Apple Inc.

Katerina Goudouros Lyndlee Hayes Marwa Salem Caroline Warnock

Table of Contents

Executive Summary Industry/ irm !escri"tion inancial Statement #nalysis $ #nalysis o% irm &iskiness$ irm 'aluation$ Conclusion and &ecommendations$ #""endix

Executive Summary
()is re"ort "rovides an analysis o% #""le Inc$*s %inancial sta+ility$ Met)ods o% analysis include li,uidity ratios- asset mana.ement ratios- days sales outstandin.- and total de+t ratios as

well as more usin. %inancial statements %or /0112/013$ #""le Inc$ is an #merican electronic com"any s"eciali4in. in "ersonal com"uters- electronic devices and com"uter so%tware$ However- #""le )ad to endure many c)an.es a%ter t)e %ounder- Steve 5o+s- "assed away$ ()eir advanta.es include a lar.e "o"ulation o% +rand loyalty and t)e a+ility to "roduce t)e latest tec)nolo.y year a%ter year$ ()eir weaknesses mainly derive %rom t)eir "remium "ricin.$ In a .rowin. com"uter and "eri")eral e,ui"ment industry- consumers )ave more variety o% "roducts to c)oose %rom at lower "rices$ Some o% t)e t)in.s t)at #""le does well includes t)eir a+ility to convert t)eir assets into cas) ,uickly$ #lso t)ey )ave exceeded t)e avera.e industry li,uidity in t)e com"uter and "eri")eral e,ui"ment manu%acturin.$ #""le )as im"roved annually in inventory turnover and )i.) asset turnover$ ()ey )ave a +etter de+t mana.ement t)an t)e industry %rom /0112/013$ #""le )as )i.)er "ro%ita+ility t)an t)e industry avera.e and )as done +etter t)an t)e industry in &6E$ ()is s)ows t)at t)e com"anies assets and e,uity are a +i. contri+ution to t)eir income$ #""le also )as sound %inancial sta+ility w)ic) can +e s)own +ased on calculations and ratios w)ic) can +e %ound +elow in t)e a""endices$ ()is re"ort estimates t)e %uture .rowt) and current standin. o% t)e com"any in its current "osition to +e "ositive$ 6""ortunities t)at #""le )as %or %uture .rowt) include ta""in. into .lo+al markets- mainly %ocusin. on C)ina$ However- +ecause "ricin. is relatively )i.)- #""le would may %orced to lower t)eir "ricin.$ 6ne lar.e c)allen.e t)at t)e com"any %aces is recent innovation in new "roducts$ More recommendations %or %uture .rowt) will +e discussed %urt)er in t)e re"ort$

Firm Description

#""le Incor"orated s"eciali4es in desi.nin. and manu%acturin. 7"ersonal com"utersmedia devices- and "orta+le di.ital music "layers$8 1 ()e com"any was ori.inally %ounded as #""le Com"uter Incor"orated on #"ril 1- 19:; +y Steve 5o+s- Steve Wo4niak- and &onald Wayne$ ()e com"any<s "rimary %ocus was develo"in. and sellin. "ersonal com"uters$ Wit) t)e develo"ment o% t)eir %irst "ersonal com"uter kit- t)e 7#""le I8 t)e com"any was launc)ed into t)e com"uter manu%acturin. world$ ()ey later released t)e 7#""le II8 w)ic) "laced #""le well a+ove t)eir com"etitors due to t)e introduction o% t)e %lo""y disk drive 7!isk II8$ #%ter more and more "roducts were +ein. released #""le Com"uter Incor"orated was soon one o% t)e %astest2 .rowin. com"anies in t)e =nited States and went "u+lic in !ecem+er 19>0$2 #s t)e com"any .rew lar.er and %urt)er develo"ed in si4e and a+ility- its %ocus later s)i%ted towards anot)er sector o% t)e market- consumer electronics$ ?ecause o% t)is s)i%t #""le Com"uter Incor"orated sim"li%ied its name to #""le Incor"orated in 5anuary /00:$ ()e revised com"any still )olds t)e same mission t)en as it does now- to consistently make a .reat "roduct wit) t)eir consumer in mind t)rou.) its innovative )ardware- so%tware and Internet o%%erin.s$3

