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Apple Inc. Investment Analysis and Recommendations
Apple Inc. is an American multinational company specializing in designing and producing mobile telecommunication devices that include iPhone, computer software and hardware, Apple TV, Apple Watch, iPod, and other electronic devices. Apple was incorporated and publicly registered in 1977. Headquartered in California, Apple is one of the most successful American companies in term of revenue with the annual revenue reaching $233.7 billion at the end of 2015 fiscal year. On February 2016, Apple recorded $521.3 billion worth of market capitalization. While Apple designs the bulk of their products in the United States, the company's manufacturing plants are located in China. Apple also operates in Europe, Japan, Canada, and Latin America. (Apple Inc. 2015).
Board of Directors
Apple Inc. Board of Directors is overseeing by the company CEO (Chief Executive Officer) and other competent senior management. The Board oversees the day-to-day operations of the company as well as assuring the shareholder's long-term interests. Moreover, Apple Inc. Boards take the proactive approach to set the ethical standards by maintaining high ethical approach and responsibility. Based on the information in the proxy statement, Apple Inc. Board of Directors consists of 8 members from the information in the 2015 annual report. (Apple, 2015). Annually, the shareholders elect the Board member and select leaders based on their competencies, attributes, and experiences. Thus, the Apple proxy states the biographic data experiences, and attribute of each member of the board. The proxy statement also provides information regarding the Board member selection process, the composition of committee and committee charter. (Apple Inc. 2015).
Monitoring of potential Apple's Board of Directors
Apple's Boards believes in using their current leadership to achieve the company objectives. The board also believes in enhancing the corporate governance by periodically reviewing the leadership structure to meet shareholders' interests. In arriving these obligations, Apple's Board composes of a group of leaders with a diverse background in finances, risk management, and senior leadership. However, Apple set up different committees to monitor the activities of the Board members. (Adjaoud, & Ben-Amar, 2010). The Audit and Finance Committee is responsible for monitoring and overseeing Apple's financial statements as well as other financial information. The committee also oversees that the company financial statements and reporting to comply with legal, ethical, and regulatory requirements. Moreover, the committee oversees the internal control systems and data security. (Mukherji, 2002).
On the other hand, the Compensation Committee is responsible for reviewing and approving Board's compensation and company's executive officers. The Compensation Committee is also responsible for administering equity compensation plan for the Board member and perform other duties as being set forth by the company charter. The Nominating and Corporate committee are also one of the Apple's committees responsible for implementing a periodic reporting on the matter responsible for selection, identification, and qualification of Board members. (Adjaoud, & Ben-Amar, 2010). The committee is also responsible for making recommendations for the selection of competent candidate to the Board. However, Governance committee advises and recommends critical matters to the board. They also recommend a modification of policies to Board as deemed appropriate and assigned by laws. (Kotler, & Keller, 2012).
Strengths and Weaknesses Apple's Board Structure
One of the strengths of the Apple's Board lies in the leadership skills of the board's member. For example, Tim Cook, who is the (CEO Chief Executive Officer) has an accumulation of experience in strategic global operations. Apart from Cook advanced educational background, he has also accumulated a wealth of experience in strategic supply chain, and product inventory. Other members of the Board also have working experiences in their related positions. For example, Luca Maestri, who is Apple Chief Financial Officer has more than 25 years of working experience as a Finance and Corporate Controller. Moreover, he has been a been a global leader building finance teams for different global companies. The working experience and advanced educational qualifications of the Board's members have assisted Apple to record superior performances year by year.
Another strength of the board is the performances and composition of the audit committee. The audit committee assists the board to implement the ethical financial controls that assist the company to abide by the GAAP financial requirements. The audit committee also implements the risk managements process at the enterprises level.
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Another strength of the Board is by setting appropriate internal control systems to ensure that the organization complies with the findings of internal auditors and independent auditors.
Despite the strength of Apple Board members, the shortcoming of the Board is that Tim Cook has not been able to provide a unique leadership style that Steve Job has left behind. Typically, Steve Job legacy was still the core products and services that continue to drive up revenue for Apple Inc. Apple Watch, which is the post Job release is yet to impress customers Moreover, the iPhone 6 Plus does not require leadership to develop because the design is reciprocal of the previous iPhones that Apple has developed. Apple needs to increase the Board members and include a more visionary member to maintain the company revenue growth.
Apple's Board has tried to implement the ethical standards in all the countries they operate by encouraging all its employees to implement appropriate ethical conducts. Apple main principles are based on respect, honesty, integrity, compliance, and confidentiality, which have been the code of business for the company for more than two decades both in the United States and outside the United States. Apple Audit Committee has also assisted in enhancing the ethical standards by ensuring that Apple provides the ethical financial reports free of frauds. Moreover, the Board also performs the factory audit and adhere to "Supplier Code of Conduct, which is one of the strictest in the industry.."(Apple, 2015 p 1). Typically, Apple provides support for the suppliers to assist them operating effectively. Apple set standards for their supplier, and all suppliers are to meet these standards, hence, holds their suppliers accountable for the product supplied. The company may refuse to do business with suppliers that do not abide by the code of conduct.
Despite the company ethical standards, Apple has still faced some ethical issues that have affected the company's reputations. For example, some iPhone users have lodged a complaint that their iPhones collect the user locations, which has been identified as an infringement on consumer's privacy. Although, Apple announced that users can disable this feature, nevertheless, some phones still collect user location information after the feature has been disabled.
Analysis of Apple Income statements and Balance Sheets and Microsoft
Apple operates in highly competitive business environments, and the top competitors are Samsung, Microsoft, Hewlett-Packard, Dell, and Nokia. The study selects Microsoft as the top competitor of the Apple Inc. and to carry out the competitive analysis. Microsoft Corporation is an American multinational company specializing in manufacturing and marketing of the smart phones, computer, software and computing devices. Both Apple and Microsoft are listed in the major U.S. stock exchanges and raise funds by selling shares to the public. (Microsoft Corporation, 2015). Table 1 compares the financial statements of both companies between 2013 and 2015.
Table 1: Apple and Microsoft Financial Statements for 2015, 2014, and 2013 ($ millions)
The report compares the Dupont Identity of both Apple and Microsoft between 2013 and 2015. The Dupont identity is the financial information that provides a firm ROE (return on equity) that is represented by the profit margin, equity multiplier, and total asset turnover. The Dupont calculation assists in determining firms' potential values based on their financial performances. Table 2 presents the Dupont Identity of both Apple and Microsoft between 2013 and 2015.
Table 2: Dupont Identity of Apple and Microsoft between 2013 and 2015
Differences and Trends
As being revealed in table 1, Apple Inc. performs better than Microsoft in term financial performances between 2013 and 2015. Apple net income increased from $37.0 Billion to $53.3 Billion between 2013 and 2015. However, Microsoft net income decreased from $21.8 Billion to $12.1 Billion between 2013 and 2015. Although, both companies increase the values of the total assets during the period, however, Apple recorded more revenue than Microsoft between 2013 and 2015. As being revealed in Table 2, Apple performed excellently in the ROE than Microsoft. The ROE of Apple Inc. increased from 30.64% to 47.86% between 2013 and 2015. Contrarily, the ROE of Microsoft declines from 30.09% to 14.36% between 2013 and 2015. The.....