Apple is one of the biggest technical corporations in the world which is known to most of the human population due to its ground-breaking inventions, such as smartphones. It has a 715 billion dollars large-cap, which draws many investors looking for a safe company to invest in (Stock-Analysis-On, 2020 par. 2). It exudes a ‘too big to fail’ air, giving it the illusion of a solid and reliable investment (Stock-Analysis-On, 2020 par. 2). When compelling proof of an agreement exists, the shipment has transpired, the sales price is set or determinable, and collection is likely, the company recognizes revenue by including it in its annual financial reports. Once the product has been transported, and the title, risk of loss, and benefits of possession have been transferred, the product is deemed delivered to the customer. Consequently, further financial analysis will give a consistent retrospective to a potential investor.
Apple’s Financial Analysis
Apple has embarked on a significant corporate plan to shift its focus away from lower-margin hardware items, which are seeing slower growth, and toward its Services sector. As one of the main types of activities from which Apple earns its revenue next to the production of gadgets like Iphone, Ipad, and Macbook, it has more significant profits and a serious income stream. In recent years, Apple has released a slew of additional services, like Apple TV+, Apple Arcade, Apple Card, and Apple News+ (Simply Wall St, 2022). As a result, they are the organization’s primary sources of financial income.
Merchandise inventory is another important aspect of financial awareness for the company being presented. Based on the information provided, the status of this aspect can be estimated at approximately $320 billion at the end of each fiscal year, with a slight fluctuations and gradual increase tendency (Simply Wall St, 2022, par. 4). Moreover, the corporation includes all inventory on its balance sheet, published every year on its website. Comparing the gross profit percentage in composite sales between fiscal 2015 and 2016, there was an approximate 38% increase (Stock-Analysis-On, 2020 par. 6). Consequently, the results may be considered as highly profitable and consistent.
Accounting rules provide for a variety of ways for computing the rate of closing stock, and the method chosen has an impact not only on the value of the asset account but also on the company’s net income. Companies must disclose the specifics of the inventory value technique in their accounting records and use it regularly from year to year (Simply Wall St, 2022). In this scenario, Apple values its inventories based on its report sheets. Their technique may be regarded as a cost assessment of each item, which acts as a financial classification.
Consolidated financial statements typically comprise combined balance sheets, the consolidated profit and loss statements, notes, additional statements, and explanatory information. A unified accounting equation is given if a parent produces its statement of cash flows. Property, Plant, and Equipment have been classified as non-current assets by Apple (Simply Wall St, 2022). These are items that a company keeps for more than a year and utilizes to generate long-term revenue. They generally have a high monetary worth, provide long-term benefits to the company, and cannot be converted into cash rapidly. Summarizing the accounting process of Apple regarding the concepts describe above, a clear tendency of balancing between each category can be identified. As a result, the presented information covers all aspects of Apple’s Consolidated Financial Statements.
Assets are legal and economic resources that an entity owns. Buildings, property, automobiles, and money, for example, are examples of the entity’s assets. Current assets and non-current assets are the two primary kinds of assets. Cash reserves, petty cash, natural resources, work in advance, finished items, prepayments, and other short-term assets that transform and utilized within 12 months of the reporting date are all examples of current assets. Credit purchases, bank loans, interest owed, income taxes, and overdrafts are all liabilities an organization owes to other people or businesses. Liabilities are the items on the balance sheet that indicate the amount after the accounting cycle. Hence, understanding these concepts is vital for the analysis and understanding of the described financial processes.
The difference between assets and liabilities is known as equity. Share capital, retained earnings, common stock, preferred stock, and reserves are all included in equity. The net worth of equity will be affected by changes in assets and liabilities over time. By subtracting liabilities from assets, one may calculate an entity’s equity net worth. As a result, the initial balance of retained profits or accumulated loss will be increased by the net income or loss of the firm shown in the financial statements during the term.
The primary method of depreciation used by Apple is its stockholders’ annual reports on the website. This method of communication is due to the high number of the latter, which contributes to the lack of interactive communication. The corporation uses the straight-line technique or straight-line basis to compute depreciation for income tax purposes, the most generally used approach under GAAP (Simply Wall St, 2022). This is also the most straightforward approach for calculating the above mentioned process (Simply Wall St, 2022). The asset’s expected useful life then splits the total. Consequently, to the straightforwardness of the method and its predictability, it is considered the most preferable for tax purposes.
An essential aspect of the analysis is how Apple classifies its investments and adjusts for periodic changes. The primary methodology here is price regulation – the key factors are the volatility of the dollar, as well as world events. As an example, during the COVID-19 pandemic, the company markedly reduces its prices in stores around the world. Thus, social awareness and following global trends are the fundamental basis for regulating the principles described above.
An important detail is Apple’s investment policy, which directly affects the areas in which the principal financial investments are made. Today, the corporation actively creates jobs, builds campuses, and interacts with the US government in every way possible. In this case, the underlying reason is that the country mentioned above has the most significant economic prospects, as well as located most of the humanitarian resources. However, there are also growth trends concerning China since most of the factories and workers are located there. This state of affairs motivates the company to equally force investments between the two countries, but in different directions.
The company’s solvency was poor, and its financial strength and profitability were both declining. Profitability dropped significantly throughout the three years as liquidity declined, but it increased marginally near the period’s conclusion (Simko, 2019). At the same time, company owners need to be sure that the company’s financial obligations are met when they become due. Investors are mainly concerned with the company’s profitability (Simko, 2019). They are also interested in Apple’s future growth, as it affects their income. In result, gross margin is a positive indicator for them since it strengthens their faith in the organization.
In conclusion, this analysis has demonstrated many financial aspects of Apple. The balance of accrued expenses and the method of recognizing revenue were analyzed. Furthermore, all sources of income, the format of merchandise inventory, assets types and their efficiency, the depreciation methods, and investment-wise aspects were also examined. Based on the above conclusions described in the paper, the corporation is a solid field for investments, though issues need to be further studied.
Simko, P. (2019). Apple Inc.: An application of financial analysis, 2003–2018. SSRN Electronic Journal.
Simply Wall St. (2022). Apple (NASDAQ:AAPL) has a rock solid balance sheet. NASDAQ.
Stock-Analysis-On. (2020). Apple Inc. (NASDAQ:AAPL) | Financial Analysis and Stock Valuation. Stock Analysis on Net.