Competitor Description
#""le*s +i..est com"etitors worldwide are Hewlett2@ackard Com"any- Hitac)i Limited!ell Incor"orated- and Auanta Com"uter Incor"orated$ #""le is t)e lar.est o% its com"etitors wit) sales a""roximately at B1:1 million in /013$ Hewlett2@ackard Com"any )olds t)e second lar.est sales wit) a""roximately B11/ million in /013$ !ell Incor"orated and Auanta Com"uter

Simmons Colle.e$ Cn$d$D$ Library$ &etrieved e+ruary /E- /01F- %rom )tt"G//02advanta.e$marketline$com$li+rary$simmons$edu/@roductH "idIE?0#0C/029??;2F/>F2#E:E2#C0 //;1 FECJviewI6verview 2 &e%erence %or ?usiness$ Cn$d$D$ Apple Computer, Inc.$ &etrieved e+ruary /E- /01F- %rom )tt"G//www$re%erence%or+usiness$com/)istory//31/#""le2Com"uter2Inc$)tml 3 #""le Inc$ Mission Statement Is Kot 'ery Innovative and ?arely a Mission #t #ll$ Cn$d$D$ About.com Retail Industry$ &etrieved e+ruary /F/01F- %rom )tt"G//retailindustry$a+out$com/od/retail+est"ractices/i./Com"any2Mission2Statements/#""le2Inc22Mission2Statement$)tm

Incor"orated )old t)ird and %ourt) "lace in t)e industry res"ectively wit) sales a""roximately BE: million and B3E million$ 4

Industry Description
#""le Incor"orated is "art o% t)e Com"uter and @eri")eral E,ui"ment Manu%acturin. Industry$ ()ese com"anies manu%acture com"uter and "eri")eral e,ui"ment includin. workstations- monitors- "rinters and stora.e devices$ ()e industry is made u" o% t)e electronic e,ui"ment manu%acturers market- t)e electronic manu%acturin. services market- and t)e tec)nolo.y distri+utors sector$ Startin. in /009- t)e industry %ell ra"idly +ut des"ite t)e economic recession- it )as steadily increased since t)en$ In /01/- t)e industry .rew +y 3$;L to ac,uire a value o% B1;F +illion$ ?y /01:- analysts "redict t)e com"ound annual .rowt) rate CC#G&D to rise F$EL or +y 3:3$E units +y /01:$5 ()is industry is a )i.)ly com"etitive one due to t)e increases in tec)nolo.y over t)e "ast %ew years$ ?ein. a .lo+al market- t)e industry needs to com"ete ex"onentially )arder t)an i% it was only a domestic industry$

SWOT Analysis
Stren t!s" #ccordin. to or+es* study o% to" +rands- #""le is t)e most valua+le +rand in t)e world and is currently valued 7at B10F$F +illion- u" /0L over last year$8 6 In order to ac)ieve t)ese num+ers #""le*s consumer "lays a lar.e and valua+le role to t)e +rand$ ()is makes +rand loyalty one o% #""le*s .reatest stren.t)s$ ()e com"any )as +een a+le to create an emotional connection wit) its consumers t)rou.) its relia+ility and also wit) t)e notoriety o% t)e late Steve
4 5

Com"uter and @eri")eral E,ui"ment Manu%acturin.$ Cn$d$D$ One Source $ &etrieved e+ruary /E- /01F- %rom

MGlo+al @cs$M Marketline Industry Profile$ marketline- n$d$ We+$ /E e+$ /01F$ N)tt"G//02 .lo+al++$onesource$com$li+rary$simmons$edu/We+/&e"orts/&e"ortMainIndustry$as"xH SicCodeI!IF0J&e"ortI!#(#M6KI(6&IK!=S(&O@&6 ILEJ@rocessII@J(y"eIGet&e"ortJ ile ormatI@! J&e"ortI!I;/F/0J ileKa meI019920;::2/01/$"d%J'endorKameI!atamonitorP$ 6 ?aden)ausen- K$ C/013- Kovem+er ;D$ #""le !ominates List 6% ()e World<s Most 'alua+le ?rands$ Forbes$ &etrieved e+ruary /:- /01F%rom )tt"G//www$%or+es$com/sites/kurt+aden)ausen//013/11/0;/a""le2dominates2list2o%2t)e2worlds2most2valua+le2+rands/

