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杭州师范大学 阿里巴巴商 学院

2020-2021 学年第 二 学期期末考试

《 公司金融 》课程试题

任课教师：徐瑶之

班级： IB191 学号： 2019992113053

姓名： 沙龙 得分：
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Table of Contents
1. Abstract………………………………………………………………………………………3

2. Introduction…………………………………………………………………………………3

3. Financial Policy.............................................................................................................................4

4. AAPL(Stock) Perfomance...........................................................................................................8

5 Capital Structure Analysis..........................................................................................................10

6. CashFlow analysis......................................................................................................................12

7. Investment Policy.......................................................................................................................14

8.Conclusion…………………………………………………………………………………16

9. References………………………………………………………………………………17
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The Financial Analysis of Apple(Inc)

Abstract

Apple Inc. is the world’s most valuable tech company. Because Apple is significantly

overvalued, the long-term return of its stock is likely to be much lower than its future

business growth. Moreover, Apple shareholders are concerned with the level of cash

at hand that apple holds. Apple has $191.83 billion in cash according to its fiscal

fourth-quarter earnings in 2020. That’s down from the company’s fiscal third quarter

2020, when it reported $193.8 billion in cash. The objective of this case study is to

analyse whether apple Inc will continue to grow despite the current problems it’s

facing. The case study will show case AAPL(Apple Stock) Perfomance, capital

structure, financial policy, cashflow analysis and investment policy.

Keywords: AAPL, Investment, Financial Policy, CashFlow

Introduction

Apple Inc. is a Multinational firm formed on April 1, 1976, by Steve Jobs and Steve

Wozniac, who brought to the new firm a concept of transforming people's perceptions

of computers. Jobs and Wozniak sought to develop computers that could be used in

people's homes or offices. Apple Inc. is a technology company that creates, develops,

and sells mobile communication and media devices, as well as personal computers

and portable digital music players. The company also offers third-party digital content

and apps, as well as related software, services, and peripherals. The company’s

headquarters are based in Cupertino, California.

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The company sells its whole product range through its retail locations, online

stores, and direct sales force, as well as through third-party cellular network vendors

and wholesalers who have signed a patent agreement with Apple. Furthermore,

through its sales and online stores, the Company sells a variety of third-party Apple-

compatible items, such as application software with references to system software and

a variety of peripherals. Clients, small and mid-sized firms, and education, initiatives,

and managerial skills are all served by the company. The financial year of the

company is 52 or 53 weeks long and concludes on the final Saturday in September.

Apple's net worth at the end of the fiscal year 2020 was $65.34 billion. 11. Its market

capitalization, however, is $2.08 trillion as of March 15, 2021.

1. Financial Policy

The biggest driver of Apple's modern success is the iPhone. The game-changing

smartphone, which debuted in 2007, sparked years of massive growth and created a

loyal base of customers willing to buy Apple products and services.

Apple's Financial Report for 2020 Apple released its financial report. Total

revenue was 58.3 billion dollars and net profit was 11.2 billion dollars under the effect

of the pandemic. Revenue was US$58 billion and net profit was US$11.6 billion in

the same time previous year(2019).

The services, which include the App Store, iCloud storage, Apple Music, and

Apple Care, have grown to a $60 billion-plus income stream that is increasing at a

rate in the mid-teens on an annual basis.

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The problem is that sales have dropped mostly due to the lengthening of the phone
update cycle. It just implies that consumers are keeping their iPhones longer than
before.

Figure 1: Iphone sales since 2018

Source: Apple Reports

Figure 1 demonstrates that consumers are content with their current models. While the

newest models accounted for 19% of all iPhones sold in 2017, they only accounted

for 7.5 percent in 2019. Besides, the most popular iPhone at the time was the iPhone

7, which was three years old. Iphone sales have gone down despite the numerous .

After the Apple’s earning call, Hall said: “Apple’s commentary points toward the

weaker 5G iPhone cycle we have been forecasting rather than the ‘Super Cycle’

expected by consensus.”

