Introduction
Conducting a thorough financial analysis is a strategic task that investigates an organization’s microeconomic health. Often, making decisions based solely on an executive’s personal beliefs leads to distorted and biased consequences (Virine & Trumper, 2019). In contrast, decisions based on financial data are characterized by greater objectivity and minimal human influence. This project proposes focusing on Apple’s 2022 financial performance and the time series of adjusted closing stock prices over the past five years. It is expected that the results of this report will shed light on Apple’s current state and provide recommendations of high tactical and strategic value to the organization.
Brief Background Information
Apple is a globally recognized multinational technology conglomerate that produces electronic devices and services used by people worldwide. According to Shewale (2023), the company’s most popular product, the iPhone, is used by approximately 1.5 billion people worldwide, or roughly one in five people alive today. Meanwhile, Apple’s product offerings are much broader and include various models of the MacBook, iPad, Mac, Apple Watch, AirPods, and other technologies used daily for personal, work, professional, and educational purposes. The company is also known for its streaming services, including Apple Music, TV+, Fitness+, News, iCloud, and several other significant cloud platforms.
High brand recognition, along with a deep commitment to innovation, makes Apple one of the most successful companies in history. It has been shown that the multinational giant’s profitability has been systematically increasing since 2019 and has only dipped slightly in recent quarters of 2023 (MT, 2023). In addition to Apple’s engineers and marketers updating its devices and software annually, the company invests significant resources in continuous development. Among the most pressing areas of the company’s operational activities, aside from its core products, are investments in augmented and virtual reality technologies (McGee, 2023).
However, Apple’s activities are not limited to purely tangible outcomes but also include fostering a positive corporate environment for employees, supporting an academic center to develop future talent, and reducing carbon emissions to care for the environment (Liu, 2021). Thus, Apple’s activities can be described as comprehensive and multifaceted: the company actively supports ongoing projects to develop and release innovative product lines, develops cloud services, and invests in intangible projects that enhance brand value.
Current Financial Condition
Two sequential tasks were performed to examine the company’s current financial condition critically. The first involved constructing a time series on the adjusted monthly average closing price for the stock over the last five years, from January 2019 (YF, 2023). The second task focused on a detailed examination of Apple’s 2022 annual report to calculate ten key financial ratios. Synthesizing the results of both tasks provides a more meaningful and in-depth assessment of Apple’s current financial condition and serves as the basis for further tactical and strategic decisions.
Adjusted Closing Price
First of all, it should be emphasized that the adjusted closing price differs from the simple closing price because it is calculated by adjusting for factors such as dividends, stock splits, or reverse mergers. In other words, the adjusted closing price provides more accurate data on a stock’s actual value, so this parameter was used in the analysis (Ganti, 2020). Figure 1 shows the time series of Apple’s monthly adjusted closing prices over the five years.
At first glance, it is evident that the price per share has been increasing continuously during this period, and the trend can be approximated linearly with high reliability (R2 = 0.875). When analyzing the chronogram in more detail, two main conclusions can be drawn. On the one hand, the indicator’s growth may be due to increased investor confidence in the brand, reflected in greater share acquisitions and, consequently, higher equilibrium prices. Apple’s innovativeness, commitment to quality, and reputation may be the predictors that explain the increase in investment attractiveness (Brunner & Baum, 2020).
On the other hand, the graph shows apparent price subsidence in some periods of observation. Seasonal patterns are not detected in a superficial analysis; thus, the influence of stochastic processes can be inferred. It follows that market conditions, geopolitical uncertainty, the COVID-19 pandemic, and rising inflation could cause a short-term price slump (Ngwakwe, 2020). Thus, for long-term investment, the adjusted closing price must show a five-year upward trend, even though the index experienced brief periods of subsidence.
Financial Ratios
A more in-depth analysis involves calculating Apple’s financial ratios in the 2022 annual report. The calculations were based on publicly released official data using MS Excel (Apple, 2023). In particular, the financial results required for the calculation were entered into Excel and used for the formulas.
Figure 2 summarizes all the values sought for the ten ratios. First, the current ratio and quick ratio indicate that the company may have some difficulty repaying current liabilities in the short term, but the effect is relatively small. Second, the fixed assets turnover and total assets turnover indicate that Apple is utilizing its fixed and total assets to generate revenue quite efficiently.
Third, based on total debt to total assets, the company has a reasonably small debt load. The profit margin on sales indicates a comparatively small business: the company receives only about 25% of net profit from total revenue. Fifth, on a return on total assets basis, Apple’s return on assets is moderate.
Sixth, the return on common equity demonstrates the company’s high return on equity. The price-to-earnings ratio indicates the brand’s high investment attractiveness, consistent with the results in Figure 1. Finally, as the market/book ratio shows, investors place a high value on Apple: market capitalization is about 40 times its book value.
Conclusion
In summarizing the analysis, it should be emphasized that Apple has steady revenue and earnings growth, a moderately good return on assets, a low debt load, and extremely high investment attractiveness. Having said that, the analysis has shown that the company faces some financial difficulties, including short-term difficulties repaying current liabilities and relatively low margins. This also means that Apple should conduct a more thorough inventory management, which can be achieved by examining annual income statements, cash flow statements, and dynamic inventory turnover rates.
References
Apple. (2023). News and results. Apple Investor Relations.
Brunner, C. B., & Baum, M. (2020). The impact of brand portfolios on organizational attractiveness. Journal of Business Research, 106, 182-195.
Ganti, A. (2020). Adjusted closing price: How it works, types, pros & cons. Investopedia.
Liu, Z. (2021). Analysis of Apple Inc.’s innovation dilemma from the perspective of leadership.
McGee, P. (2023). Virtual reality start-ups pin hopes on Apple to lure back funding. Financial Times.
MT. (2023). Apple revenue 2010-2023 | AAPL. Macrotrends.
Ngwakwe, C. C. (2020). Effect of COVID-19 pandemic on global stock market values: a differential analysis. Acta Universitatis Danubius. Œconomica, 16(2), 255-269.
Shewale, R. (2023). 32 iPhone user statistics: Sales, usage & revenue. DemandSage.
Virine, L., & Trumper, M. (2019). Project decisions: The art and science. Berrett-Koehler Publishers.
YF. (2023). Apple Inc. (AAPL). Yahoo Finance.