Introduction:

I have decided to invest $10,000 in APPLE INC. Apple Inc. and its wholly-owned

subsidiaries (collectively “Apple” or the “Company”). These companies design,

manufacture, and market personal computers, mobile communication devices, and

portable digital music and video players and sell a variety of related software,

services, peripherals, and networking solutions. The Company sells its products

worldwide through its online stores, its retail stores, its direct sales force, and third-

party wholesalers, resellers, and value-added resellers. In addition, the Company

sells a variety of third-party Macintosh® (“Mac”), iPhone® and iPod® compatible

products, including application software, printers, storage devices, speakers,

headphones, and various other accessories and peripherals through its online and

retail stores, and digital content and applications through the iTunes Store®. The

Company sells to consumer, small and mid-sized business (“SMB”), education,

enterprise, government and creative customers.

I have used financial statements of the year 2009, 2008 and 2007 for the financial

analysis and to develop an understanding about the company’s performance. My

findings are as follows:

Initial Review:

Initial understanding about the company’s business is developed on the basis of the

following of the review of the auditor’s report on company performance and

management comments on company’s future planning:

1. The auditor’s (Ernst & Young LLP) have expressed an unqualified opinion on

the financial statements of the year 2009. This means that the financial

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 statements were prepared in their true sense and depict the true picture of

the company’s financial performance.

2. As per the management discussion and analysis of financial condition &

results of the operations, the company is enhancing its product sale through

the expansion and improvement of its distribution capabilities by opening its

own retail stores in the U.S. and in international markets. The Company had

273 stores open as of September 26, 2009. Further, the company has also

invested in programs to enhance reseller sales, including the Apple Sales

Consultant Program, which places Apple employees and contractors at

selected third-party reseller locations, and the Apple Premium Reseller

Program, through which independently run businesses focus on the Apple

platform and provide a high level of customer service and product expertise.

The company distributes iPhone in over 80 countries through its direct

channel and the company has signed multi-year agreements with various

cellular network carriers authorizing them to distribute and provide cellular

network services for iPhones. These agreements are generally not exclusive

with a specific carrier, except in the U.S., Germany, Spain, Ireland and certain

other countries.

Financial Analysis

The financial strength and performance of the company over the last three years

i.e. 2009, 2008 & 2007 is determined through the following ratios:

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• Liquidity Analysis

S. Detail Working 200 20 200

No. 9 08 7

a Current Ratio $36,265 / $19,282 1.8 2.2 2.36

8 9

b Quick Ratio $36,265 - $455/ $19,282 1.8 2.2 2.32

6 6

c Collection period (in $3,361 * 365 / $36,537 34 27 25

days)

d Number of day’s sales in $455 * 365 / $23,397 7 9 8

ending inventory (in

days)

The company is still higly liquid but this liquidity trend is in declinging trend as

current ratio 2.36 in 2007 is declined to 2.29 in 2008 and further declined to

1.88 in 2009. This decling trend is mainly due to increase in collection period of

the sale and decrease in number of day’s sale in ending inventory as depicted

above.

• Profitability Analysis

S. Detail Working 2009 2008 2007

No.

a Gross profit percentage $13,140 / $36,537 35.96 34.31 33.97

% % %

b Operating income $7,658 / $36,537 20.96 19.32 18.37

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 percentage % % %

c Return on equity $5,704 / $27,832 20.49 22.99 24.06

% % %

d Return on assets $5,704 / $53,851 10.59 12.22 13.79

% % %

d Cash return on assets $10,159 / $53,851 0.19 0.24 0.22

e Quality of income $10,159 / $5,704 1.78 1.99 1.56

There is an increasing trend in profit of the company over the last three years

i.e. 2007 to 2009. The gross profit percentage has increased from 33.97% in

2007 to 34.31% in 2008 and then 35.96% in 2009. Operating income percentage

has also increased from 18.37% in 2007 to 19.32% in 2008 and then 20.96% in

2009. Return on equity and on assets has decreased due to accumlation of

profits in retained earning and investment in long term marketable securities

respectivelly. The same is with cash return on assets.

In short, the company is enjoying with strong profitability and is in upward

growth with respect to profits.

• Solvency (capital structure) Analysis

S. Detail Working 200 20 200

No. 9 08 7

a Financial leverage $26,019 / $27,832 93 88 74%

% %

b Times interest earned NA NA NA NA

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The financial leverage of the company is also on the upward growth trend, this is

due to the increase in liabilities specially increase in deffered revenue of the

company. Further, interest ratio was not computeable for the company as the

company is not availing any debt and so not paying any interest.

• Market Test

S. Detail Working 200 200 200

No. 9 8 7

a Earning per share (Basic) $5,704 / 893 $6.3 $5.4 $4.0

9 8 4

a Earning per share $5,704 / 907 $6.2 $5.3 $3.9

(Diluted) 9 6 3

b Market-to-book value $182.37 / $31.17 5.85 5.37 9.12

c Price-to-earnings $182.37 / $6.39 28.5 23.4 37.9

4 0 9

Earning per share (basic & diluted) of the company has an increasing trend due to

increase in the profitability of the company over the last three years. Further,

market to book value of the company was decreased in 2008 to 5.37 as compared

to 9.12 in 2007 but this ratio has increased to 5.85 in 2009. Morover, the price to

earning ratio has decreased to 23.40 in 2008 as compared to 37.99 in 2007 but this

ratio has increased to 28.54 in 2009 due to increase in market price of the share.

Conclusion:

Investment must be made in the company as the company is financially very strong

and has increasing trend in earning. Further the company is financially sound and
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the share of the company is being traded over the book value of the share that

depicts the investor trust on the company’s performance.

Comparision:

The Apple company’s performance can be compared with its competitor Dell to

have a better understanding of the performance of the company with respect to its

competitor. The ratios of the two compinies are as follows:

Ratio Analysis Apple Dell

Current ratio 1.88 1.36

Quick ratio 1.86 1.30

Collection Period 34 28

Number of days sales in ending inventory 7 6

Gross Profit Percentage 35.96 17.93

% %

Operating income percentage 20.96 5.22%

Return On Equity 20.49 58.02

% %

Return on assets 10.59 9.35%

Cah return on assets 0.19 0.07

Quality of income 1.78 0.76

Financial Leverage 93% 520%

Times Interest earned NA 27.65

Earning per share Basic $6.39 $1.25

Earning per share Diluted $6.29 $1.25

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Market to book value 5.85 4.34

Price to earning ratio 28.54 7.60

It is evident from the above ratio analysis that the Apple company is more strong

than the Dell company. Apple company is more strong in liquidity than the Dell as

the liquidity ratio of Apple is 1.88 and of Dell is 1.36. Further, the quick ratio of the

Apple company is 1.86 as compared to 1.30 of Dell that depict that the Apple is

more liquid than Dell. Dell is doing good in collecting from its customers and

convrsion of inventory of sale as compared to Apple company. Further, with respect

to prfoitability the Apple company is better than the Dell company and Apple

company is using its assets more efficiently than the Dell company as return on

assets of Apple is 10.59% whereas 9.35% for Dell company.

Moreover, market ratios of the Apple company is better than the Dell company as

earning per share, market to book value and price to earning ratio of Apple

company is better than Dell company.

In short, the investment in Apple company is more viable than the investment in

Dell company as Apple company is more profit oriented, financially strong and

performing in market better than the Dell company.