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APPLE COMPUTER.
Term Paper ID:23690
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Essay Subject:
Economic analysis, 1991-1996. Products, strengths & weaknesses, income, sales, financial ratios, stocks, future. Tables.... More...
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9 Pages / 2025 Words
4 sources, 9 Citations,
TURABIAN Format
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Paper Abstract:
Economic analysis, 1991-1996. Products, strengths & weaknesses, income, sales, financial ratios, stocks, future. Tables.
Paper Introduction:
Introduction
Apple Computer manufactures proprietary microcomputers, software and peripherals. Apple machines use Motorola microprocessors while the company's primary competition, IBM and IBM clones, use the Intel family of microprocessors. In addition, while IBM did not use a proprietary operating system (the program which users use to interface with the computer), but instead used Microsoft's DOS operating system, Apple's operating system is proprietary. Apple gained notoriety in the mid-1980s when it introduced its Macintosh computer, which was easy to use, and which Apple hoped would bring an entire generation of users to the Apple family. The company has also been successful at targeting educational institutions as part of its marketing program, with the result that it has developed a high level of brand awareness among even
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In January 1995, thecompany introduced the third generation of its Newton personal digitalassistant (PDA) product. However, thecompany's strategy of keeping its products proprietary meant that IBM andIBM clones gained the largest part of the market share in this industry,and Apple is now struggling to remain a viable competitor. | |1995 |1994 |1993 |1992 |1992 ||Return on Assets | . [8]"Apple Computer, Inc.," 13. Application software is developedand marketed by Claris Corporation, a wholly owned subsidiary of Apple.[2] Balance Sheet Balance sheet provide a "snapshot" of a company's position at aparticular point in time. "Apple Computer." Value Line Investment Survey, 25 October 1996, 1 8 .----------. Where the balance sheet showsthe company's position at a particular time, the income statement shows thecompany's performance in terms of revenues, costs and profit over a periodof time. The quick ratio is the current ratio with inventories subtracted fromthe numerator; this indicates the company's ability to meet currentobligations without selling inventory to do so. By comparing balance sheets over a period ofyears (each for the same date, generally the company's fiscal year-end), itis possible to determine a company's strengths and weaknesses, at leastfrom a financial standpoint. Niemond, "Computers and Peripherals Industry," Value LineInvestment Survey, 25 October 1996, 1 75. Since the company has added debt without realizing commensurategains in total assets, it can be assumed that the company may well beexperiencing financial difficulty. Income Statement The income statement summarizes a company's performance over a givenperiod of time, typically the fiscal year. 5849 | . This indicates that the company can certainly cover itscurrent obligations based on its current assets, but it may also indicatepoor cash management on the part of the company. for thelast five years. The PowerBook, Apple's line of notebookcomputers, is designed for mobile computing needs. [6]George A. However, a high current ratio indicates that the company isnot using its cash resources as well as it might be (perhaps it could makemore money by using the cash in investments), so these two conflictingneeds must be balanced. The following income statements show Apple's performance from1991 to 1995, and, as with the balance sheet, omit noncritical informationin the interest of space.[4] | |1995 |1994 |1993 |1992 |1991 ||Sales |11 62 |9188748 |7976954 |7 86542 |63 8849 ||COGS |82 4 |6844915 |5248834 |3991337 |3314118 ||Operating Income |684 |522274 |11 338 |8 58 8 |447349 ||EBIT |674 |5 286 |139659 |855442 |499744 ||Income Taxes |25 |19 1 8 |53 7 |325 69 |1899 3 ||Net Income |424 |31 178 |86589 |53 373 |3 9841 | Apple's performance during this period has been less than stellar, andcompares poorly with the industry as a whole. This researchconsiders the current state of the company from a financial standpoint, andexamines the future direction of this once dynamic and innovative company. Stock Performance The following chart, plotted on a logarithmic scale to show percentagerates of change, illustrates Apple's stock performance from December 1994to November 1996.[7] [pic] During those three years, the stock has been particularly volatile,and it has certainly not kept pace with the stellar performance of themarkets as a whole. The company has had only one stock split during thelast ten years (a two-for-one split in 1987). However, the company's creative marketing has not prevented it fromdifficult times in recent years, and Apple now finds itself struggling, andfacing the first year of losses since its beginning. [3]"Apple Computer, Inc.," Moody's CD ROM Company Reports, New York:Moody's, 21 October 1996, 8. 