The Apple Company
Apple is the multinational company in America that manufactures and design computer software and consumer electronics products. Best-known hardware products of company include iPhone, iPod and Macintosh computers. Apple company produce many software which provide many facilities to users like a suite of audio tools, Mac OS X operating system, Logic studio, the iTunes media browser, a suite for professional audio and film industry software product, the iLife suite of multimedia and creativity software, the final cut studio and the iWork suite of productivity software. (Apple1inc.blogspot.com, 2009)
Company smoothly run online store for selling hardware and software products and with this they also run more than 250 retail stores in nine countries. Apple has more than 35000 employees and its annual sales were considered as $32.48 billion annually. As Apple has developed a specific position in the consumer market related to electronics and having a good reputation among all its customers. (MIRABAL, 2009)
Industry research includes many different angles, which help in analysis and research of industry and provide more and more information related to company.
Apple Porter’s Competitive Five-Force Analysis
Porter‘s five force analysis also consider as best industry analysis in the different business strategies. It gives attention on different variation of profit margin between different industries according to their performance and structure. This analysis give a starting point to implementing the strategies and help in understanding the competitive environment in which company is going to operate its operations. The Porter’s five-force analysis include the following competitive forces: bargaining power of buyer: strong buyers have powerful impact on the prices of products. (FERGUSON, 2017)
Threats of substitutes: different availability of substitutes which also a hurdle in increasing of prices. Bargaining power of suppliers: strong suppliers want premium prices and minimize the profit limit. Barriers to entry: work as hurdle in the ways of new competitors and try to less their profit margin. Industry rivalry: in the same industry, different companies have less potential to generate profits in high competitive environment. (Marsdd.com, 2014)
Industry Life Cycle
Industry life cycle has different stages, which show its age in the market. Industry has to face different challenges at different stages and have to develop such strategies that support on different stages for facing all challenges. Therefore, four stages of industry life cycle are; Start upstage, Consolidation stage, maturity stage and relative decline stage.
In startup stage, the company has to face many challenges and risks related to market, they have to develop such strategies that support in all difficult situations so in this stage, its growth is going to be very fast and they want to earn maximum profit. At consolidation stage, the growth rate of the company is faster than the economy. It stable its position in the market and company become more stable and market share can be easily envisaged.
At the maturity stage, the product gets maximum aptitude related to its consumption. At this stage, it focuses to compete based on prices. But at this time its profit margin is going to low and company’s work as cash cows at this stage. At the stage of relative decline, profit becomes the challenge for the production, costs become counter optimal, profitability becomes diminish due to low prices and sales volume become decline or stabilize. (Nigudkar, 2018)
Apple Industry Analysis
In industry analysis, the company is going to face many questions like major competitors, long-term market demand, market fragmentation, market share, consumer and supplier pricing power, international competition, industry margin and profitability and economic sensitivity. First, we are going to talk about the competitors of Apple Company; Samsung is the biggest competitor of apple industry as compared to other companies like Dell, PayPal, amazon.com, Sony and micro soft. These are also the big market share capture and give a tough competition to all the other companies.
The demand of Apple products is going to increase day by day because they provide more advance and smooth features to all its customers and with this, they offer a great variety of applications and all the necessary items that required by the customer at high quality. Although its prices are high its customers are satisfied with the provided features and can pay any amount to facilitate with excellent features. Market fragmentation is very important in the Apple Company as it provides more opportunities for the company and different suppliers to prepare a flow of orders. It creates a more competitive environment for the flow of orders and introduces new innovative ways to trade securities in the marketplace. (Lexicon.ft.com)
Due to international competition, Apple gives more focus on its quality of products and try to satisfy the requirements of the customers in all ways. Due to tough competition, it is difficult to maintain its profit margin as many other companies also producing the same products and offer to customers the same features so the company has to face difficulties to capture its profit margin and maintain its profitability.
Apple Company Analysis
Company analysis is very important as to determine in what direction the company is going to compete for the market, what are its strength and weaknesses, what strategies they are going to utilize and what sort of economic moats is applicable in the smooth running of the business. Company’s strengths: company is very much famous in the customers so some of its strengths are given below as; CEO Steve Jobs: Visionary and charismatic. Product development: it does not invent new market but its products set high standards for the market.
Brand name: its name become a brand and attracts the customers. Design and utility: Sleek, not Clunky. For instance desktop becomes the part of the screen instead of a separate box, the iPhone has very few buttons and feels nice in hand. Therefore, the products are easy to use, almost intuitive. Marketing: clever and take advantages of people’s frustration with other hardware. Some of its weaknesses are; Not shareholder friendly: the company has abused option granting in the past and refuses to pay a dividend despite a huge cash level, no debts and gobs of free cash flow.
