Apple Case

5. What is your assessment of Apple Computer’s financial performance the past three years?

(Use the financial ratios in Table 4.1 on pages 94-96 of the text as a guide in doing your financial analysis.)

Based on the ratios, we can see the differences of ratios in Apple, Inc. financial statistics from 2005 until 2007. In their gross profit margin, ratios showed that profit margin are decrease from 40.9% in 2005 to 40.8 % in 2006. But in 2007, the gross profit margins were increase to 51.4% and this percentage is the highest compare to 2005 and 2006. So the higher percentage is better than and the trend should be upward. For operating profit margin, the ratio is consistently increased in 2005, 2006 and 2007.The percentage for the both three years is 11.8%, 12.7% and 18.4%. This was proving that Apple, Inc. is consistently gained the profitability of the current operation. The return on total assets (ROA) for Apple, Inc. for the two year are almost remain the same that is 11.5% in 2005 and it showed a little increase to 11.6 % in 2006. But in 2007the ratio were increased to 13.8%. These ratios measure the return on total investment in the enterprise. We take a look for return on stockholders (ROE) equity for 2005 is 17.9% , 2006 is19.9% while for the 2007 it increase to 24.1% which mean the return on stock holders earning on their investment. For inventory turnover ratio, Apple Inc. state 84.4% in 2005 which is decrease a little to71.5% in 2006. But in 2007, the numbers of inventory turnover ratio were decreased to69.4%. It is not a good for Apple Inc. to measure the number of inventory per year because inventory turnover is low. The debt-to-equity ratio in year 2005 and 2006 is remaining the same which is 0.08%.But in 2007, the ratios of debt-to-equity were increase to 0.10%. These ratios show that Apple Inc. has higher creditworthiness and good balance sheet strength.

As a whole, Apple has had mediocre performance in the PC industry. Sales significantly increased from the mid-80’s to the mid-90’s. However, as sales increased, so did debt, and the threat of bankruptcy in1996 led Apple to transform into Apple Inc rather than Apple Computer. At this time, the company recovered fully with the introduction of non-PC products. These new products had a huge hand in the financial recovery, as Apple continued to lose market share in the PC market. The PC market is rapidly changing, and Apple at times was too slow to respond and did not anticipate the abilities of their competitors. Meanwhile, they used their capabilities to consistently change their strategy. Their efforts to act proactively (alliance with IBM, new product development in the PC arena) often did not pan out profitably. Apple maintained profitability because their product was distinct enough to establish a loyal following. Since 2001, Apple has done a fantastic job, strategically.

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