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Annual Report Project for Apple Incorporated

Annual Report Project for Apple Incorporated:

Dayna C. Robertson

Casper College

Abstract
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Annual Report Project for Apple Incorporated

This annual report aims to provide a comprehensive summary of my financial analysis of

Apple Incorporated. It encompasses an examination of Apple’s balance sheet, income

statement, and statement of cash flows, along with a thorough analysis of various

financial ratios spanning from the year 2021 to 2022. Additionally, the report explores

prospective information concerning Apple. Throughout my research, I encountered

anticipated and unexpected insights regarding Apple Incorporated. The report not only

highlights commendable aspects where Apple excels, but also pinpoints areas for

improvement that could significantly contribute to the company’s enhanced profitability.

The results of my discoveries and assessments regarding Apple Inc. are presented in the

subsequent sections.

Executive Summary
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Annual Report Project for Apple Incorporated

Apple, a leading manufacturer of smartphones, multi-purpose tablets, personal

computers, a wide range of accessories including home and wearable devices, while also

providing services is located in Cupertino, California. The analysis of Apple’s financial

performance reveals a mixed picture with positive and concerning aspects. The

efficiency ratios demonstrate improvement indicating enhanced operational

management. However, liquidity ratios declined signaling potential challenges in short-

term obligations. Solvency ratios indicate an increased reliance on debt, raising financial

leverage concerns. Profitability measures present a mixed performance with a slight dip

in profit margin, return on total assets, and return on common stockholders’ equity.

Market prospects appear promising, with a slight decrease in the price-earnings ratio

but an increase in dividend yield, reflecting a commitment to rewarding shareholders.

Apple’s assumptions regarding sustained consumer demand, technological

advancement, and a stable economic environment support their strategic decisions.

Personally, I find Apple a striking company to work for given its reputation for

innovation and commitment to environmental responsibility. As for investing, personally

I would choose not to invest, due to payouts for shareholders being lower than I would

expect for a large company. Ernst & Young LLP have served as Apple’s accountants since

2009. The only concern from their accountants, Ernst & Young LLP, is uncertain tax

positions that could potentially effect Apple’s tax rate. As of November 10 th, 2023,

Apple’s stock price is $186.40 and the annual dividend per share is $0.96.
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Annual Report Project for Apple Incorporated

Analysis Overview

Apple incorporated is one of the world’s most prominent technology companies, known

for its innovation in consumer electronics, software, and services. Apple was founded on

April 1, 1976, by Steve Jobs, Steve Wozniak, and Ronald Wayne. Over the years, Apple

has evolved into a multinational corporation with a diverse product and service

portfolio. Apple operates in the technology industry which has seen continuous growth.

The company’s economic setting is influenced by global economic conditions, consumer

demand for high-quality electronic devices, and the competitive landscape. Apple’s

letter to stockholders often emphasizes their commitment to innovation and

environmental responsibility. The company has made significant strides in reducing its

carbon footprint and aims to have their entire operation, including manufacturing,

carbon neutral by 2030.

Evidential Matter

Apple Incorporated, 2022 September 24, 2022 September 25, 2021 Change
Income Statement (Millions) (Millions)

Net Sales $394,328 $365,817 Increase

Cost of Goods $223,546 $212,981 Increase
Net Sales – Cost of Goods = $394,328 – $223,546 = $365,817 – $212,981 = Increase
Gross Profit $170,782 $152,836
Operating Expenses $51,345 $43,887 Increase
Other Income/(expense) & $(384) & $19,300 = $258 & $14,527 = Increase
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Annual Report Project for Apple Incorporated

Provision for Income Taxes $19,634 $14,269

Gross Profit – Operating $170,782 – $51,345 – $152,836 – $43,887 – Increase
Expenses, Other $19,634 = $14,269 =
Income/(expense), &
Provision for Income Taxes
= Net Income $99,803 $94,608

Apple presents its income statement in a multi-step format within their annual report. In

the fiscal years 2021 and 2022, Apple reported gross profits of $152,836 million and

$170,782 million, respectively, denoting a significant increase of $17,946 million in gross

profit. The company’s operating income for these respective years was reported as

$108,949 million in 2021 and $119,437 million in 2022, representing a noteworthy

increase of $10,488 million in operating income. Lastly, Apple disclosed net income

figures of $94,680 million in 2021 and $99,803 million in 2022, reflecting a year-over-

year increase in net income.