Very proprietary and controlling: it will not open the operating system to outsiders to develop hardware to work with the products, keeping hardware sales to itself. While this keeps design control inside and up to standards, it has hurt wide adaption of its hardware, especially computers; Apple has veto power over apps sold. CEO Steve Jobs: as he described control freak and demanding. Therefore, in its absence, the reputation of the company is going to be damaged. (Mueller, 2010)
Company’s strategies: apple generic strategy and intensive growth strategies are the main strategies that belong to pricing, marketing and many other areas of business. The generic strategy of apple shows a major advantage over other firms and its intensive strategy for growth that help it maintain its strong position in the global market by supporting the firm’s ability. Due to the high emphasis on excellence in the product design and high rate of innovation, it can sell its products at very high prices.
Apple generic strategy: its generic strategy give more focus on the on the differentiate of the company and its different products as compare to its competitors. Its differentiation generic strategy means that Apple makes itself different from its competitors not in the case of prices but also in the beneficial features of customers. Its main features include its product design, which supports the market, innovative aesthetic in designs and seamless connectivity between the devices. Apple intensive strategies: these include product development, market development and market penetration.
Product development: is important as a company focus on attractive product growth for its market share and performance. Apple brings innovation in its research and development with the intensive growth strategies. Its mission and vision statement also focus on the development of the product. Market development is considered at least intensive. Market development includes the creation of new markets for new products or entirely new markets as it gives more attention to the establishing presence in the new market. It helps in authorizing new sellers in the market and normally this strategy applies in developing markets.
Market penetration: It involve selling the company’ current product more and more to gaining large market share of the company. This approach helps in those markets where Apple does not make its significant position. With this strategy apple, also promote its media outlets and websites. This also helps Apple to reach all its customers in all market segments. (Meyer, 2017)
Economic moats are developed through competitive advantages that provide secure place to company in the industry. These factors create hurdles for new entrants and accumulate the market share by limit the competitor’s ability. These factors include economics of scale, regulations, brand strength, network effects and intellectual property. Apple’s qualitative moat analysis establish brand loyalty through design, marketing and clever innovation. The reputation of Apple products is high-quality electronics for consumers. Apple provides benefits on the economics of scale and apple have intellectual property and patent protection against many products in the market.
Quantitative moat analysis work on the stability of profit and its extent. As its return on invested capital more than its WACC then it consider that it has moat. Apple ROIC was almost 25.5% at the March 2016 end, which is going down as compare to previous, which was 42%. WACC of company was 7.85% with the interest of 2.54%, beta 1.5, equity risk premium is 6.16% and debt to capital ratio was 0.38.whaich show a wide moat in the company. Its gross margin of March 2016 was 39.8% which was fall between the below five year high of 43.9% and above the five year low of 37.6%. With the operating margin of 29.4%. Therefore, the apple economic moats are evident with quantitative threats. (Downie, 2016)
Apple Financial Analysis
The financial analysis of the company include many different analysis which show its sales condition, profitability, assets ratio, return on equity analysis, free cash flow analysis and WACC analysis. Sale analysis: this analysis include historic growth rate, expected growth rate, revenue study related to company. Historic growth rate of company present that how much company was product products in the past years and provide a basis for the present and future estimation of products for the production and selling sectors. (Ukessays.com, 2015)
If we talk about the expected growth then we have to measure the sustainability of growth rate and maximum 5 years growth rate, which determine the position of company at financial level and provide brief information belong to production and selling area of company. Revenue can be measured according to different segments of business, according to geographical regions, seasonality and sensitivity of economy. Revenue can be generated from different sectors of business and every step for generating revenue is important. (Stock-analysis-on.net, 2018)
The financial analysis of the apple includes the general contrast of the Apple’s, which manipulate the financial factors, and the other side does the ratio analysis that will give the information about the financial audit for the performance, which mainly affects the company. According to the financial analysis the main influencing factors of the Apple’s are a revenue, the operating profit, total profit and the cost of the earning along with sales as per the share . Above parameter shows the complete financial performance of the any organization. For the progressing of the economies the financial results of the Apples is the best indicator for the company. (Investing.com, 2018)
The better than expected ascent of Apple’s income plus benefit are the aftereffect of its interests in item advancements which have addressed the requirements as well as needs of the objective markets. The picture of the organization was reinforced through its great deals execution, which was compelling for the ascent of profit per share. The colossal increment for Apple’s expenses of merchandise sold outcome from the improvement with creation of the iPad, which resolve likewise be obvious in the consequence of the financial year finishing September 2011, and additionally the advancement and generation of a new arrival of an iPhone.
