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Apple Company’s Financial Management Case Study

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Updated: Jul 21st, 2021

Company Background

Apple Inc. is one of the leading electronic companies in the global market. The current chairman of this company is Arthur D. Levinson and the chief executive officer is Tim Cook. The company produces and sells several products which include Mac, iPhone, Apple Watch, iPod, Apple Television, iOS, iLife, watchOS, iWork, and tvOS (Everett, Johnson, and Madden 87). The company also offers several services which include Apple Play, iTunes Stores, Apple Store, Apple Music, iBook Store, Mac App Store, and iCloud among other services (Wood 62). The last time Apple Inc. released its quarterly report was on July 26, 2016, posting revenue of USD 42.4 billion and a net income of USD 7.8 billion. The last time this company released a full financial report was on October 27, 2015. Ernst & Young LLP is the independent auditing company been responsible for the development of financial statements of Apple Inc. This giant electronic company is currently trading in the National Association of Securities Dealers Automated Quotations (NASDAQ) Stock Market (Pratt 32).

Discussion Questions

Who is responsible for the preparation of the financial statements?

Preparation of Apple Inc’s financial statement is the responsibility of the company’s senior vice president and chief financial officer, Mr. Peter Oppenheimer (Dreyer and Greisler 44). However, the statements must be approved by the chief financial officer, Mr. Timothy D. Cook. This is confirmed by the declaration of these two senior officials at the end of the company’s audited financial documents as shown in appendix 4. The independent auditor, which in this case is Ernst & Young LLP, must also approve the documents.

Which Big-Four accounting firm audited the company?

PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young, and KPMG are the top four auditing firms in the global arena. Of these Big-Four accounting companies, it was Ernst & Young that audited Apple Inc. in the last financial year. Lashinsky says that Ernst & Young has been auditing this firm since 2009 (92). The auditor’s report gives the impression that Apple Inc’s performance is good. In their statement as seen in Wood, it read in part, “We consent to the Statements on Forms S-8 of Apple Inc. and the effectiveness of internal control over financial reporting of Apple Inc., included in this Annual Report on Form 10-K” (88). The report confirms the impressive financial reports provided by the chief financial officer. This is a strong indication that auditors can trust the financial health of this company as far as the independent auditors are concerned.

For the recent three years, list the amounts reported for Revenue, Operating Income (EBIT), Net Income and Dividends

Analyzing the financial statements of this firm may be very important for an investor who is planning to buy shares of this company. In this section, the focus will be to analyze the company’s revenues, operating income, and net income as shown in the income statement in appendix 1.

Revenues

The company’s total revenue for the year ended September 9, 2013, was USD 170,910,000. This value increased to USD 182,795,000 on September 27, 2014. The revenues improved further a year later when the company received USD 233,715,000 on September 26, 2015 (Lashinsky 95).

Operating income

Apple Inc. had an operating income of USD 48,999,000 as reported on September 9, 2013. In the subsequent year of 2014, the company had an operating income of USD 52,503,000. In 2015, the company had an operating income of 71,230,000 (Dreyer and Greisler 74).

Net income and dividends

The net income for Apple Inc. for the financial year ending September 9, 2013, was USD 37,037,000 and the dividend was 10,564,000. In the year 2014, the company had a net income of USD 39,510,000 and a dividend of 11,126,000. In the financial year that ended on September 26, 2015, the company registered a net income of USD 53,394,000 and a dividend of 11,561,000 (Wood 58).

Comments on the documents

The three statements of the firm strongly suggest that Apple Inc is moving in the right direction financially. The revenues of the firm have registered a consistent rise over the last three years. The operating income and net income have also been increasing over the same period. It is, therefore, possible to suggest that this company is expanding and shareholders can be sure of getting impressive returns on their investments. It is also clear that the company has been paying dividends to its shareholders over the last three years. The dividends have been increasing.

Is the balance sheet presented in a classified and comparative format?

The balance sheet of this company, shown in appendix 3 below, is presented in a comparative and classified manner. As shown in the appendix, it is possible to compare the financial performance of this company over the last three years because of this classified and comparative format that has been used in the development balance sheet.

For the recent three years, list the amounts reported for “Current Assets”, “Long term Assets”, “Intangibles”, “Current Liabilities”, “Long term debt” and “Stockholders’ Equity”

Current assets

As shown in the balance sheet of Apple Inc, its total assets for the year ended September 9, 2013, was USD 73,286,000. There was a slight decline in 2014 when the total assets were USD 68,531,000. The value increased to USD 89,378,000 in the financial year ended on September 26, 2015.

