow
statement illustrates a significant growth in the amount generated from operating activities from FY 2018
to FY 2021.
6. Key Financial Ratio Analysis
Profitability Ratios: ROE is a profitability ratio that determines the capability of an enterprise to generate
profits from the shareholder's investment in the firm. ROE is a crucial ratio because it helps investors
determine how Apple effectively uses stockholders' money to produce net income. Apple Inc.'s ROE in
2019 was 56%, which increased slightly to 76% and doubled to 147% in 2021. In 2019, Dell technologies'
ROE was 231.52%, which significantly declined to 16.51% in 2020, and later increased the following FY
2021 to 29.72%. Compared to the industry ROE, Apple performed slightly lower than the average industry
ratio of 155.88%.
ROA showed consistent improvement from 15.69% in 2019 to 17.33% in 2020 and 28.06 in 2021. Dell
technologies' ROA was 181% in 2021, which increased from -195% in 2019. The industry ROA was
27.51%, which was lower than both companies' performance. The high ROA, which was above the
industry's ROA, indicates that Apple Inc. is effective in managing its assets to generate profits. Apple's
gross profit consistently improved from 37.82% in 2019 to 38.23% in 2020, which increased further to
41.78% in 2021. Dell Technologies had a decline in its gross profit margin from 27.64% in 2019 to
23.23% in 2021. However, none of the companies met the industry's average ratio of 42.44%. Apple's net
profit margin fluctuated from 21.24% in 2019 to 20.91% in 2020, which increased to 25.88% in 2021.
However, although Dell technologies recorded a negative net profit margin in 2019 of -25.40%, the
company improved to 37.40% in 2021. Both companies had a higher net profit margin than the industry's
average ratio of 23.09%. Apple's Earnings per Share ratio was higher in 2021 with 5.67 compared to 2.99
and 3.31 in FY 2019 and 2020, respectively. The company's EPS was higher than the industry's EPS of
5.47. The company's quality of income was best in 2020 and slightly reduced from 1.41 to 1.10 in 2021.
APPLE INC.’S FINANCIAL ANALYSIS 4

Assets Turnover Ratios: The total asset turnover ratio captures how well a company uses its assets to
generate revenue. Apple's total asset turnover ratio consistently improved from 0.74 in 2019 to 1.08 in
2021. However, this was slightly lower than the average industry ratio of 1.11. Accordingly, the fixed asset
turnover ratio was 6.61 in 2019, 7.40 in 2020, and 9.40 in 2021, indicating a consistent improvement. The
receivable turnover ratio was 11.28 times in 2019, increasing to 14.06 times in 2020 and a further
increase of more than three times to 17.26 in 2021. The average days to collect receivables were reduced
from taking 32 days to collect receivables in 2019 to 25 days in 2020 to 21 days in 2021. Similarly, the
inventory turnover ratio was slightly better in 2020, with 41.52, reduced to 40.03 in 2021. However, this
was slightly higher than the industry's inventory turnover ratio of 37.63 times. The average days to sell
inventory fluctuated from 9.09 in 2019 to 8.79 days in 2020, which increased to 9.12 days in 2021. The
accounts payable turnover ratio increased consistently from 3.17 times in 2019 to 4.39 times in 2021. The
average payable turnover ratio improved from 115 days in 2019 to 83 days in 2021. The company's
operating cycle improved from 41.44 in 2019 to 30.27 in 2021, implying that it had adequate cash to
support its operations and meet its different financial obligations.
The cash conversion cycle is the length of time between paying for inventory and the cash collected from
the sale of inventory. Thus, a negative net operating cycle indicates that the suppliers finance your
operations. As a result, a company does not need operating cash to grow. Apple's cash conversion cycle
was negative for three consecutive years, indicating that the company could not sell its inventories or
receive clients' cash. Apple performed better in the asset turnover ratios, such as asset turnover,
inventory turnover, and receivable turnover ratio than its competitor Dell (see table 4).
Liquidity Ratios: Apple's current ratio declined from 1.54 in 2019 to 1.36 in 2020 and 1.07 in 2021.
However, this was higher than the industry's current ratio of 1. Dell technologies' current ratio for the three
years remained below one, implying that the firm has unstable cash flows to meet its obligations. Apple's
quick ratio declined from 1.17 in 2019 to 0.71 in 2021, but higher than the industry's quick ratio of 0.9. The
company's cash ratio was 0.46 in 2019, which declined to 0.36 in 2020 and 0.28 in 2021. A quick ratio of
less than 1 indicates that Apple does not have adequate cash and cash equivalents to meet all its short-
term obligations.
Solvency Ratios: Apple's times interest earned ratio increased from 19.38 to 24.35 in 2019 and 2020,
respectively. In 2021, the company's times interest ratio earned increased to 42.29 times. The cash
coverage ratio increased from 20.27 in 2019 to 26.87 in 2020, with a further increase in 2021 to 38.72.
The debt-to-equity ratio consistently worsened from 2.74 in 2019 to 4.56 in 2021. This was significantly
higher than the industry's average of 1.78.
Market Ratios: The price/earnings (P/E) ratio indicates that Apple’s stock was selling at a price that was
more than 25.91 times its earnings per share in 2021. This was a significant improvement from 8.29 times
in 2019 but a decline from 33.93 in 2020. Notably, compared with Dell Technologies, which had a P/E
ratio of 8.54 in 2021, Apple had higher earnings. Apple’s dividend yield ratio decreased from 1.31% in
2019 to 0.58% in 2021. This was lower than the industry’s dividend yield ratio of 0.91%.
Other Profitability Ratios
As a measure of profitability, a higher ratio of Return on capital employed (ROCE), shows that Apple was
more profitable in 2021 (77.4%) than in the last two consecutive years. Return on average capital
employed was the same as ROCE.
7. Opinion of the Auditors
A letter to Apple's BOD and Shareholders from Ernst & Young LLP stated that the company's financial
statements were presented fairly and that, in aspect, the firm's financial position on Sep 25, 2021, and
Sept 26, 2020, abided by the United States generally accepted accounted principles (GAAPs). The
auditors' opinion was based on thorough auditing of Apple's financial statements: comprehensive income
statement, statement of operations, cash flows, and shareholder's equity. It is worth mentioning that the
auditing firm audited Apple's financial statements based on the United States "Public Company
Accounting Oversight Board (PCAOB)" standards.
8. Conclusion and Recommendations
From the financial analysis above, Apple’s financial metrics indicate significant performance in its
revenues and profitability. Therefore, the following are the recommendations based on investors,
creditors’ and management's points of view.
APPLE INC.’S FINANCIAL ANALYSIS 5

