ANNUAL REPORT PROJECT FOR ACC201

ntroduction:  Reasons for Choosing Apple

Apple began as an innovative idea of Steve Jobs and another friend Steve Wozniak when they were living in Silicon Valley after dropping out of school. At the time the two friends were working for Hewlett Packard; they started Apple at the basement of Jobs’ home. In the year 1976, they created the first Apple computer marking the beginning of major successes and challenges. Since its inception the company has faced myriad of challenges but application of cutting edge technology and leadership has seen the company grow to be among the most successful company in the world. In 1997 the company’s share was trading at $3.30 but it had risen to $339.87 by 2011; it is currently trading at $219.88. Apple is among the top three producers of smartphones; competitors include Samsung and Huawei. The Apple brand is the most valuable in the world valued at more than $ 153 billion. Many companies have tried to copy the company’s successful business model but many have miserably failed. Apple’s success story arises from a combination of factors including the company’s corporate culture founded on innovation and enthusiasm; former CEO Steve Jobs’ remarkable leadership skills and the cutting edge technology products the company makes. The company was initially operating as a computer company but it transitioned into a consumer electronics company. Currently, the company designs, manufactures and markets mobile communication and media devices as well as personal computers. They also sell a variety of related software, services, accessories, networking solutions and third party digital content and applications (Johnson et al, 2012).   

Review of CEO and Auditors’ Opinion Report

When presenting the report during the closure of the 2017 fiscal year in September 2017, the CEO Tim Cook lauded everyone for a very fruitful year. The company had recorded impressive sales across the world with the last quarter ending September recording the highest revenue while the revenue for the year was 12% higher than the revenue recorded in year 2016. Moreover, as part of the company’s corporate social responsibility, the company is investing in community colleges so that students can learn software development and information technology at an early age. The information is presented in an accurate way that inspires shareholder’s confidence in the company. The auditors give an unqualified opinion on the financial statements provided by Apple. This reveals that Apple’s financial statements have been prepared in accordance to law and they offer a true and fair view of the financial health of the company. The auditors were satisfied with the accounting policies employed and reasonableness of the accounting estimates made by Apple’s directors. They added that sufficient audit evidence was obtained that would inform their final decision. The auditor report is reliable, accurate and inspire trust in shareholders who uses audited financial statements to inform their decision if to invest or not in Apple (Apple, Inc, 2017). 

History of Apple

Steve Jobs, Steve Wozniak and Ron Wayne are the founders of Apple back in the year 1976 but Wayne left shortly after leaving Jobs and Wozniak to steer the company ahead. The company’s first computer, the Apple I, was introduced and designed by Wozniak to HP but HP was not impressed and was against pursuing the venture. However, the setback did not deter Jobs and Wozniak; they went on to develop and sell the computer. In the year 1978, the developed Apple II that hit 35000 computers in 1979 then more than doubling to 78000 computers in 1980. The company’s first initial public offer was in 1980 and it was well received. The Mackintosh model was developed in 1984 and recorded impressive sales. Nonetheless, there was power struggle between the company’s executive that saw Job’s departure. As a result the company recorded major losses but it started rising again once Jobs returned in 1997 with the iMac makes sales of 800000 by 1998. The company continued introducing highly innovative products; iPod and iPhone were introduced in 2001 and 2007 respectively. In 2008 the company iTunes store sold more music than the leading music provider at the time Wal-mart. The company continued with its innovation introducing iPad in 2010. The growth in company’s music sales was directly proportional to impressive iPod sales that hit 275 million across the globe between 2001 and 2010. Up to date the company is considered the most successful company especially its high level of innovation. Jobs died in 2011 and Tim Cooks took over the company’s leadership (Johnson et al, 2012).    

Apple’s Main Competitor

Samsung is Apple’s main competitor in the consumer electronics industry especially in the smartphone segment. Samsung is a South Korea company started in 1938 as a trading company but has since then grown to be the leading player in manufacturing and sale of consumer electronic goods. Samsung smartphones are among the most popular in the world and has fiercely competed with Apple especially in the past two decades. Samsung’s fast follower innovative strategy has been very successful so far although currently the company has focused on sales as compared to Apple who concentrates on innovation. The company has already embraced the 5G technology that has enabled it to set market standards for the 5G technologies as well as gain competitive advantage over its fierce competitors, Apple and Huawei (Omair, 2014).    

