Topics in Accounting

– case analysis –

apple Inc.apple Inc.

Tomotaka Brink Fushimi

Davide Maraschi

Philipp Refior

Ben Carrion Schafer

Apple – a volatile stock…

The Apple Stock – yearly overview

Q1 financial data release

Jobs takes medical leave Jobs back at work Jobs presents new iPods

The Apple Stock – last three months

Normal 15-20M Normal 15-20MPeak 30M Low 10-15M Peak 42MTrading Volume Medium 20-30M Stabilized?

Press Release Financial Results Q4

Steve Jobs Returns to Stage, new iPods

The Apple Stock – October 19th, Press Release

• Apple Reports Fourth Quarter Results Most Profitable Quarter Ever; Record Mac and iPhone Sales

• Cupertino, California – Apple today announced financial results for its fiscal 2009 fourth quarter ended September 26, 2009. The Company

posted revenue of $9.87 billion and net quarterly profit of $1.67 billion, or $1.82 per diluted share. These results compare to revenue

of $7.9 billion and net quarterly profit of $.14 billion, or $1.26 per diluted share, in the year-ago quarter. Gross margin was 36.6

percent, up from 34.7 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue.

The Apple Stock – October 19th, Press Release

• Apple Inc. Issues Q1 2010 Outlook; EPS Outlook Below Analysts' EstimatesMonday, 19 Oct 2009 04:30pm EDT 

• Apple Inc. announced that for first quarter of 2010, it expects revenue in the range of about $11.3-$11.6 billion and diluted earnings per share (EPS) in the range of about $1.70-$1.78. According to Reuters Estimates, analysts were expecting the Company to report revenues of $11.5 billion and EPS of $1.93 for the same period. 

Ratio Analysis: Horizontal

Growing slower BUT still growing strong in the middle of a global recession

100.00%

110.00%

120.00%

130.00%

140.00%

150.00%

160.00%

170.00%

180.00%

2007 2008 2009

Net salesCost of salesGross marginResearch and developmentSelling, general and administrativeTotal operating expensesNet income

Ratio Analysis: Vertical

0%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009

Cost of sales

Gross margin

Research and development

Selling, general and administrative

Total operating expenses

Net income

Cost of sales down

Gross margin up

General /admin costs down

R&D spending up

Net income up

Ratios: liquidity, leverage, return on investments, efficiency, market

Current ratio down

    2007 2008 2009

Liquidity ratios      

Current ratio 4.42 2.29 1.88

Leverage Ratios      

Total liabilities/Total assets 0.37 0.47 0.48

Total liabilities/Shareholders equity 0.74 0.88 0.93

Profit Ratio      

Gross margin/sales 0.34 0.34 0.36

Return on Investment      

ROE   0.24 0.23 0.20

ROA   0.14 0.12 0.11

Efficiency Ratios      

Turnover   14.66 13.41 10.87

Inventory turnover 45.82 41.91 51.42

Assets turnover 0.95 0.82 0.68

Market Ratio      

Market to book 8.93 5.49 6.55

Market to PE 36.68 23.93 32.19

Liabilities up

Gross margin up

Return on investments down

Efficiency ratios down(more efficient)

Market ratios recovering

Estimates for Apple stock price after the release or Q4 results

Analysts had been expecting EPS between $1.24 and $1.72,

In the end the actual EPS were 1.82 (as from the latest annual report) If we consider that the price was already factoring in the rosiest expectation (1.72) then the increase was 5.8% (1.82 / 1.72 = 5.8%) The price of the stock should have also increased accordingly by 5.8%.

Therefore 189.86 (closing price on October 19th) + 189.86* (5.8%) = $ 200.87

Actual Apple stock price after the release or Q4 results

Press Release Financial Results Q4

Actual Apple stock price after the release or Q4 results

The Apple Stock – Market reaction

 Overall market reaction ($208.71) exceeded our estimate of $200.87

That could be explained by several factors :

New Accounting Rules proposed by FASB (end of August 2009)Instead of spreading iPhone revenue over two years they will be able to report sales for certain gadgets all at once.  Analyst seem to believe that under new accounting rules Apple would increase its earnings by 44% Potential Target Price $235

Although Apple is not required to implement those until 2010, it’s possible that the market has already factored in those expectations. 

The Apple Stock – Market reaction

Press Release Financial Results Q4

One week after the announcement of the financial results the stock began to fall

From its peak on the morning of Monday, October 26th at $205.82To a low on Tuesday, November 3rd of $186.71

The Apple Stock – Market reaction

Press Release Financial Results Q4

Potential reasons for downturn:

- Nokia`s lawsuit over breach of patents- Reaction after breaking the psychological $200 mark- Reports of malfunctions of new iPod product

The Apple Stock – Market reaction

Press Release Financial Results Q4

Annual report release dates

• Release dates have changed since 2007