Recommendations
Apple's ROE shows consistent improvement compared to Dell Technologies, implying that the
former had a higher percentage return on shareholder's investment. Apple's EPS ratio was higher than
the industry's, indicating that the company is making profits and has a higher corporate value. Despite a
reduction in quality of income in 2021, the company recorded a significant increase in its cash generated
by operating income from $80,674 in 2020 to $104,038 in 2021. This shows that the company's core
business activities are thriving, which indicates Apple's financial success. Despite a decline in dividend
yield, with a higher P/E ratio, it is clear that the company is expected to have higher future earnings and
divided. Thus, the ratio indicates that Apple’s stock will appreciate in the future, hence a good opportunity
for an investor to buy Apple’s stocks. Based on the examination of the financial statement between Apple
Inc. and Dell Corporation, an investor is recommended to invest their money in Apple Inc. because the
company reveals a robust financial position in the sector. For instance, the company generated more
revenue compared to the competitor Dell Technologies and a significantly high net income in millions than
Dell Corp. For instance, Apple’s net income in FY 2021 was $ 94,680 million compared to Dell Tech’s net
income of $ 3,250 million.
A quick ratio of less than 1 is unfavorable for creditors because it indicates that Apple lacks
adequate cash and cash equivalents to pay off its obligations. Based on the debt ratio, the company is
funded more than debts than equity. However, when considering other ratios like cash coverage ratio and
times interest earned ratio, Apple had a ratio of more than one. This shows that the firm has adequate
cash and cash investments to meet its short-term obligations/debts, making its increasing debt less a
concern.
The management can use the company's gross profit margin to improve its core business
activities. The ratio helps in showing the management to manage its direct costs and ensure that the firm
uses its labor and materials effectively to make profits. The negative cash conversion cycle from 2019 to
2021 reveals the COVID-19 effects on Apple's inventories. Due to the global pandemic, Apple, among
other companies, had to close down their plans in China, leading to little or no inventory. Therefore, to
mitigate such an occurrence in the future, the management should streamline its supply chain by
expanding its manufacturing plants to other countries like Mexico, thereby distributing the risk by ensuring
that it has adequate inventory, which can be converted to cash in less time.
APPLE INC.’S FINANCIAL ANALYSIS 6

Appendices
Appendix 1

Apple Inc.'s Research and Development

Investment
25,000
Amount in millions

20,000
15,000
10,000
5,000
0
2019 2020 2021
Years

Figure 1: Apple's Inc. research and development investment (Data source

Appendix 2
Table 1

Table 1: Apple and Dell’s financial metrics

Company Apple Inc. Dell Technologies
Financial Metric FY 2021 FY 2020 % change FY 2021 FY 2020 % change
Total revenues $365,817 $274,515 33.3% $86,670 $84,815 2.2%
Gross Margin $152,836 $104,956 45.6% $20,140 $20,639 -2.4%
Total Operating Expenses $43,887 $38,668 13.5% $16,445 $18,273 -10.0%

Figure 2
Amount in million $

Apple's Inc. Revenue and Net Income

Trend Analysis
400,000
300,000
200,000
100,000
-
2018 2019 2020 2021

Financial Years
Revenue Net income
Figure 2: Apple's Inc. Revenue and Net Income Trend Analysis (Data source SEC.gov)

Table 3
Table 2: Apple and Dell Technologies’ Financial metrics
Company Apple Inc. Dell Corporation
% %
Financial Metric FY 2021 FY 2020 change FY 2021 FY 2020 change
Total Assets $351,002 $323,888 8.4% $123,415 $118,861 3.8%
Total Liabilities $287,912 $258,549 11.4% $115,390 $115,077 0.3%
Shareholder's Equity $63,090 $65,339 -3.4% $2,479 -$945 -362.3%
APPLE INC.’S FINANCIAL ANALYSIS 7

Trend on Various Balance Sheet Items

120,000
Amount in million $

100,000
80,000
60,000
40,000
20,000
0
2019 2019.5 2020 2020.5 2021

Financial Years
Avg shareholders’ equity Avg accounts payable
Avg net fixed assests Avg accounts receivable
Figure 3: Trend on Various Balance Sheet Items (Data source SEC.gov).