1.1 Financing policy

Figure 2: Financial Data of Apple Inc. 2017-2020

Source: Yahoo Finance

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Note: All numbers are measured in thousands

Table 1: Financial Ratio Analysis

Source: Apple Inc. Real-time Data

Ratio Apple Whole

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Industry

Liquidity Ratio Current Ratio 1.09 1.68

Quick Ratio 1.14 1.17

Solvency Ratio Long-Term Debt 157.05% 46.96

To Equity

Liabilities to 175.84% 53.27%

Asset

Profitability 23..45%
Margin
Profitability Ratio
Return on 23.21% 15.07%
Assets(ROA)

Return on 103.4% 31.29%

Equity(ROE)

1.1.1 Analysis from cash books

Liquidity Ratio:

Apple’s Current ratio and Quick ratio are almost equal to the Indstry’s. This

indicates that Apple is holding too much cash. That could be utilized in other areas.

The main reason behind this is that Apple profits are retained in various other

countries that include: China, United States,

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Solvency Ratio:

According to recent quarter reports, Apple has an excessive amount of long-term

loans, which is the primary reason why the Liabilities to Assets ratio is so volatile.

Total debt is $112.04 billion, Also, Apple's most recent financial statement, which

were released on January 28, 2021, with $99.28 billion in long-term debt and $12.76

billion in current debt. Adjusting for $36.01 billion in cash-equivalents, the company

has a net debt of $76.03 billion.

Profitability Ratio:

Apple Inc’s levels of ROA and ROE are quite impressive and demostrate future

growth of the company. These numbers are higher than the market value. Therefore,

Apple’s profit margin demonstrates that it is gaining more.

2. AAPL(Stock) Perfomance

Apple, the company went public in 1980. In 1980, Apple issued 4.6 million

shares at 22$ per share. One share bought in 1980 was accounted for 56 shares and

therefore worth $15, 200 in 2019. These shares had a total of 69,000% return over the

course of the past 30 years. Stock in the late 90s hold more value than those bought

today. The shares did not truly take off until the mid-2000s, according to several

subsequent reports. They were valued $131.88 in December 2004 when they traded

for $1.16, $11.52 on December 31, 2010, and $131.88 on December 22, 2020. So the

Apple stock price has risen more than elevenfold during the past 10 years.

Figure 3: Stock perfomance(1990-2020)

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Source: Macrotrends

Because Apple is significantly overvalued, the long-term return of its stock is

likely to be much lower than its future business growth, which averaged 12.8% over

the past three years and is estimated to grow 7.49% annually over the next three to

five years.

3. Capital Structure Analysis

Capital structure analysis is the endeavor to determine the specific allocation of

debt and equity that makes up an Apple's finances. This Analysis, which is included

in the company's balance sheet, will include shareholders' equity, debt (loan funds),

and preferred stock. The bigger the debt component in comparison to the other

sources of capital, the greater the firm's financial leverage. Too much debt can raise

Apple's risk and decrease its financial flexibility, causing investors to get concerned

and resulting in a higher cost of capital. Company management is responsible for

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developing a capital structure for the business that maximizes financial leverage while

keeping the cost of capital as low as feasible.

3.1 Equity Capitilization

As of June 29, 2019, Apple's total shareholder equity was $96.5 billion. This

comprises of $43.4 billion in par value common stock and extra paid-in capital, as

well as $53.7 billion in retained profits, less $639 million in cumulative other

comprehensive income. Apple has around 4.57 billion outstanding shares. It is

important to note that Apple has been successful with its capital structure through

leveraging Debt and increasing equity.

3.2 Debt Capitilization

Debt capitilization represents how much money a company owes to creditors.

Debt is categorised first by time period. Current liabilities include debt that expires

within a year and should be considered by investors when assessing a company's

capacity to stay solvent. According to Apple Financial reports, Apple’s current

liabilities as of June 29, 2019, were $89.7 billion, consisting of $29.1 billion in

accounts payable $13.5 billion in short-term notes and bonds. Long-term debt and

other non-current liabilities amount to $136 billion, bringing Apple’s total liabilities

to $225.8 billion, an increase of nearly 63% in the last three years(2016-2019).

Because of the zero interest rate policy (ZIRP), Apple issued its first bonds and

notes in 2013, financing a total of $64.46 billion in debt. Apple took this decision not

because it needed the money, but because it was effectively getting it for free.

