ACCT 201 Financial Analysis of Apple Inc

ACCT 201 Financial Analysis of Apple Inc Company’s Overview McCormick & Company, Incorporated is a global leader in flavor. With $4.3 billion in annual sales, the company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry – retail outlets, food manufacturers and foodservice businesses. We operate in two business segments, consumer and industrial. Demand for flavor is growing globally, and across both segments we have the customer base and product breadth to participate in all types of eating occasions. Our products deliver flavor when cooking at home, dining out, purchasing a quick service meal or enjoying a snack. We offer our customers and consumers a range of products from premium to value­priced. From locations around the world, our brands reach consumers in more than 140 countries and territories. McCormick is also the leading supplier of private label items, also known as store brands. Consumer segment sales are driven by product innovation, effective marketing, expanded distribution and acquisitions. In our industrial business, we provide a wide range of products to multinational food manufacturers and foodservice customers. Our range of products remains one of the broadest in the industry and includes seasoning blends, spices and herbs, condiments, coating systems and compound flavors. In addition to a broad range of flavor solutions, we strive to achieve customer intimacy. Our customers benefit from our expertise in many areas, including sensory testing, culinary research, food safety and flavor application. Our strategy is to increase sales and profits by investing in the business, and fueling this investment through our Comprehensive Continuous Improvement program ­ CCI. With a solid balance sheet and strong cash flow, we have paid dividends every year since 1925 and increased dividends annually in each of the last 30 years. With McCormick's team of over 10,000 employees and our winning growth strategy, we are well­ positioned to continue to deliver high performance and increase shareholder value. CompanyName Year Revenue Net Income Working Capital Total assets McCormick 2015 4.3B 401.6M 1,670,200 4,507,800 Congra Foods 2015 15.83B (620.9M) 5,264,400 20,405,300 McCormick 2014 4.24B 437.9m 1,792,200 4,414,300 Congra Foods 2014 17.71B 299m 5,258,500 19,319,500 McCormick 2013 4.12B 389M 1,932,500 4,449,700 Congra Foods 2013 15.5B 772.3M 4,526,000 17,542,200 Financial Ratios: These ratios are calculated from the reported figures in the financial statements. They are used to analyze the relative financial health of the company as compared to other similar companies. They can be compared over time within the same company to spot trends and evaluate risks, especially when deviating from companies in the same or similar risk categories. Apple’s growth estimate with Industry The table 1 shows the growth of Apple Inc in current year, next year and next five years (per annum) in compare to Industry, sector and market. It is expected that Apple Inc will easily beat both Industry and the market but it would be difficult to surpass the sector’s growth rate. The current quarter EPS is 2.07 that are expected to rise by more than 300% in next year and around 400% in next two years. Growth Estimate AAPL Industry Sector S&P 500 Current Qtr. 21.70% 58.20% N/A 18.80% Next Qtr. 19.30% 81.80% 449.10% 19.00% This Year 19.70% 4.40% 20.60% 8.00% Next Year 10.20% -5.10% 23.90% 10.60% Next 5 Years (per annum) 11.34% 7.74% 18.51% 9.81% Table 1 Source: Apple’s financial performance with key competitors and Industry - The table 2 shows a comparative financial view of Apple Inc with the major competitors like Blackberry, Google, HP and with Industry. Direct Competitor Comparison AAPL BBRY GOOG HPQ Industry Market Cap: 697.92B 5.45B 366.57B 73.08B 863.55M Employees: 92,600 8,057 51,564 N/A 1.16k Qtrly Rev Growth (yoy): 0.12 -0.42 0.2 -0.03 0.22 Revenue (ttm): 182.80B 4.05B 67.91B 111.45B 541.61M Gross Margin (ttm): 0.39 0.07 0.58 0.24 0.23 EBITDA (ttm): 60.45B -1.18B 19.96B 13.15B 25.28M Operating Margin (ttm): 0.29 -0.51 0.23 0.08 0.03 Net Income (ttm): 39.51B -5.01B 12.89B 5.01B N/A EPS (ttm): 6.45 -9.66 