Long term assets

In the financial statement of this firm for the year that ended September 9, 2013, this company’s long term assets were valued at USD 133,714,000. In the financial year that ended September 27, 2014, the company’s long term assets were valued at USD 163,308,000. In the financial year that ended September 26, 2015, the value of the long term assets was USD 201,101,000.

Intangible assets

The intangible assets were valued at USD 4,179,000 in 2013. The value decreased to USD 4,142,000 in 2014, and in 2015 it was USD 3,893,000.

Current liabilities

The current liabilities for the firm were valued at USD 43,658,000 in 2013, in 2014 it was USD 63,448,000, and in 2015 it was USD 80,610,000.

Stockholder’s equity

The stockholder’s equity for the year 2013 was USD 123,549,000. The value decreased in 2014 to USD 111,547,000 and in 2015 it was USD 119,355,000.

The accounting equation for the company within three years holds. The company is expanding.

Does the company use cash-base or accrual-base accounting?

Apple Inc uses accrual basis accounting because the income statements show that revenues are reported when they are earned and expenses are reported when they occur. This is completely different from the principle used in cash-base accounting.

List the net cash flows from each of the three activities: operating, investing and financing

Operating activities

As shown in appendix 2 below, the operating cash flow from operating activities in 2013 was USD 53,666,000. In 2014, it increased to USD 59,713,000 and in 2015, this value increased to USD 81,266,000.

Investing activities

Apple Inc’s cash flow from investing activities in 2013 was USD -33,774,000. In 2014, the value was -22-579,000. The year ending on September 26, 2015, saw the value decrease to USD -56,274,000.

Financing activities

Cash flow from the operating was USD -16,379,000 in the year 2013. It reduced to USD -37,549,000 in 2014. There was an improvement in 2015 when the value increased to USD -17,716,000.

Comments

The income statement of this company over the past three years shows that its income primarily comes from its operating activities. The values are shown in the investing activities and financing activities shows that this firm is spending a lot to expand its operations.

For the recent three years, what are the Earnings per Share (EPS)?

Hussey defines Earnings per Share as “the portion of a company’s profit that is allocated to each outstanding share of common stock, serving as an indicator of the company’s profitability” (71). The formula for EPS is EPS= /Average Outstanding Shares. For Apple Inc, its earnings per share within the three years are as follows.

Year 2015

/345,000

=121.26

Year 2014

1,082,000

=26.23

Year 2013

/471,000

=56.21

Works Cited

Dreyer, Arek, and Ben Greisler. Os X Server Essentials 10.10: Using and Supporting Os X Server on Mountain Lion, Berkeley: Peachpit Press, 2015. Print.

Everett, Ronald, Donald Johnson, and Bernard Madden. Financial Accounting for School Administrators: Tools for Schools, Lanham: Rowman & Littlefield Education, 2012. Print.

Hussey, Roger. Fundamentals of International Financial Accounting and Reporting, Singapore: World Scientific, 2010. Print.

Lashinsky, Adam. Inside Apple: How America’s Most Admired-and Secretive-Company Works, New York: Business Plus, 2012. Print.

Pratt, Jamie. Financial Accounting in an Economic Context, Hoboken: Wiley & Sons, 2011. Print.

Wood, Mark. Apple Pro Training Series: Pages, Numbers, and Keynote, New York: Cengage, 2015. Print.

Appendices

Appendix 1: Income Statement

All numbers in thousands

Revenue 9/26/2015 9/27/2014 9/28/2013
Total Revenue 233,715,000 182,795,000 170,910,000
Cost of Revenue 140,089,000 112,258,000 106,606,000
Gross Profit 93,626,000 70,537,000 64,304,000
Operating Expenses
Research Development 8,067,000 6,041,000 4,475,000
Selling General and Administrative 14,329,000 11,993,000 10,830,000
Non Recurring
Others
Total Operating Expenses
Operating Income or Loss 71,230,000 52,503,000 48,999,000
Income from Continuing Operations
Total Other Income/Expenses Net 1,285,000 980,000 1,156,000
Earnings Before Interest and Taxes 72,515,000 53,483,000 50,155,000
Interest Expense
Income Before Tax 72,515,000 53,483,000 50,155,000
Income Tax Expense 19,121,000 13,973,000 13,118,000
Minority Interest
Net Income From Continuing Ops 53,394,000 39,510,000 37,037,000
Non-recurring Events
Discontinued Operations
Extraordinary Items
Effect Of Accounting Changes
Other Items
Net Income
Net Income 53,394,000 39,510,000 37,037,000
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares 53,394,000 39,510,000 37,037,000