Because the nominal interest rates on many of Apple's bonds are less than 3%, the

actual returns on these securities barely outpace inflation. Apple's debt buildup, on the
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other hand, has significantly altered its capital structure. Over the previous five years,

Apple's current and quick ratios have increased by 33% and 59%, respectively. In the

previous three years, its long-term debt has roughly doubled.

In the same year(2019), The company's debt-to-equity ratio also increased. This

calculation is most useful for estimating the percentage of a corporation's ownership

VS the amount of money due to creditors. It is determined by dividing the total

liabilities of a firm by the equity of its owners. Apple had a debt-to-equity ratio of

50% at the end of 2016. That ratio increased to 112 percent in three years,

demonstrating how fast capital structure may fluctuate.

Figure 4: Apple Inc Balance sheet (2017-2019)

Source: Yahoo Finance

Note: All numbers are measures in thousands.

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4. CashFlow analysis

Apple cash flow analysis is a useful technique for forecasting future capital

expenditures and estimating the amount of cash required to pay cost of sales,

Research and Development spending, and production expansions. Investors should

nearly always check for changes in cash flow indicators such as Issuance Repayment

of Debt Securities or Net Cash Flow from Operations since they are an important

predictor of Apple's capacity to support future growth, repay debt on schedule, or pay

dividends.

In 1987, the AAPL Cash Flow Statement became obligatory reporting. It is

currently one of the three key accounting statements used to assess how successfully

apple manages its liquidity and total cash situation. The rate of cash usage and

preservation is currently one of the main indications of a strong organization, and the

Apple Inc Cash Flow Statement indicates how successfully the firm generates cash to

pay off debt or meet continuing operational expenditures.

Figure 5: Apple Annual Cashflow Statement As of 2017-2020

Source: AAPL annual Finance reports

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Note: All numbers are measures in Millions of USD(except for per share items)

Analysis from the cash flow

 A positive operating Cash Flow implies that Apple’s Liquid Assets are increasing
 A negative Investing Cash Flow indicates that Apple is investing more in the
future growth of the company. It is mainly caused by investing large sums of
money for the future well-being of Apple.
 A negative Financing Cash Flow is a good indicator that Apple is doing a great
job of paying off its long-term debt, therefore reducing its debt obligations.

5 . Investment Policy

Ths Investment Policy demonstrates investment return and risk objectives, and

risk Management.

Table 2: Apple Rate of Return on Investment for stock(2016-2020)

Source: CSIMarkets.com

AAPL ANNUAL ROI 2020 2019 2018 2017 2016

Rate of Return on 26.28% 23.74 23.92% 17.61% 18.83%

investment. %
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5.1 Capital Asset Pricing Model Analysis on Apple

The basic goal of the CAPM is to estimate the expected return on Apple assets based

on the systematic risk(Market risk )of the asset return. A Systematic risk can’t be

eliminated through diversification, and investors are able to diversify their portfolio at

no cost.

5.1.1 Rates Of Return

Figure 6: Apple Inc., Monthly rates of Return(2014-2020)

Source: NASDAQ: AAPL

Notes:

1. Data in US$ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of AAPL during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t

5.1.2 Variance & Covariance

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Figure 6: Apple Inc., Calculation of Variance and Covariance

Source: NASDAQ: AAPL

VarianceAAPL = Σ(RAAPL,t–RAAPL)2 ÷ (71 – 1)

= 4,965.28 ÷ (71 – 1)
= 70.93

VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)

= 1,210.80 ÷ (71 – 1)
= 17.30

CovarianceAAPL, S&P 500 = Σ(RAAPL,t–RAAPL)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)

= 1,587.01 ÷ (71 – 1)
= 22.67

5.1.3 Beta Estimation

Figure 7: Apple Historical Beta

Source: NASDAQ: AAPL

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Note: S&P 500 is is a market-capitalization-weighted index of the 500 largest publicly-

traded companies in the U.S.

Beta that is greater than one implies that the asset is riskier than the Market

Index. This also implies that Apple Stock is a high risk, but it offers higher possibility

of high returns therefore it is a good Investment.

Conclusion

Apple Inc. has experienced significant growth in recent years. Apple devotes

greater resources to research, development, and manufacturing of technical

breakthroughs that enable it to generate more money. The company's development

enables it to ensure that it can pay dividends to all of its shareholders and meet all of

its debt commitments while continuing to operate on a daily basis. This firm has the

potential to expand in the future.

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