When researching a company for a business analysis report, a SWOT analysis is not the first and final step; it is important to figure in many other factors. One such, and very important, factor is financials. Even though much can be learned from the SWOT analysis, the income statement, balance sheet, and cash flow are not always taken into consideration during that portion of the business analysis. It is imperative that one researches a company’s financial well being when contemplating whether or not to invest in said company.
AAPL’s income statement shows that in 2007 that they had a total revenue of $24. 578 billion and a gross profit of $8. 152; the following year (2008) total revenue was up a little more than 50% at $37. 491 billion, and gross profit was up more than 60% at $13. 491 billion. In 2009, AAPL showed signs of much slower growth; total revenue was up only about 14. 5% at $42. 902 billion and gross profit was up a little more than 25% at $17. 222 billion. This slowdown in growth could be attributed to the world economic slowdown that was occurring around the same time.
Looking into total revenue and gross profit for 2010, AAPL appears to have bounced back from the slowdown of 2009 to post a 52% increase in total revenue to $65. 225 billion and a 49% increase in gross profit to $25. 684 billion. For smart phone technology, AAPL’s two closest competitors are Google (GOOG) with their Android phones, and Research In Motion Limited (RIMM) with their Blackberry phones. GOOG, in 2007, had a total revenue of $16. 594 billion and a gross profit of $9. 945 billion, while RIMM’s total revenue and gross profit were $6 billion and $3. 08 respectively.
In 2008, GOOG’s total revenue rose a little more than 31% to 21. 796 billion and gross profit rose at about the same rate to $13. 174 billion. During the same period, RIMM’s total revenue was up an astonishing 84% at $11. 065 billion and gross profit was up 65% at $5. 097 billion. During the economic downturn mentioned earlier, both GOOG and RIMM saw slower growth in 2009; GOOG had a total revenue growth of only about 8. 5% to $23. 650 and gross profit grew a little more than 13% to $23. 650, while RIMM’s total revenue grew 35% to $14. 953 and gross profit grew just under 30% to $6.584 billion.
As with AAPL, GOOG bounced back in 2010 reporting a total revenue increase of 24% to $29. 321 billion and a gross profit increase of nearly 28% to $18. 904 billion. RIMM also recovered well posting a total revenue increase of 33% to $19. 907 billion and an equal gross profit percentage increase to $8. 825 billion. Total revenue and gross profit do not tell the whole story of an income statement. Operating expenses need to be calculated to arrive at the bottom line or the net profit. AAPL’s net profit in 2007 was $3. 495 billion. In 2008, net profit was up 75% to $6. 119 billion.
AAPL had a net profit of $8. 235 in 2009, which was an increase of 35%. In 2010 AAPL netted $14. 013 billion, a 70% increase. GOOG’s net profit in 2007 was $4. 203 billion; while RIMM’s net profit was $1. 293 billion. In 2008, GOOG’s net profit went up only 0. 5% to $4. 226 and RIMM’s net profit jumped more than 45% to $1. 892 billion. After a difficult 2008, in 2009 GOOG amassed a net profit increase of nearly 55% to $6. 520 billion; meanwhile, RIMM’s net profits increased by 30% to $2. 457 billion. In 2010, GOOG saw a net profit increase of 30% and RIMM saw a net profit increase of 38%; they netted $8.505 billion and $3. 411 respectively.
Reviewing AAPL’s balance sheet clearly shows that AAPL is cash rich; as of June 25, 2011, AAPL has amassed $12. 091 billion. If short-term investments, account receivables, and total inventory are added, AAPL’s total current assets equal $46. 898 billion. Their fixed assets such as property and equipment total $10. 384 billion. Their goodwill, intangibles, long-term investments, and the fixed assets mentioned before bring their total assets to $106. 758 billion.
Their total current liability totals $20. 722 billion; that added with their deferred income tax of $4.3 billion and other liabilities equaling $$2. 37 billion brings their total liability to $27. 392 billion. AAPL’s total assets of $75. 183 billion minus their total liabilities of $27. 392 billion leave their total equity at $47. 791 billion. GOOG’s balance sheet is almost equally impressive. Their total current assets amount of $41. 562 billion helps make their total assets equal $57. 851 billion. Their total liabilities equal $11. 610 billion. This makes their total liability $46. 241 billion.