Apple Incorporated, 2022 September 24, 2022 September 25, 2021

Balance Sheet (Millions) (Millions)

Assets $352,755 $351,002

Liabilities + Stockholder’s $302,083 + $50,672 = $287,912 + $63,090 =
Equity $352,755 $351,002

Liquidity and Efficiency

Apple Incorporated 2021 2022 Change

Current Ratio 1.08 0.88 Decrease

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Annual Report Project for Apple Incorporated

Acid-Test Ratio 0.91 0.71 Decrease

Accounts Receivable 13.43 times 14.43 times Increase
Turnover
Days’ Sales 26.22 days 26.09 days Decrease
Uncollected
Inventory Turnover 36.96 times 38.79 times Increase
Days’ Sale in 11.28 days 8.08 days Decrease
Inventory
Total Asset Turnover 1.04 times 1.12 times Increase

Apple’s financial ratios in 2022 compared to 2021 raised both positive and concerning

points. The decrease in the current ratio and acid-test ratio from 2021 to 0.88 and 0.71,

respectively, indicates a potential challenge in covering short-term liabilities without

relying on inventory. However, Apple improved its accounts receivable turnover and

reduced days’ sales uncollected, signifying more efficient and faster payment collection.

Moreover, the increase in inventory turnover and decrease in days’ sales in inventory is a

positive trend, suggesting strong demand for their products and efficient inventory

management. Finally, the rise in total asset turnover in 2022 emphasizes Apple’s

improved proficiency in utilizing assets to generate revenue, reflecting enhanced

operational efficiency.

Solvency

Apple Incorporated 2021 2022 Change

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Annual Report Project for Apple Incorporated

Debt Ratio 0.82 0.86 Increase

Equity Ratio 0.18 0.14 Decrease
Debt-to-Equity Ratio 4.56 5.96 Increase
Times Interest Earned 42.3 41.6 Decrease

Apple’s solvency ratios, which provide insights into the company’s ability to meet its

financial obligations and the structure of its financing, demonstrate notable shifts from

2021 to 2022. The debt ratio increased from 0.82 to 0.86, indicating that Apple took on

more debt relative to its total assets in 2022. This suggests that the company relied

more on borrowed funds for their operations and investments. On the contrary, the

equity ratio decreased from 0.18 to 0.14, signifying a decrease in equity financing. The

debt-to-equity ratio experienced a substantial increase, rising from 4.56 to 5.96, which

confirms the increased reliance on debt as a source of financing. Furthermore, the Times

Interest Earned ratio decreased slightly from 42.3 to 41.6, indicating a modest reduction

in Apple’s ability to cover their interest expense from their operating earnings. These

changes in solvency ratios reflect a shift in Apple’s financing structure.

Profitability

Apple Incorporated 2021 2022 Change

Profit Margin Ratio 25.8% 25.3% Decrease

Gross Margin Ratio 41.7% 43.3% Increase
Return on Total 26.9% 28.3% Increase
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Annual Report Project for Apple Incorporated

Assets
Return on Common 166.4% 175.4% Increase
Stockholders’
Equity
Book Value per $3.84 per share $3.18 per share Decrease
Common Share
Basic Earnings per $5.67 per share $6.15 per share Increase
Share

Apple’s profitability measures for 2022 showed a mixed performance with changes in

key ratios. The profit margin ratio, although still strong at 25.3%, experienced a slight

decrease from 25.8% in 2021, indicating a reduction in Apple’s ability to convert revenue

into profit. On a positive note, the gross margin ratio improved from 41.7% to 43.3%,

suggesting that Apple was able to maintain a higher percentage of their revenue as

gross profit, which is a reassuring sign for pricing and cost management. Return on total

assets (ROA) also increased from 26.9% to 28.3%, signifying that Apple generated more

profit from their total assets in 2022, highlighting their efficiency in asset utilization. The

return on common stockholders’ equity (ROE) presented growth, rising from 166.4% to

175.4% reflecting Apple’s ability to generate improved returns for their common

stockholders. However, the decrease in book value per common share from $3.84 to

$3.18 is a potential concern. On a positive note, basic earnings per share increased from

$5.67 to $6.15. Overall Apple’s profitability measures present with strengths in gross
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Annual Report Project for Apple Incorporated

margin, ROA, ROE, tempered by a slight dip in profit margin and a reduction in book

value per common share.