1674 | .12557 | . In addition, the bulk of Apple's restructuringcharges will require a cash outflow for severance and capacity reductionpayments over time. By marketing to educationalinstitutions, the company helped to build brand loyalty. [2]Ibid. Other ratios areunique to specific industries and may not be as critical for each company.Companies such as Apple, which are experiencing financial difficulty,should pay particular attention to the inventory turns ratio and accountsreceivable turns measure in order to spot areas of improvement which mightlead to significant benefit with only a small degree of effort on thecompany's part. 8169 |7.64539 |11.3226 |N/A ||Days Inv Outstanding |46.593574 |5 .8353 |47. In addition, the company has suffereda downturn in its debt rating by Moody's, one of the primary ratingservices in the country; this increases the interest rate that the companywill have to pay if it chooses to pursue additional long-term financing.[8] From a marketing standpoint, Apple has already embarked on a series ofstrategic partnerships which are designed to help it maintain or augmentits market share. Apple also offers a complete line of computerperipherals, including printers, disc drives, scanners, modems and monitors(both color and monochrome).[1] Recognizing that open architecture, where users have the option ofrunning a variety of operating systems, is the way of the future, Apple,IBM and Motorola agreed on a new common hardware platform for the Power PCmicroprocessor in 1994; this platform will allow users the option ofchoosing which operating system to run. In addition, while IBM did not use a proprietaryoperating system (the program which users use to interface with thecomputer), but instead used Microsoft's DOS operating system, Apple'soperating system is proprietary. Company Profile The Macintosh product family, which is the core product family for thecompany, includes a wide range of personal computer offerings. Apple has a high quick ratio, nearlyapproximately its current ratio, which indicates that the company is ableto effectively measure its inventory. Investors who have a high level of risktolerance might do well by investing in Apple given that the company maysee some price appreciation in the next 12 to 18 months. Niemond, "Apple Computer," Value Line Investment Survey,25 October 1996, 1 8 . Inventory management is illustrated through the inventory turns anddays inventory outstanding measures. Despite the fact that 1996 marked the first year of losses inrecent memory for the company, the recent price depreciation is not assteep as it might have been. It is critical that Applefind ways to improve its income statement by either decreasing its costs,increasing its revenues, or a combination of the two in order to improveits profitability.[6] Financial Ratios Financial ratios use the information presented in the variousfinancial statements, and compute ratios which can be compared acrosscompanies and even industries. 3733 | .245 8 |N/A ||Inventory turnover |7.7263872 |7. The market is apparentlytaking a cautious attitude toward Apple, waiting to see how successfullythe company can exploit its new collaboration with third parties, andwhether Apple can establish a second industry standard with regard tohardware. However,investors who are not willing to take on a high level of risk for what maybe only moderate reward should probably avoid this stock. Another important measure is the accounts receivable turnover and thedays A/R outstanding. TheMacintosh LC line is targeted at education and business markets whileMacintosh Performas are targeted at first-time personal computer users.The Power Macintosh family (developed in conjunction with IBM andMotorola), uses RISC-based microprocessors and is considered the company'smost advanced computer line. 777 |1 .8594 |7.1 664 |N/A ||Days A/R Outstanding |24.6 8792 |18.87 1 |33.15 9 |5 .6568 |N/A ||Current Ratio |2.2468817 |2.3 234 |1.72974 |2.4962 |2.3529 ||Quick Ratio |1.778738 |1.52744 |1.49845 |2. Future Direction Apple's new senior management team is likely to take aggressive stepsto restructure the company. 25 4 |2.3529 | The current ratio is one of the short-term solvency ratios which canmeasure a firm's ability to meet its financial obligations in the short-term without undue stress. Since the company took onlong term debt beginning in 1993, it is also possible that the currentratio indicates a strong current position, but masks the long-termvulnerability that the company is facing. [4]Ibid., 7. Apple gained notoriety in the mid-198 swhen it introduced its Macintosh computer, which was easy to use, and whichApple hoped would bring an entire generation of users to the Apple family.The company has also been successful at targeting educational institutionsas part of its marketing program, with the result that it has developed ahigh level of brand awareness among even very young users. The company hastaken steps to improve its financial position and its long-term marketingstrategies so that it will probably return to profitability within a shortperiod. Apple machines use Motorola microprocessors while thecompany's primary competition, IBM and IBM clones, use the Intel family ofmicroprocessors. [5]George A. Currently, the Apple operatingsystem choices consist of the proprietary Macintosh system (System 7.5) andA/UX (which is Apple's version of Unix). This can be an importantmeasure since inventory, while a current asset, is typically the leastliquid of a company's current assets. The days inventory outstanding, which hasfallen from 5 days in 1994 to 46 days in 1995, can be improved (thecompany was able to post 3 days in 1992), but the trend at the company istoward improvement in this regard. percent at that time.