Ratios Of Apple Computer Inc example essay topic

Company Profile With its Market Capitalization at 10.8 billion, Apple Computer, Inc. (AAPL), or "The Company", is a computer giant that markets personal computers, software, peripherals, and computing and communications solutions. It produces a line of desktop and notebook computers, the Mac OS X operating system, the i Pod digital music player, and peripherals and software targeting various consumers in the education, arts, and business industries. The Company sells its products through its online store, retailers, resellers, and its own retail stores. As of 5/25/04, Apple operates 80 retail stores. In addition, the Company also sells third-party hardware and software at its retail stores.

With revenues of from the last year totaling at $7.18 billion, revenues rose 33% to $3.92 billion for the six-month period ending 03/04. Net Income before accounting changes was up from $8 million to $109 million. The change in revenues reflects the increase in sales of the i Pod and computer accessories, whereas the increase in net income reflects a decrease in restructuring costs. 66% of Company shares are held my Institutions, whereas Insiders hold only 1.06% of them.

The largest holder is Lord Abbott & Co at 9.95%. Stock Price History 3-Year Stock Price Chart 10- Day Stock Price Chart Over the last year (5/23/03-5/25/04), AAPL stock has appreciated 55% from$18.32/share to $28.41/share, which is about 62.5 x that of earnings. The 52-Week change is at 49.24%, with the high trading at $29.58/share on 4/14/04 and the low trading at $16.63/share on 6/9/03. The average trading volume over the last three months is 7,045,272. The Price to Earnings ratio is at a high 62.58, not only indicating that it is fairly priced, but also that it will also give you a higher percentage of the earnings relative to its competitors.

Company Organization The Company is divided into different sectors: Applications, Finance, Hardware Engineering, Retail, Software Engineering, Software Technology, Worldwide Product Marketing, and Worldwide Sales. Through these various sectors, the Company produces, markets, and sells hardware products, peripheral products, and software products and computer technologies. Hardware Products Hardware products offered by Apple include Power Mac, Xserve and Xserve RAID Storage System, Powerbook, i Mac, e Mac, and i Book. The Power Mac and Powerbook provide high-end power and options for the professional users who demand power and performance, while the i Mac, e Mac, and i Book provide power, performance, but most importantly, value. Peripheral Products The Company sells Apple-branded computer hardware peripherals such as the successful i Pod digital music player, i Sight digital video cameras, and a wide variety of TFT digital color displays. In addition, the Company also sells a variety of third-party products such as printers, digital video cameras, Personal Digital Assistants (PDA), and other various computing products and supplies through their retail and online stores.

Software Products and Computer Technologies The Mac OS X version 10.3 is the Company's current operating system (codename Panther) offers a unique UNIX-based operating system. The server version of Panther allows for cross-platform usage, remote control usage, and heavy wireless networking. The Company's line of professional application software include video editing programs such as Final Cut Pro 4, Shake 3, Logic Platinum, and DVD Studio Pro 2. They are widely used by professionals in the movie and animation industry. Consumer, education, and business-oriented applications include i Life, i Chat AV, Final Cut Express, Keynote, and Appleworks 6.2. The Company's Internet products include the i Tunes Music Store, Safari, Quick Time, and.

Mac. The i Tunes Music Store has had a revolutionary impact on the music industry, while Quick Time has become a standard as a digital media player. The Company also offers various networking options through Airport Extreme, Bluetooth technology, Rendezvous networking technology, and Fire Wire technology. The Airport Extreme provides Wi-Fi networking, while Bluetooth provides wireless sharing of files between Macintosh systems. Rendezvous allows users on the same network to access each other's computers, while Fire Wire allows high-speed serial input / out transfers from digital camcorders / cameras to computers. Competitors The Company ranks ninth in sales in the Computer Hardware Industry, Technology Sector in the U.S., most of its competition coming from Hewlett-Packard Co.

