Apple Company Inc.

Part B – Company Financials

The company Is in America and it specializes in providing customer electronics as well as software and online services. The company has been listed in the Nasdaq stock exchange since 1980. The symbol for the company is: 

Bonds by apple company as well as their coupon rates

In 2021 Apple Inc’s revenue grew by 11% to $123.95 billion. The company’s net income improved by 20% to $34.63 billion. The Americas section grew by 11% to $51.5 billion dollars, Chinese Market expanded by 21% to $25.78 billion dollars, and Europe grew by 9% to $29.75 billion dollars. The Americas segment’s income increased by 24% to $19.59 billion, while the Greater China segment’s income increased by 31% to $11.18 billion, improving net income (AAPL, 2022).

The opportunities available for apple company

Consistently growing customer base is one opportunity. Apple has dominated the software industry. They offer top-notch service and cutting-edge technology that transforms the consumer experience. Their 92 percent client retention percentage is incredible. For future prospects to recruit new clients and build new partnerships, Apple can always rely on the internet’s strength. Since they have invested heavily in infrastructure to make their internet strong and unbeatable by competitors.

The other opportunity is internal as the company has professionals who are qualified. Apple’s researchers, developers, and product experts are a group of highly skilled individuals with extensive expertise in consumer product branding. Apple may continue to expand their personnel, which will allow them to create new opportunities.

The wide-reaching distribution network is a great opportunity for the company. Apple Inc. has a chance to broaden its distribution network. Apple’s distribution network is currently fairly constrained, leaving little possibility for innovation and growth.  careful marketing and promotions might assist the organization to reach remote countries. If Apple focuses on building a large distribution network, it will be able to produce more income and sales.

The company is yet to introduce and market green technology. Apple has yet to introduce items made using green technologies. The firm has not yet adopted or engaged in the development of environmentally friendly sustainable technology. There is a growing population of customers worldwide that are becoming sensitive of the effects of the technology products n the environment. The introduction of ecofriendly products will attract these customers (Zakamulin, 2016)

Wearable Smart Technology is the next huge market for the technology companies. Wearable smart technology will soon take over the globe. Forbes predicts that by 2022, sales of smart wearable technology devices will have doubled. With 233 million units sold, it will become a $27 billion market. To increase the sales of the company Apple has the potential to expand into other wearable categories beyond the Apple Watch and AirPods (AAPL, 2022)

Apple can take advantage of artificial intelligence to boost profit margins and have a strong brand. Artificial intelligence enables customers to use technology products with ease. Apple should use artificial intelligence to boost its sales and profits and maintain a strong position in the market. The company’s AI portfolio has recently been expanded. Apple bought Regaind, a French AI business, and Desk Connect, an AI tool, in 2017. The former acquisition assists Apple in integrating intelligent search into the iPhone’s photographs app, and the latter acquisition automates operations by assisting customers in organizing applications and features using a string of instructions. To maintain a solid presence in the long-term, the corporation should focus on expanding its AI portfolio (AAPL  2022)

The opportunities available for apple company

Apple company challenges in the coming years

The global Covid 19 pandemic has brought numerous challenges to Apple. this is mainly because the company depends on imported products to make their devices such as iPhone. The company faces challenge to look for more sustainable supply channels as manufacturing companies In developing countries are yet to operate at full capacity. Shareholder expectations are still quite high, leaving little space for the corporation to make mistakes. The present component shortages are an excellent illustration. Despite the fact that Apple is more protected than others due to its strict supply chain management, it will still be impacted.

Apple’s attempts to stay in the black financially are now being tested on a number of fronts.  governments worldwide are becoming increasingly worried that Apple is abusing its market dominance to suffocate competition. Apple isn’t the only company under more scrutiny. Officials  are progressively pursuing investigations, lawsuits, bills, and hearings to test Big Tech’s authority. The present government of President Biden intends to regulate these businesses.

People can be brought together by the availability of technology. However, the iMac maker has been criticised for not doing more to promote diversity at the corporation over the years. Human rights organizations are scrutinizing the diversity of employees in Apple stores.

The company issues bond when they need more capital to fund growth and expansion of the business. The investors need to make a decision where to invest in the bond or look for treasury bonds that are risk free.one of the most recent bonds by Apple company was issued in 2016. The bond had an international security identification number AU3CB0237899. The information regarding this bond is contained in the table below;

The yield to maturity of this bond is 3.31%

The treasury yield for a bond that will last 10 years is 2.77%

Therefore, the credit spread is 3.31% – 2.77% = 0.54%

The price of the bond at the end of one year is 97.95 this value is lower than the face value of the bond which was at 99.95. The reason for lower price of the bond is that it has been affected by inflation and other interest rate risks. The credit rating of Apple bonds is AAA. This is because the company shows huge potential for growth. The company profits have remained steady though out the years and the company have noy borrowed more than it can pay maintaining liquidity of accounting books.

