Financial Performance Analysis

Apple (APPL)

Ashwath Anantha Narayanan - 666648886

Vancouver Island University

Finance 2: Finance Theory and Application
Charles Schell

22nd January, 2024

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Introduction

Apple Inc., founded in 1976, is a testament to innovation in technology, with

transformative products like the iPhone and MacBook and software platforms including
iOS and macOS. Apple's leadership in design and user experience has marked it as a key
player in tech, while its commitment to R&D propels its global influence. Apple stands
out in the tech landscape, bridging consumer electronics with its advanced digital
services. From pioneering devices like the iPhone to streaming platforms such as Apple
TV+, the company demonstrates a rare blend of innovation across hardware and digital
content sectors (Apple Inc Peers & Key Competitors - GlobalData, n.d.-b).
In evaluating Apple's competitive landscape, it's essential to consider titans like
Microsoft, Alphabet, and Amazon (Team, 2023). These companies not only parallel
Apple's diverse offerings but also match its expansive reach across various verticals.
From cloud computing and AI to consumer hardware and digital storefronts, these
industry veterans stand as benchmarks against which Apple's performance is often
measured. Their seasoned presence in sectors Apple has ventured into makes them ideal
for peer comparison, providing a comprehensive view of market dynamics and
innovation trends, and it is important to avoid outliers.

Dupont Analysis and Peer Analysis

The chart below projects Apple's profit margin relative to the industry average from 2018
to 2022 illustrating that Apple consistently outperforms its peers in terms of profitability.
The trend shows that Apple has managed to sustain a profit margin well above the
industry standard, suggesting effective cost management and strong pricing power driven
by its brand reputation and product appeal. Notably, there's a significant peak in 2020,
implying that Apple capitalized on particular market conditions, potentially linked to the
increased demand for technology solutions during the COVID-19 pandemic.
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Post-2020, the chart indicates a decline in Apple's profit margin, yet it remains above the
industry norm, indicating ongoing robust performance despite facing potential headwinds
such as rising costs or intensifying competition. In 2020, Apple's profit margin swelled as
global populations turned to remote work and home entertainment, aligning perfectly
with Apple's product lineup, including Macs, iPads, and Apple TV. Also, Apple launched
new iPhones with 5G technology and expanded its high-margin services sector, further
fueling profitability. This, combined with Apple's resilient supply chain and stimulus-
induced consumer spending, allowed them to navigate the pandemic challenges, resulting
in an exceptional profit margin.

Asset Utilization

As asset utilization refers to how effectively and efficiently an organization is using its
assets, particularly equipment, to generate revenue or value, Apple's asset utilization ratio
against the industry average from 2018 to 2022 tells a compelling story of Apple's
operational progress. Over these five years, Apple has demonstrated a steady ascent in
efficiently leveraging its assets to generate revenue.
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Apple's notable uptick in asset utilization from 2018 to 2022 can be linked to a series of
strategic and operational enhancements. The company has honed its operational
efficiency and managed its product portfolio to maximize turnover, notably with frequent
updates and new releases that drive sales. Apple's strategic supply chain investments,
aimed at optimization and agility, coupled with a focus on capital investment efficiency
through automation and state-of-the-art infrastructure, have collectively bolstered its
revenue generation capabilities relative to its asset base.

Return on Assets

In the 2018-2022 ROA comparison chart, Apple showcases a remarkable upward

trajectory, culminating in a 2020 peak, indicative of its potent asset profitability during
that year.
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Despite a post-2020 dip, Apple maintains a lead over industry giants like Microsoft, Amazon,
and Google, underscoring its superior efficiency in profit generation from its assets. Meanwhile,
the industry average climbs steadily, reflecting a collective enhancement in utilizing assets, with
Apple consistently outperforming this benchmark.

Equity Multiplier

The Equity Multiplier trend from 2018 to 2022 indicates Apple has been reducing its debt
relative to equity.. This shift suggests a strategic move toward a stronger, more resilient balance
sheet, with Apple opting for less leverage compared to the industry. Apple's financial reports
corroborate this strategy, reflecting a company focused on financial health and ready for future
growth and market fluctuations.
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The line graph shows Apple's Equity Multiplier starting at a high of 6 in 2018, significantly above the
industry average of around 2, indicating Apple's greater reliance on debt compared to equity in its capital
structure. Over the years, Apple's ratio declines, reaching closer to 3 by 2022, suggesting a strategic
reduction in debt or an increase in shareholder equity. Meanwhile, the industry's average climbs steadily,
from 2 to over 4, implying a growing preference for debt financing. This divergence suggests a shift in
Apple's approach to a more conservative financial strategy relative to its peers.

Return on Equity

As ROE is a financial ratio that measures a company's profitability in relation to its shareholders' equity,
this brings us to the cherry on top of Apple's performance.
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Apple's Return on Equity (ROE) has been high from 2018 to 2022, indicating strong profitability and
efficient use of shareholders' funds. The ROE is a measure of a company's profitability that shows how
much profit a company generates with the money shareholders have invested. Apple's ROE has been
consistently high, ranging from 131.01% to 175.46% during this period. This indicates that Apple has
been very efficient in using its equity to generate profits. A high ROE is a positive sign of a company's
financial health is attributed to factors such as high net income and effective management of the
company's assets and liabilities.

P/E Ratio

The Price-to-Earnings (P/E) ratio graph for Apple versus the industry average from 2018 to 2022
provides a snapshot of investor sentiment and valuation over time. The P/E ratio is a key
indicator used by investors to determine the market value of a stock relative to the company's
earnings. Generally, a higher P/E ratio suggests that investors expect higher earnings growth in
the future compared to companies with a lower P/E ratio. From 2018 to 2020, we see that
Apple's P/E ratio was on an upward trajectory, implying a growing confidence among investors
in Apple's future profitability and a willingness to pay more for its shares.

References
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Apple Inc Peers & key competitors - GlobalData. (n.d.).

https://www.globaldata.com/company-profile/apple-inc/competitors/

Team, I. (2023, July 16). Who Are Apple's Main Competitors in Tech? Investopedia.

https://www.investopedia.com/ask/answers/120314/who-are-apples-aapl-main-

competitors.asp