[5] The company's sales over the past ten years have increased at anaverage annual rate of 2 .5 percent; that rate decreases to 14.5 percentper year for the past five years. The current ratio is simply current assets dividedby current liabilities. These liquidity ratios are of particularinterest to short-term creditors, and may indicate that a company ismanaging its cash well. "Computers and Peripherals Industry." Value Line Investment Survey, 25 October 1996, 1 75.----------------------- [1]John Coyle, "Apple Computer, Inc.," Standard & Poor's Nasdaq StockReports, 5 November 1996, 3141. The company had aparticularly poor year in 1993, when its profit margin was only onepercent; this compares with a poor year for the industry, but the industry-wide average profit margin was 2. New York: Moody's, 21 October 1996.Coyle, John. Apple's current ratio has been either close to or above 2. Although inventory turns has fallenfrom 11 turns in 1992 to seven turns in 1994, the company has improved thismeasure in 1995. [7]"NASDAQ Stock Quotes," Wall Street Journal, n.d., n.p. Apple hasdemonstrated strong performance in this regard in the past, with days A/Routstanding falling from 5 days in 1992 to 24 days in 1995. This indicates that Apple is not paying excessive levelsof inventory carrying costs. At the same time, the company tookon long-term debt in 1993 which it had not had previously, indicating thatwhile the company might have been seeking capital to take advantage ofmarket opportunities, it may also have been seeking to avoid financialproblems. In addition to the agreements with IBM and Motorola,Apple has also entered into agreements with Oracle to facilitate thatcompany's development of products for the Apple environment. Bibliography"Apple Computer, Inc." Moody's CD ROM Company Reports. However, the heady days of strong growth that the company enjoyedearly in its history are not likely to return. [9]Ibid, 1 . 8868 ||Return on Com Equity | .1334181 | .123 6 | . To a creditor, a high current ratio is preferredsince it indicates that the creditor is likely to receive payment in theshort-term. Financial ratios can also be used toevaluate changes within a company's own financial growth. Apple's capital structure provides adequate debtsupport over the short term. "Apple Computer, Inc." Standard & Poor's Nasdaq Stock Reports, 5 November 1996, 3141.Niemond, George A. This meansthat Apple is receiving prompt payment from its customers, and is able touse its A/R to good advantage. Of greater concern, however, is Apple'sinability to translate those increases in sales into increases inprofitability. As with the inventory measures, this measures howeffectively the company is managing its accounts receivable. However, Apple's liquidity will besignificantly pressured by near-term cash outflows, and Apple may requiresome form of third-party financing. 871 |31.7948 |N/A ||A/R Turnover |14.628917 |19. Such analysis can help identify areas wherethe company may be facing problems (such as an increase in inventorycarrying costs), or show where the company is improving (such as a downturnin its accounts receivable figures). Some ratios,such as the current and quick ratio, are used in most industries,particularly those where inventories play a large role. Apple alsohas a strong relationship with the Small Business Administration, and a Website which offers technical assistance to small companies seeking toincrease their business.[9] Conclusion Apple revolutionized the personal computer industry by bringing to themarket machines which are easy to use. The following balance sheetinformation is for the fiscal year-end for each of the years listed;Apple's fiscal year ends September 3 (note that some items in thefollowing financial statements have been omitted in the interest ofspace).[3] | |1995 |1994 |1993 |1992 |1991 ||Cash |952 |1257856 |8923 3 |14355 |892719 ||A/R |931 |581347 |381946 |1 87185 |9 7159 ||Inventory |1775 |1 88434 |15 6638 |58 97 |671655 ||Current Assets |5224 |4476452 |4338355 |3558394 |286361 ||Total Assets |6231 |53 2746 |5171412 |4223693 |3493597 ||A/P |1165 |881717 |742622 |426936 |357 84 ||Current Liabilities |2325 |19443 5 |25 8 85 |142552 |1217 51 ||LT Debt |3 3 |3 4472 |7117 | | ||Total Liab |333 |2919445 |3145 34 |2 36323 |1726921 ||Equity |29 1 |23833 1 |2 26378 |218737 |1766676 ||Total Debt and Equity |6231 |53 2746 |5171412 |4223693 |3493597 | The company's current problems began to be evident in 1993 and 1994,when there was only a slight increase in some of the critical values on thebalance sheet, including total assets. During the past ten years, earnings have increased at therate of 17 percent per year, but during the past five years, earnings haveseen a negative trend of five percent per year. Introduction Apple Computer manufactures proprietary microcomputers, software andperipherals. 68 468 | .
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