Market Prospects

Apple Incorporated 2021 2022 Change

Price-Earnings Ratio 25.89 24.46 Decrease

Dividend Yield 0.58% 0.60% Increase

The building block market prospects appear promising, as evidenced by the financial

performance of Apple Incorporated, a company often regarded as a leader in the tech

industry and a company that often reflects broader market trends. In 2022, Apple’s

price-earnings ratio decreased slightly from 25.89 to 24.46, suggesting that investor’s

may become slightly more cautious in their valuation of the company’s earning

potential. However, the noteworthy development is the increase in Apple’s dividend

yield from 0.58% to 0.60%. This indicates that Apple is dedicating more of its profits to

rewarding shareholders through dividends. These shifts in Apple’s financial metrics can

provide valuable insights into overall market response.

Assumptions

In planning for its future, Apple relies on a set of crucial assumptions regarding its

industry and economic environment. Leading among these is the expectation of

sustained and growing consumer demand for innovative technology products. Apple

assumes a continued pace of technological advancement to maintain their reputation

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Annual Report Project for Apple Incorporated

for cutting-edge products and to outpace competitors. Apple operates with the

assumption of a stable and supportive global economic environment, factoring in

considerations such as gross domestic product growth, consumer spending patterns,

and stable currency exchange rates. When creating estimates and future plans, Apple

factors in assumptions about sales projections, revenue growth, cost structures, the

ability to enter new markets or expand into existing ones, and customer retention. These

assumptions support the company’s strategic decisions and guide their efforts to stay at

the forefront of technological innovation while navigating the complexities of the global

economic stage.

Key Factors

Apple showcased several positive aspects in its recent performance, featuring favorable

improvements in efficiency ratios, significant profitability growth, increased earnings per

share, and a favorable uptick in dividend yield. Conversely, the company faced certain

challenges, leading to unfavorable results including liquidity issues, concerns in

inventory management efficiency, a heightened reliance on debt, a reduction in equity,

and a slight decrease in profitability margin. In essence, Apple’s performance is

influenced by a combination of strengths and challenges, emphasizing the critical

importance of continuous strategic management.

Inferences
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Annual Report Project for Apple Incorporated

Based on a thorough examination of Apple’s financial report, several key inferences and

conclusions can be drawn. The company’s positive trajectory is evident in the improved

efficiency ratios, showcasing proficient operational management and strengthened

profitability measures. With consistent growth in profitability, Apple maintains a strong

financial position. Earnings per share saw a commendable increase, reflecting Apple’s

commitment to enhancing shareholder value, further emphasized in dividend yield.

However, challenges are evident in liquidity, inventory management, and increased

reliance on debt. Apple’s ability to navigate these challenges will be instrumental in

ensuring their sustained prominence in the dynamic technology industry. Investors and

stakeholder should closely monitor the company’s strategic responses and financial

adjustments to mitigate potential risks and capitalize on its strengths.

References

Apple Inc. (2022). Annual Report. Form 10-K, Cupertino, CA. Retrieved From

https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K-2022-(As-

Filed).pdf

Apple Inc. (2022, October 27). Apple Reports Fourth Quarter Results. September quarter

record for Revenue and EPS. Cupertino, California: Apple Media. Retrieved From

https://www.apple.com/newsroom/2022/10/apple-reports-fourth-quarter-results/
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Bajarin, T. (2022, August 09). Apple's Key To Success Goes Beyond Products and Services

and Includes World Class Operations. Forbes. Retrieved From

https://www.forbes.com/sites/timbajarin/2022/08/09/apples-key-to-success-

goes-beyond-products-and-services-and-includes-world-class-operations/?

sh=5760a55722ec

Podolny, J. M., & Hansen, M. T. (2020, November 01). Organizational Culture. How Apple

Is Organized for Innovation(November-December 2020), pp. 4-11. Retrieved From

https://www.apple.com/jobs/pdf/HBR_How_Apple_Is_Organized_For_Innovation-

4.pdf

Ponciano, J. (2022, May 12). The World's Largest Tech Companies in 2022: Apple Still

Dominates as Brutal Market Selloff Wipes Trillions in Market Value. Forbes.

Retrieved From https://www.forbes.com/sites/jonathanponciano/2022/05/12/the-

worlds-largest-technology-companies-in-2022-apple-still-dominates-as-brutal-

market-selloff-wipes-trillions-in-market-value/?sh=41b307553448