19 2.66 0.04 P/E (ttm): 18.45 N/A 28.44 14.72 27.5 PEG (5 yr expected): 1.36 -0.51 1.31 2.08 1.38 P/S (ttm): 3.77 1.33 5.4 0.63 1.25 Table 2 Source: Apple Inc has a largest market capitalization of huge 697.92 billion followed by Google (366.57B) and HPQ(73.08B). Apple Inc has highest revenue and quarterly revenue growth rate is 12%, higher than BBRY and HPQ but less than Google and Industry. Apple has 2nd position for Gross margin just after Google but Apple Inc has highest operating margin. In the terms of Dollar net income, Apple Inc has fetched 39.51B in current year, three folds higher than the largest competitor - Google. However, its EPS is three times lower than Google’s. P/E ratio is also lower than Google’s and Industry average but higher than BRBY and HPQ. Apple’s five year’s expected PEG is around 1.36, almost equivalent to Google’s and Industry’s PEG. P/S is 3.77, lower than Google but higher than other competitors’ P/S and Industry average. Overall, Apple’s has a very strong position against its competitors and Industry. Nonetheless, Apple has always beaten the Industry but Google has always been proved to be its biggest competitor. Du Pont Analysis of Apple Inc Following table shows the ROE calculated through DuPont Analysis ( in million) 2014 2013 2012 Revenue 182,795 170,910 156,508 Net Income 39,510 37,037 41,733 Total Assets 231,839 207,000 176,064 Shareholder's Equity 118,210 123,550 118,550 ROE 0.33 0.30 0.35 Table 3: DuPont Analysis From table 3, it can clearly be observed from the above calculations; ROE was poorest in 2013 compared to the other two years. This means that the company was not able to sell very well in relation to the amount of equity invested that year. Financial Performance of Apple Inc in past three years Liquidity/Financial Health 2013­11 2014­11 2015­11 Current Ratio 1.29 1.26 1.13 Quick Ratio 0.53 0.51 0.46 Financial Leverage 2.30 2.46 2.70 Debt/Equity 0.53 0.57 0.63 Liquidity/Financial Health 2013­05 2014­05 2015­05 Current Ratio 1.29 1.60 1.11 Quick Ratio 0.43 0.60 0.35 Financial Leverage 3.88 3.68 3.88 Debt/Equity 1.69 1.67 1.52 Financial Performance of Apple Inc in past three years Table 4: Ratio Analysis To know the financial performance of Apple Inc in past three years, different ratios are calculated with the help of financial statement as shown in Table 4. Ratios are explained in five major categories - Liquidity of Short term Assets Current ratio - In year 2012, current ratio was more than 2 but from the last three years, it has been hovering around 1.50. Since it is still more than 1 therefore it shows a good liquidity position of the firm. Cash ratio - Cash ratio has come down to less than 1.0 in past three years but since it is still close to one, therefore, it is concluded that Apple Inc. has sufficient cash to meet any urgent requirement. Quick ratio - Again we can see that Quick ratio has been more than 1.30 in all the past three years except last year when it is 0.82, therefore, company has faced cash crunch in past year but it had enough cash to meet short term commitments. Company should use cash cautiously because all debtors may not be liquidated or cash may be required urgently required for other purposes. Long Term debt paying ability Debt ratio of Apple Inc. is on an average of 0.40 in past three years. It shows a safe level of debt and expected to continue at same level in future. Debt Equity Ratio in 2014, it is 0.26 while from 2010 to 2013; it was between 0.50 and 0.6. Low debt-equity ratio shows the conservative approach of company and therefore the risk of insolvency is quite low. Profitability Profit margin - It has been around 22% in past two years which is at low level from the preceding three years. Therefore, the profit margin has been decreasing and on an average it is around 23% in past three years. There is no any significant fluctuation in earnings. Return of Assets (ROA) has also been decreasing in past three years and in 2014, it is at lowest level of 18% but it is consistent in long run. Return on Equity (ROE) is 34% in 2014 and with little up and downs, it has been at the same level in past five years. Asset utilization or Management Efficiency