Appendix 2: Cash Flow

All numbers in thousands

Period Ending 9/26/2015 9/27/2014 9/28/2013
Net Income 53,394,000 39,510,000 37,037,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation 11,257,000 7,946,000 6,757,000
Adjustments To Net Income 4,968,000 5,210,000 3,394,000
Changes In Accounts Receivables -3,124,000 -6,452,000 -1,949,000
Changes In Liabilities 15,188,000 13,408,000 8,320,000
Changes In Inventories -238,000 -76,000 -973,000
Changes In Other Operating Activities -179,000 167,000 1,080,000
Total Cash Flow From Operating Activities 81,266,000 59,713,000 53,666,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures -11,247,000 -9,571,000 -8,165,000
Investments -44,417,000 -9,017,000 -24,042,000
Other Cash flows from Investing Activities -610,000 -3,991,000 -1,567,000
Total Cash Flows From Investing Activities -56,274,000 -22,579,000 -33,774,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid -11,561,000 -11,126,000 -10,564,000
Sale Purchase of Stock -34,710,000 -44,270,000 -22,330,000
Net Borrowings 29,305,000 18,266,000 16,896,000
Other Cash Flows from Financing Activities -1,499,000 -1,158,000 -1,082,000
Total Cash Flows From Financing Activities -17,716,000 -37,549,000 -16,379,000
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents 7,276,000 -415,000 3,513,000

Appendix 3: Balance Sheet

All numbers in thousands

Period Ending 9/26/2015 9/27/2014 9/28/2013
Current Assets
Cash And Cash Equivalents 21,120,000 13,844,000 14,259,000
Short Term Investments 20,481,000 11,233,000 26,287,000
Net Receivables 35,889,000 31,537,000 24,094,000
Inventory 2,349,000 2,111,000 1,764,000
Other Current Assets 9,539,000 9,806,000 6,882,000
Total Current Assets 89,378,000 68,531,000 73,286,000
Long Term Investments 164,065,000 130,162,000 106,215,000
Property Plant and Equipment 22,471,000 20,624,000 16,597,000
Goodwill 5,116,000 4,616,000 1,577,000
Intangible Assets 3,893,000 4,142,000 4,179,000
Accumulated Amortization
Other Assets 5,556,000 3,764,000 5,146,000
Deferred Long Term Asset Charges
Total Assets 290,479,000 231,839,000 207,000,000
Current Liabilities
Accounts Payable 60,671,000 48,649,000 36,223,000
Short/Current Long Term Debt 10,999,000 6,308,000 6,308,000
Other Current Liabilities 8,940,000 8,491,000 7,435,000
Total Current Liabilities 80,610,000 63,448,000 43,658,000
Long Term Debt 53,463,000 28,987,000 16,960,000
Other Liabilities 33,427,000 24,826,000 20,208,000
Deferred Long Term Liability Charges 3,624,000 3,031,000 2,625,000
Minority Interest
Negative Goodwill
Total Liabilities 171,124,000 120,292,000 83,451,000
Stockholders’ Equity
Misc. Stocks Options Warrants
Redeemable Preferred Stock
Preferred Stock
Common Stock 27,416,000 23,313,000 19,764,000
Retained Earnings 92,284,000 87,152,000 104,256,000
Treasury Stock
Capital Surplus
Other Stockholder Equity -345,000 1,082,000 -471,000
Total Stockholder Equity 119,355,000 111,547,000 123,549,000
Net Tangible Assets 110,346,000 102,789,000 117,793,000

Appendix 4: Certification of Chief Executive Officer and Chief Financial Officer

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy D. Cook, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Apple Inc. on Form 10-K for the fiscal year ended September 24, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Apple Inc.

October 26, 2011

By: /s/ Timothy D. Cook
Timothy D. Cook
Chief Executive Officer

I, Peter Oppenheimer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Apple Inc. on Form 10-K for the fiscal year ended September 24, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Apple Inc.

October 26, 2011

By: /s/ Peter Oppenheimer
Peter Oppenheimer
Senior Vice President, Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Apple Inc. and will be retained by Apple Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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