Table 4
Table 3: Apple's Financial Ratio Analysis (Data source SEC.gov)
Profitability Ratios            
  2021 2020 2019 Unit Trend
1 Return on Equity (ROE) 147% 74% 56% consistent
improvement
2 Return on Assets (ROA) 28.06 17.33 15.69 consistent
% % % improvement
3 Gross Profit Percentage (gross profit 41.78 38.23 37.82 consistent
margin) % % % improvement
4 Net Profit Margin 25.88 20.91 21.24 consistent
% % % improvement
5 Earnings per Share (EPS) 5.67 3.31 2.99 consistent
improvement
6 Quality of Income   1.10 1.41 1.26   Best in 2020

Asset Turnover Ratios

1 Total Asset Turnover Ratio 1.08 0.83 0.74 consistent
improvement
2 Fixed Asset Turnover Ratio 9.60 7.40 6.61 consistent
improvement
3 Receivable Turnover Ratio 17.26 14.06 11.28 Time consistent
s improvement
3.1 Average Days to collect Receivable 21.15 25.96 32.35 days consistent
improvement
4 Inventory Turnover Ratio 40.03 41.52 40.13 Time Best in 2020
s
4.1 Average Days to Sell Inventory 9.12 8.79 9.09 days Best in 2020
Analyze the Operating Cycle
5 Account Payable Turnover Ratio 4.39 3.83 3.17 Time consistent
s improvement
5.1 Average Days to Pay Payable 83.17 95.29 115.20 days consistent
APPLE INC.’S FINANCIAL ANALYSIS 8

improvement
5.2 Operating Cycle 30.27 34.75 41.44
5.3 Net Operating Cycle (Cash Conversion -52.90 -60.54 -73.76
Cycle )

Liquidity Ratios
1 Current Ratio 1.07 1.36 1.54
2 Quick Ratio (acid test) 0.71 1.02 1.17
3 Cash Ratio 0.28 0.36 0.46

Solvency Ratios
1 Times Interest Earned Ratio 42.29 24.35 19.38 times
2 Cash Coverage Ratio 38.72 26.87 20.27 times
3 Debt-to-Equity Ratio 4.56 3.96 2.74

Market Ratios
1 Price/Earnings (P/E) Ratio 25.91 33.92 18.29
2 Dividend Yield Ratio 0.58% 0.61% 1.37% Decreasing

 
1 Return on average capital employed 77.4% 47.6% 39.0% consistent
(ROCE) improvement
2 Return on average capital employed Same
(ROACE)

Competitor Analysis (Dell technologies)

Profitability Ratios
  2021 2020 2019
1 Return on Equity (ROE) 29.72% 16.51 231.52
% %
2 Return on Assets (ROA) 181.00 43.00 -
% % 195.00
%
3 Gross Profit Percentage (gross profit margin) 23.23% 24.33 27.64%
%
4 Net Profit Margin 37.40% 54.40 -
% 25.40%
 
       
Asset Turnover Ratios
APPLE INC.’S FINANCIAL ANALYSIS 9

1 Total Asset Turnover Ratio 0.7 0.71 0.81

Receivable Turnover Ratio 5.45 4.88 5.4
3 Inventory Turnover Ratio 19.5 19.5 17.9

Liquidity Ratios
1 Current Ratio 0.8 0.7 0.8
2 Quick Ratio (acid test) 0.74 0.64 0.92

Market Ratios
1 Price/Earnings (P/E) Ratio 8.54 4 0

data source: https://www.macrotrends.net/stocks/charts/DELL/dell/financial-ratios

Table 5
Table 4: Apple Inc. Cash Flow Statement Analysis
Apple Inc. Cash Flow Statement Analysis
  2021 2020 2019 2018
Cash Generated by Operating Activities $104,038 $80,674 $69,391 $77,434
Cash generated by/(used in) investing activities -$14,545 -$4,289 $45,896 $16,066
Cash used in financing activities -$93,353 -$86,820 -$90,976 -$96,226
Dell Corporation Cash Flow Statement Analysis
  2021 2020 2019
Cash Generated by Operating Activities $11,407 $9,291 $661
Cash generated by/(used in) investing activities -$460 -$4,686 $3,389
Cash used in financing activities -$16,609 -$5,950 -$4,604

The link to dell info is here

https://investors.delltechnologies.com/static-file