(HPQ), Dell Inc (DELL), and Microsoft Corp. (MSFT). The Company's Revenue Growth at 8.10% is on par with the industry. Relative to its competitors, AAPL only trails MSFT in its Gross Margin at 27.18% (Industry Gross Margin- 20.09%). Of the top ten companies in its industry in the U.S., The Company ranks third in its share price after International Bus Machine (IBM) and NCR Corp. (NCR), eighth in Market Capitalization above Seagate Tech (STX) and NCR, and first in its price to earnings ratio.

Apple Computers run on its own UNIX-based Operating System, which thus limiting its market, but also eliminating direct competitors in this specified market. This is evidenced by the Company's significantly lower level of employees, total revenue, EBITDA, and Net Income relative to its competitors. 3-Year Competitor Stock Price Change Chart 2-Year Price Comparison with Competitor and Index Key: AAPL = APPLE; HPQ = Hewlett-Packard; ^GSP C = Standard and Poor's 500 Financials In the three fiscal year period starting 9/29/01 and ending 9/27/03, total revenue at Apple Computers, Inc., has risen 15.73%. Cost of revenue has also increased 8.98%.

Since total revenue growth has been higher than revenue cost over this period, the gross profit has naturally increased 38.29%. Earnings Before Interest And Taxes (EBIT) has grown 276.92% over this period, largely due to the negative EBIT figure for 2001. The Company's ability to get out and stay out of the red for its EBIT is essential to its growth. As demonstrated by the ratios of Apple Computer Inc., provided below, the Earnings / Cash Flow ratio rise from a negative to a positive figure over the three-year period, growing at 236.43%...

The Net Profit Margin grows also from a negative to a positive percentage, growing 338.47%. Lastly, the ability of the Company to turn its assets over into revenue (asset turnover ratio) also increases over the period (2.25% increase). The forward P / E (37.03) predicts a rise in earnings per share (EPS). All this indicates that the AAPL stock is approximately equal it its intrinsic value.

The Company's P / S ratio is 1.5, which is lower than the Industry average and all its major competitors except for HPQ. All this indicates that the AAPL stock may be undervalued. Catalysts Apple Computers, Inc. was the leading Personal Computer produce in the 1980's, but lost its foothold on the industry when IBM and Microsoft stormed the Computer Hardware Industry with the Windows Operating Platform. After years of deficit and obscurity, CEO Steve Jobs brought Apple back into profit by redesigning the style and personality of Apple products. Investing in AAPL is a good idea, validated by the financial figures and ratios showing recent growth, and the valuation ratios indicating that the stock is undervalued. In addition, the product responsible for most of the recent increased profits, the i Pod digital music player, may be on the verge of becoming a household item.

Currently, Apple purchases its hardware for the i Pod from third-party manufacturers, and as soon as the Company's R&D Department can figure out how to lower the costs of producing the i Pod (currently retailing at $299 for the 15 GB model), sales for the i Pod and the Company will skyrocket, as will the price for the stock. Stock Valuation Consider the CAPM. Using the rate on a 10-year US Treasury (4.671%) as the risk-free rate, taking the historical average equity market risk premium (3.34%) and the beta coefficient (1.701). Our CAPM is: k = Rf +? (Rm - Rf) = 0.04671 + 1.701 (0.0334) = 10.35%. To find out how long it will take before the Company will pay dividends (FCF CapEx), or when the can pay for their own growth, we will find the intrinsic value (IV) = D 1/ (k - g).

To grow the Company without Capital Expenditures (CapEx), we let g = b x Return on Earnings (ROE). Therefore we can see that the stock is under-priced. Conclusion Apple Computers, Inc. is a leading computer hardware producing and marketing company that is coming back in a big way. With its constant growth over the last few years due to its redesigned company polices and products, investment in AAPL would be low-risk and profitable. With the Desktop and Notebook Computer markets far from being saturated, the Computers looks to take over a larger share of the market with its unique style and UNIX-based operating platform. Indicated by the financial and valuation evaluation, AAPL should continue to provide consistent growth.

Furthermore, it could experience a hike in stock prices if the cost of producing the i Pod digital music player can be reduced through R&D and enable consumers to make it a household product. A patient and risk-averse investor should long this stock and should expect constant growth in stock price.