The share movement for the last five years is shown in the graph below.

From the year 2019, the firm stock price has been rising from a 50 to 160 at the beginning of 2022.  Such an increase in price of stock has been greatly been contributed by the radical changes by the company and introduction of new products in the market that has attracted more customers. As the revenue and profit rise, the firm has attractiveness as an investment firm with a higher return has attracted more buyers of stock than sellers. As demand rises, the price also increases. Apple has also divested in lucrative opportunities that has seen its revenue increase in folds. As revenue increase as well as net profit, the shares are positively affected resulting to the increase in prices.

Apple company challenges in the coming years

There factors that contributed to an increase in prices of the apple shares. These include the interest rate, favorable economic factors and industry trend.

Interest rate in an economy enables the firm be able to trade with minimal changes in exchange rate that enables the price of the product to remain stable over wide range of time. as the price remains constant many people are able to afford the product increasing sales and profits reported. According to Zakamulin, (2016), price of shares can be triggered by the reports of firm. When the reports are favorable the prices are likely to increase as more investors will be willing pay higher prices and for the purpose of the future returns.

Economic conditions is among the factors that affects the price of the product. When the conditions are favorable such as taxations and exceptions firms are able to operate with efficiency offering quality products. Quality product offered by apple resulted to increase in sales. Apple INC has been in forefront to protect the data of users of its product. As result most customers prefer Apple products resulting to increase in revenue and profits.

Because firms in the same industry frequently behave similarly and are exposed to the same challenges, industry trends often impact the price of shares. As a result, when an industry is thriving, demand for shares in that area rises, pushing share prices higher. It’s also likely that if a competitor is performing poorly, demand for a company’s shares will rise. As most technology companies have not been able to rise to stages of protecting user data from being accessed unknowingly, Apple has been major beneficiary.

Dividend issued by the firm

The firm issued divided on quarterly bases apart year 2021 when it issued it semiannually. The quarterly and semi-annually dividend are added to determine the annual dividend. In order to calculated the expected return currently required for holding the company stock. Discounted dividend model can used to calculate

In the computations, the dividend will be assumed to be issued annually. using the Gordon growth

=PD1(re-g)

=4.25/(0.1-0.03)

=4.25/0.07

=60.71

The efficient market theory claims that stock prices represent all available data and therefore consistent alpha production is impossible. Stocks always trade at their fair value on platforms, according to the EMH, making it impossible for investors to buy cheap stocks or sell for inflated prices. As a result, skilled stock selection or picking stocks should be difficult to outperform the entire market, and now the only way an investor can earn better returns is to buy riskier stocks.  the asset price hypothesis says that asset prices represent all available information. Because market prices should only respond to fresh information, it is difficult to continually outperform the overall market on a risk-adjusted basis.

Apple the company made an announcement in January 27 2022. Here is how the stock price behaved five days before and five days after is shown in table below.

The stock price changes are as in the graph below;

The price decreases steadily from day -5 till the lowest price is on the announcement date at 159.22 the price increases steadily after the announcement. The graph shows that the market is efficient as it reacts appropriately according to the available information.

The return a company must achieve in order to justify the cost of a capital project, such as purchasing new equipment or constructing a new building, is known as the cost of capital. The cost of capital includes both equity and debt costs, weighted based on the company’s preferred or existing capital structure (Eades, 2008). To determine the cost of capital of cost of equity and cost of debt. From the computation of both equity and bonds issued by Apple

Cost debt =Total debt/interest expense*(1-marginal tax rate)

= 23,184,974,670/3.60%*0.70

= 584,261,361

Long term debt 106,875

Equity 57,365

Total 164240

106,875*0.036*0.30

=2663.40

Cost of equity =57,365*10%

=5232.4/57365+7895.50/106875

=2663.40/106875=0.0249

5232.40/164240

=0.03185+0.0249

=0.05675*100%

=5.675% 

References

AAPL, A. (2022). Apple Financials (AAPL) – Investing.com. Retrieved 27 April 2022, from https://www.investing.com/equities/apple-computer-inc-financial-summary

(“Apple SWOT 2022 | SWOT Analysis of Apple”, 2022)

Apple SWOT 2022 | SWOT Analysis of Apple. (2022). Retrieved 27 April 2022, from https://bstrategyhub.com/swot-analysis-of-apple-apple-swot/

Eades, K. (2008). The Corporation’s Cost of Capital and the Weighted-Average Cost of Capital. SSRN Electronic Journal. doi: 10.2139/ssrn.1278845

Zakamulin, V. (2016). Optimal Dynamic Portfolio Risk Management. The Journal Of Portfolio Management. doi: 10.3905/jpm.2016.2016.1.063 

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