RIMM’s balance sheet, on the other hand, came up much less impressive. Their total asset amount of $12.875 minus their total liabilities of $3. 937 leaves them with a total equity of $8. 938. In reviewing the financial reports of the three leading companies for smart phone technology, it is clear that two companies have emerged as one and two while the other is a distant third. AAPL and GOOG are very close in most of the financials, making RIMM the contender that is a distant third. One might wonder if there is anything in AAPL’s financial statements that should concern a potential investor. The short answer is no, but if they were not so cash rich there are some ratios that would catch my attention.
With AAPL being very cash rich, they should not experience problems if, for instance, banks had some major crisis and stopped lending money for a period as we saw in 2008 and 1009. Their current ratio, which is current assets divided by current liabilities, is 1. 75. Generally speaking, anything under 2. 00 is less than satisfactory for banks considering safe loans. In comparing that number with GOOG’s ratio of 4. 16 and RIMM’s ratio of 2. 06, in this statistic AAPL comes in last. Another key liquidity ratio is the acid-test; with the acid-test, a ratio greater than 1.00 is considered satisfactory and AAPL’s ratio is 1. 28.
Another important ratio to consider is the leverage ratio. Leverage ratio measure how a company relies on borrowed money. AAPL’s leverage ratio is 54%. This means that AAPL has almost two times the amount of equity as they have debt. GOOG really shines in this ratio with 25%, while RIMM performs slightly better than AAPL in this ration with 44%. In considering the profitability of AAPL, one can use diluted earnings per share (diluted EPS).
AAPL’s diluted EPS ratio is 26. 31, while GOOG and RIMM have diluted EPS ratios of 15.15 and 6. 34 respectively. Keeping all these ratios within an acceptable range are very important in order for the company to stay fiscally health. Management can use these numbers and the trends of these numbers to ensure that the company continues to stay fiscally healthy. If one of these ratios were to fall out of spec it is vital for management to catch this discrepancy and correct it as soon as possible. For instance, if AAPL’s acid-test dropped below 1. 00, then management would first need to acknowledge that the acid-test ratio is too low.
After acknowledging the discrepancy, it is vital for AAPL to perform an action that would correct the discrepancy. In this case, AAPL could improve their acid-test ratio by raising more cash. They could raise cash by issuing more stock. After comparing AAPL, GOOG, and RIMM, I have found that AAPL and GOOG have very similar financial health levels. RIMM does not necessarily have an unhealthy financial situation, but it is just not as healthy as AAPL and GOOG. All of RIMM’s ratios are in line with AAPL and GOOG, so where they are lacking is in total revenue and profits.
By studying these financial statements I have learned that the Blackberry just does not carry the same level of popularity as does the iPhone and the Android. AAPL has a technological advantage over GOOG and RIMM by just having some of the brightest and most innovative minds in the industry as decision makers for the company. Steve jobs, who recently stepped down as CEO, and Jonathan Ive are just a couple of the top visionaries that AAPL has leading its company. AAPL’s goal is to stay at least two years ahead of its competition.
The way it does this is by having its staff of engineers spend thousands of hours just visualizing what the consumer base will want in three to five years. It then engineers every detail of that vision across all of its devices. The iPhone is the result of one of those visions from 2004. AAPL does not just stop with technological advantages; it has strategic advantages in place as well. Some investors complain that AAPL has too large of a bank roll and should give money back to investors; AAPL disagrees and says it needs the money for strategic purposes.
One such strategy is where AAPL purchased $7.9 billion in components from Taiwan and China, buying up 60% of all available touch screens. This gave AAPL two advantages. First, AAPL was able to negotiate a great price; and second, the shortage of touch screens caused its competitors to pay an inflated price (Bajarin, 2011).
Apple Inc. : NASDAQ:AAPL quotes & news – Google Finance. (2011). Retrieved from http://www. google. com/finance? q=aapl Bajarin, T. (2011). Apple’s Strategic Advantage. Retrieved from http://www. pcmag. com/article2/0,2817,2380962,00. asp#fbid=lVmsd7sNJUf Financial Statements for Apple Inc. – Google Finance. (2011). Retrieved from http://www.google.com/finance