The advertise has figured in these business components along with is not giving Apple a high-flying evaluation, which is frequently stood to innovation organizations among estimated development openings. In any case, Apple’s different gainfulness proportions affirm the organization’s present business and related financial achievement, which is individual managed via its planetary deals development as of late. (Nasdaq.com, 2018)
- Earnings before interest and tax (EBIT)
- = EBIT / sales (also called operating margin)
- margin contribution by business segments
- Net margin:
- = net income / sales
- Inventory turn over
- = cost of goods sold/ending inventory
- Receivable turnover
- = Sales / average receivables
- Fixed asset turn over
- = sales / fixed assets
- Total asset turnover
= sales / total assets
Apple Financial Leverage
- Debt / equity ratio
- Total assets / equity
- Debt coverage ratio = EBIT / interest payments
(EBIT: earnings before interests and taxes)
Apple Free Cash Flow Analysis
Operating cash flow (OCF)
- = EBIT + Depreciation – taxes
Free cash flow to the firm (FCF)
= operating cash flow – CapEx – YOY change of working capital
- Capex: capital expenditure
- Change of working capital
- = 2016 (CA-CL) – 2015 (CA-CL)
(CA: current assets; CL: current liabilities)
Apple WACC Analysis
- Market value / book value of debt (D)
- Cost of debt (Rd) = debt interest rate
- The market value of equity (E)
- E = Market capitalization
- Cost of equity (Re) = risk free rate + beta* risk premium
- Total enterprise value (EV)
- EV = Debt + equity
- Debt % = D / EV
- Equity % = E / EV
There are many of the risks associated with the Apple Inc. Although Apple is a big company and the worth of the Apple Inc stock is also high but there are still many of the risks are there in the investment of the Apple Inc. A hold back in the development and diffusion of the market of the Smartphone can be throbbing for the business of the Apple Inc, as more than half the Apple Inc present profits come from the products of the iPhone. Therefore, we can say that slowdown in some of the subsequent is likely to significantly decrease Apple Inc price stock and the investment in the stock of the Apple Inc can be very risky. (Nasdaq.com, 2018)
In general, the growth of the market of Smartphone, the growth of the iPhone market share, or diffusion in the China. allowing for that analysts’ forecast for the sales of the iPhone are not very good for the year, and the next year can also demonstrate unenthusiastic decline in the value of the stock of the Apple Inc, that is also would efficiently knock down multiple stock of the Apple Inc. As we know that the Apple Inc very much relies on just the single product that is the iPhone of the Apple Inc. in the last couple of year then it seems like the Apple Inc is not likely to grow its business and reaches the mature stage of the product and this is the main reason that the investment in the Apple Inc is very risky. (Neff, 2016)
Summary And Recommendation
The overall scenario use to say that it has to be made efficiently compulsory that you will not be made the efforts low in order to make the apple company’s financial and overall position low. You have to do the most important thing, which is to handle the situations carefully and essentially in terms of making them best according to the current market strategy. The apple company should increase its growth with the number of strategies being adopted by the company that makes the sale of their products increased. The main thing about the apple company is that it enhances the situation well and it improves the working better with best efficiency as a must.
You may also study:
- blogspot.com. (2009, October 06). Apple Introduction. Retrieved from http://apple1inc.blogspot.com/2009/09/introduction.html
- Downie, R. (2016, June 19). Buffett’s Moat: Is Apple’s Competitive Advantage Sustainable? (AAPL). Retrieved from https://www.investopedia.com/articles/insights/061916/buffetts-moat-apples-competitive-advantage-sustainable-aapl.asp
- FERGUSON, E. (2017, January 29). Apple Inc. Five Forces Analysis (Porter’s Model). Retrieved from http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study
- com. (2018). Apple .Inc. Retrieved from https://www.investing.com/equities/apple-computer-inc-financial-summary
- ft.com. (n.d.). Definition of market fragmentation. Retrieved from http://lexicon.ft.com/Term?term=market-fragmentation
- com. (2014, Jan 6). Industry analysis and competition: Porter’s five forces. Retrieved from https://www.marsdd.com/mars-library/industry-analysis-and-competition-using-porters-five-forces/
- Meyer, P. (2017, Jan 29). Apple’s Generic Strategy & Intensive Growth Strategies. Retrieved from http://panmore.com/apple-inc-generic-strategy-intensive-growth-strategies
- MIRABAL, S. A. (2009, October 6). Introduction. Retrieved from http://apple1inc.blogspot.com/2009/09/introduction.html
- Mueller, J. (2010, Jun 7). Apple: Strengths, Weaknesses, Opportunities, Threats. Retrieved from https://www.fool.com/investing/general/2010/06/07/apple-strengths-weaknesses-opportunities-threats.aspx
- com. (2018). AAPL Company Financials. Retrieved from https://www.nasdaq.com/symbol/aapl/financials?query=ratios
- com. (2018). Apple Inc. (AAPL) Risk Assessment. Retrieved from https://www.nasdaq.com/symbol/aapl/risk
- Neff, A. (2016, May 02). Apple’s Four Investment Risks (AAPL). Retrieved from https://seekingalpha.com/article/9879-apples-four-investment-risks-aapl
- Nigudkar, A. (2018). Four Stages in Industry Life Cycle and Why You Should Know Them? Retrieved from https://www.financewalk.com/4-stages-industrys-life-cycle/
- Stock-analysis-on.net. (2018). Apple Inc. Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc
- com. (2015, March 23). Apple Financial Analysis Paper. Retrieved from https://www.ukessays.com/essays/marketing/critical-analysis-of-the-financial-statement-of-apple-marketing-essay.php