Individual Ratio Analysis and Trend Analysis for both companies-Apple and Samsung

Apple’s current ratio for three years (2013-2015) has averaged 1.69% while Samsung average current ratio was 2.53%. This shows Apple is able to efficiently utilize its current assets to finance new debts compared to Samsung. Inventory turnover ratio is significantly different for the two companies (Apple at 60% while Samsung inventory turnover is 6.7%). Apple is able to sell its inventory at a faster rate; Samsung low inventory turnover may also be attributed to the fact that it offers a wider range of smartphones compared to Apple. The two companies have a high debt ratio compared to the industry average of 0.19%; the average debt ratio for Apple is 0.6% while that of Samsung is 0.4%. The debt ratio gives investors of how much debt is leveraged; Samsung has a lower debt ratio implying it has fewer creditors, less leverage and is more equitable. The gross profit margin for the two companies’ averages at 40% but the net profit margin for Apple is 22% while that of Samsung is 11%. This shows Apple is able to convert more of its revenue into profit; Apple’s tap in smartphones and personal computers has contributed to the high net profit margin (Rasheed et al, 2015).  

Return on assets ratio for Apple between 2013 and 2015 averages at 20.45% with that of Samsung at 7.91% implying that Apple is more liquid than Samsung. The industry average return on assets ratio is 1.26%. Compared to other players in the industry, Apple and Samsung have been able to effectively use their equity, assets and debt to generate revenue. Apple is generating more revenue than Samsung. Return on equity ratio shows Apple’s on average at 46% which is four times higher than Samsung’s 11.2%. This means Apple generates 46cents for every shareholder dollar invested while Samsung earns 11 cents. However, the two companies return on equity is higher than the industry average at 6.76%. Apple records better returns than Samsung owing to its extensive investment portfolio as well as the fact that Apple has more assets and liabilities. Moreover, the industry standards focus on the consumer electronics only that leads to the low industry percentages since the industry is dominated by a few players that have the huge capital outlay needed to compete effectively (Rasheed et al, 2015).

Company’s Financial Performance, Financial Position and How the Company Is Getting and Spending Their Money.

Apples financial statements offer an insight into the company’s financial health. The financial analysis will assist users of the financial information in making sound decisions and to also plan on putting into place the best strategies that would support growth of business. A closer look at Apple’s financial ratio for the past three years and compare them to those of its competitor (Samsung) and the industry average, it is clear that Apple successful business model is paying off. Other players will need to invest massively in innovation and technology to dislodge Apple from the top position (Apple, Inc, 2017).  

Would you consider working for this company? Why or why not?

Apple would offer an excellent work environment in which every employee would dream to work in. the company does not have the bureaucratic organizational structure common with other corporations; the company has a flat structure. In addition, the company does not employ the 9 to 5 normal working hours but it offers an environment in which workers can report to work at hours when they would be highly productive. The company also offers a higher than the industry average remuneration and new employees are extensively trained to fit best in its corporate culture. All employees have an equal opportunity to rise in the corporate ladder. The company’s immense investment in research and development would enable one to perfect innovation and skills. To maintain discipline and proper conduct in the company operations, the company provides employees with a business conduct helpline that employees can use to report misconduct. 

Would you consider investing in this company? Why or why not?

Apple is a company worth investing in. It has grown to be one of the top 100 Fortune companies in the world in the past two decades. The demand for the company’s products especially personal computers and smartphones has been growing with high demand recorded in China and India sub-continent. With African economies also recording impressive economic growth, Apple’s future and profitability is assured. In the consumer electronics industry, Apple has the highest net profit margin showing its remarkable capacity to turn much of its revenue into profit. Higher profit implies higher earnings for shareholders and an appreciating stock price. In addition, the company has invested heavily in ensuring it’s responsive to the environment by offering incentives to employees who uses public transport to work.  Consumers are increasing getting conscious about the environment and are undertaking evaluation of companies before buying products. The fact that Apple is a leading player in protecting the environment increases consumers’ confidence in its products thus guaranteeing sustained demand and profitability. An analysis of the consumer electronics industry also reveals that Apple return on shareholder’s equity is higher than that of its fierce competitor Samsung and other players in the industry.    

References:

Apple, Inc. (2017). Annual report. Retrieved on 16^th October 2018 from http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2017.pdf

Johnson, K. et al (2012). The innovative success that is Apple, Inc. Marshall University. Retrieved on 16^th October 2018 from

<https://mds.marshall.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1420&context=etd> 

Omair, M. (2014). “Antecedents of Growth in Market Share of Samsung, a Financial Analysis.” Research Journal of Finance and Accounting, Vol. 5, No. 11. Retrieved on 16^th October 2018 from file:///C:/Users/User/Downloads/13541-16258-1-PB.pdfRasheed, R. et al (2015). “Samsung Electronics and Apple, Inc.: A Study in Contrast in Competitive Analysis in 21st Century.” Industrial Engineering Letters, Vol. 4, No. 12.  Retrieved on 16^th October 2018 from https://www.iiste.org/Journals/index.php/IEL/article/viewFile/18224/18598