Financial and Strategic Analysis: A Case of Apple Case Study

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Strategic and Financial Analysis: Case of Apple

Apple Inc. is a U.S. multinational company specializing in designing and selling different types of electronic products that include computer software, personal computers, and range of hand-held electronic gadgets. Over the years, Apple has grown to be an iconic designer of consumer electronic products. Established by Steve Jobs in 1976, however, Apple's business nearly collapsed in1980s because of the stiff competitions from other companies. In 1990s, Apple was forced to design an innovative personal computer and entered the fragmented DM (digital music) industry using a diverse set of a distribution channel. (Apple, 2014).

In the last decades, Apple has recorded an unparallel success in digital music players, and iTunes software. Apple uses a sophisticated distribution strategy to achieve competitive market advantages in the electronic industry. Presently, Apple sells its products globally through the retail stores, and online stores, which assist the company to generate annual profit of more than $182 Billion at the end of the 2014 fiscal year. Recently, Apple releases the "Boot Camp" software that makes Apple's personal computer to be run in both Apple operating system and Windows. The new flexibility of Apple's architecture makes the company to become a leader in both personal computer and digital media. Despite the success that Apple has recorded in the last few years, the company is still facing stiff competitions with other companies operating in PC industry.

Objective of this project is to develop Apple strategic analysis. The paper analyzes Apple external environment to enhance a greater understanding how the company has been operating in the economic and political environments.

Analysis of External Environment

Apple operates in a competitive business environment. The political, economic, legal and social-cultural environments are used to analyze the environment that Apple is operating.

Economic: Apple Inc. has its headquarter in the United States, a country with one of the best economy in the world. Moreover, American standard of living is one of the highest in the world, which assists Apple to enjoy superior market advantages. Apple also takes the advantages of the U.S. economic development to raise capital from banks and shares from the public. Apple also operates in multiple countries in Europe and Asia with varied economic developments. For example, Apple uses the cheap labor in Asia to manufacture its products to reduce the costs of operations.

Political: Apple operates in a stable political environment because the United States is one of the most politically stable countries in the world. The U.S. political stability assists the management to plan without fear of political turbulence that can destabilize the Apple strategic planning. Lei and Slocum (2010) argue that politics have a great impact on a business practice, and influence business activities. For example, recently, the UK government imposed 20% increase on VAT, and the decision can reduce the overall consumers spending. (Thomson, & Baden-Fuller, 2010). Since Apple is operating in multiple countries, government decisions on issues such as imposition of taxation on business can have impact on Apple business activities.

Competitive Environment: Apple faces a stiff competition with companies operating in multiple industries that the company is operating. Apple is facing a stiff competition with companies such as Hewlett Packard, IBM, Dell, Microsoft and other companies manufacturing the personal computer.

Socio-cultural: Thornton, Domingo and Urbano (2011) identify socio-cultural factors influencing business practice as attitudes, cultural practice, and preference. Based on these socio-cultural factors, Apple is forced to design its products to match the tastes and preferences of consumers. For example, Apple customizes its services using the current art of technology to design iPad and iPod that matches the tastes of younger generations.

Technological Environment: Apple operates in a superior technological environment that assists the company to design superior and innovative products. (Porter, 2006). Moreover, Apple uses the superior technology to implement its entire value chain that includes warehousing design, procurement of raw materials, and management of business logistics.

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Moreover, Apple uses the internet technology to carry out B2B (Business-to-Business) and B2C (Business-to-Consumer) business interactions.

Apple Current Strategies

Apple uses the cost leadership strategy to design its product in the United States and manufactures them in the low cost country such as China to achieve competitive market advantages. (Porter, 2006). Moreover, Apple uses pool of talented and skilled labor to design innovative products that match the purchasing preferences of all categories of consumers in the United States and outside United States. Apple also designs and manufactures different categories of products that match various consumer preferences. For example, Apple manufactures personal computer, mobile phones, iPad, iPod and different software products. The strategic choice has made Apple to enjoy superior financial performances. (Lei, & Slocum, 2010).

Financial Performances

This section uses various ratio analyses to carry out the financial analysis of Apple Inc. The profitability ratios, liquidity ratios and operating ratios are used for the analysis. The Table 1 reveals the profitability ratios of the Apple Inc. between, 2009 and 2014.

Table 1: Profitability Ratio

2014

2013

2012

2011

2010

2009

Return on Sales

Gross profit margin

38.6%

37.6%

43.9%

40.5%

39.4%

36.0%

Operating profit margin

28.7%

28.7%

35.3%

31.2%

28.2%

21.0%

Net profit margin

21.6%

21.7%

26.7%

24.0%

21.5%

15.6%

Return on Investment

ROE (Return on equity)

35.4%

30.0%

35.3%

33.8%

29.3%

20.5%

ROA (Return on assets)

17.0%

17.9%

23.7%

22.3%

18.6%

10.6%

The gross margin reveals percentages of revenue used to cover the operating expenditures. Between 2012 and 2013, Apple gross margin deteriorated, however, improved between 2013 and 2014. The overall profitability ratios improve within the last 5 years. For example, the ROE was 20.49% in 2009, however, improved to 35.4% in 2014. Similarly, the ROA of Apple Inc. improved between 2009 and 2014. The Apple net profit margin also improved between 2009 and 2014. Between 2009 and 2014, Apple net profit was 15.6% in 2009 and increase to 26.7% in 2012, slightly declined to 21.6% in 2014.

However, the Apple short-term operating ratios deteriorated in the last 5 years as being revealed in Table 2. For example, the inventory turnover declined from 111.1 in 2011 to 53.2 at the end of 2014 fiscal year. However, the working capital turnover significantly improved between 2009 (2.15) and 2014 (36.0).

Table 2: Apple Inc. Short-term Operating Ratios

2014

2013

2012

2011

2010

2009

Turnover Ratios

Inventory turnover

53.2

60.4

83.0

37.6

51.4

Receivables turnover

10.5

13.0

14.3

20.2

11.8

10.9

Payables turnover

3.7

4.8

4.2

4.4

3.3

4.2

Working capital turnover

36.0

5.77

8.19

6.36

3.11

2.15

Average Number. Of Days

inventory processing period

7

6

3

4

10

7

Receivable collection period

35

28

25

18

31

34

Operating cycle

42

34

28

22

41

41

Less: Payables payment period

98

77

88

83

87

Cash conversion cycle

-56

-43

-60

-61

-70

-46

In table 3, the liquidity ratios reveal the financial health of Apple Inc. The current ratio of Apple within the last 5-year reveals that Apple has ability to settle its financial obligations within 12 months. However, the company current ratio and quick ratio deteriorated between 2009 and 2010. The current ratio was 2.7 in 2009 and decreased to 1.2 in 2014. Similarly, the quick ratio declined from 2.4 in 2009 to 0.9 in 2014.

Table 3: Liquidity Ratios

Last Qtr

2014

2013

2012

2011

2010

2009

Current Ratio

1.2

1.1

1.68

1.5

1.61

2.0

2.7

Quick Ratio

0.9

0.8

1.40

1.2

1.4

1.7

2.4

Financial Leverage

2.0

2.08

1.7

1.5

1.5

1.6

1.5

If Apple continues to implement the current strategy, the company growth rates are likely decline in the next 5 years, which can make Apple to lose its competitive edges. The Table 4 shows that Apple growth rate deteriorated between 2010 and 2014. The Apple sales growth was 52% in 2010 however, declined to 7% in.....

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