5o+s$ !ue to t)e com"any<s +rand re"utation and )i.) reco.nition across t)e world- #""le is a ste" a)ead o% its com"etitors at all times$ #""le*s re"utation )as develo"ed since its ori.ination +y consistently "roducin. 7)i.)ly innovative- well desi.ned- well2%unctionin. "roducts and sound +usiness "er%ormance$87#""le is also a leader o% "roducin. new and excitin. tec)nolo.y a)ead o% its com"etition$ # .reat exam"le o% t)is was w)en #""le released t)e i@)one$ ()is set t)e trend %or t)e use o% touc)screens t)rou.)out t)e mo+ile ")one industry$ Wea#nesses" #lt)ou.) #""le does )ave a lot o% stren.t)s- t)ey also )ave weaknesses- "ricin. +ein. one o% t)eir lar.est$ #""le is notorious %or t)eir )i.) "rices w)ic) "laces t)eir "roduct in a "remium cate.ory$ ?y not creatin. multi"le "rice "oints %or consumers limits t)e a+ility %or many to "urc)ase t)eir "roduct$ Many com"etitors o% #""le try to reac) a +road market wit) multi"le "rice "oints t)at can a""eal to any consumer- w)ic) allows t)em to )ave a lar.er market +ase$ &e.ardin. cellular ")ones #""le is also only involved in t)e "roduction o% smart")ones w)ic) is also limitin. t)eir "otential in t)e mo+ile ")one market$ 8 #""le also )as +een %ocusin. on im"rovin. its "reexistin. "roducts- causin. many consumers to delay in "urc)asin. new "roduct due to t)e antici"ation o% anot)er "roduct t)at will +e out in t)e %uture$ ()is "us) %or new tec)nolo.y release is a lar.e weakness t)at "roducers o% tec)nolo.y %ace- includin. #""le$ #not)er weakness #""le currently %aces is t)eir c)an.es in mana.ementQ since t)e deat) o% Steve 5o+s- t)e com"any )as su%%ered wit) multi"le mana.ement c)an.es w)ic) many see as a disadvanta.e$ Opportunities" #s a com"any "ositioned in t)e tec)nolo.y industry- #""le is surrounded wit) constant o""ortunities to im"rove t)eir +usiness$ 6ne o% t)e lar.est o""ortunities %or #""le is to seek out
7

SW6( analysis o% #""le$ Cn$d$D$ Apple S O! analysis "#$%$ &etrieved e+ruary /:- /01F- %rom )tt"G//www$strate.icmana.ementinsi.)t$com/swot2analyses/a""le2swot2analysis$)tml 8 @roduct $ Cn$d$D$ Market Line $ &etrieved e+ruary /E- /01F- %rom )tt"G//02advanta.e$marketline$com$li+rary$simmons$edu/@roductH "idIE?0#0C/029??;2F/>F2#E:E2#C0 //;1 FECJviewISW6(#nalysis

"atents t)rou.) ac,uisitions$ In order to move %orward as t)e leader in innovative tec)nolo.yac,uirin. "atents is necessary$ #not)er o""ortunity t)at #""le )as is allowin. its "roducts to )ave multi"le "rice "oints$ Currently #""le )as started movin. in t)is direction wit) t)e release o% t)e i@)one EC- )owever more "roducts could +e introduced in order to reac) a lar.er market o% consumers$9 #""le also )as t)e o""ortunity to seek out and inte.rate into multi"le cor"orate settin.s t)at are lookin. to u"date t)eir tec)nolo.y into one "lat%orm$ 10 #lon. wit) new tec)nolo.y develo"ment consumers are also extremely ea.er to increase iCloud usa.e$ #""le )as t)e o""ortunity to continue to ex"and t)ese services as more demand increases %or t)e so%tware$ T!reats" #ny com"any t)at is in t)e tec)nolo.y industry is %aced wit) t)e real t)reat o% t)e ra"id and consistent demand %or tec)nolo.ical c)an.e$ #""le and its com"etitors are ex"ected to release new and innovative "roducts consistently in order to kee" consumers )a""y$ I% #""le is una+le to "roduce t)e demands o% t)e market and %alls +e)ind its com"etitors- t)ey "otentially could +e "laced aside$9 ()e online music market is also a lar.e t)reat t)at #""le is %acin.$ Wit) more su+scri"tion +ased services and cost e%%ective di.ital music %orums +ecomin. availa+leconsumers may c)oose ot)er o"tions in order to receive a similar service t)at #""le o%%ers$> Lastly- #""le is t)e leader in its industry- w)ic) means t)at com"etition is comin. at every an.le o% t)e com"any in order to .ain su"eriority$

Financial Statement Analysis

$%&& $%&$ $%&' Industry Avera e11

#""le #nalysis $ Cn$d$D$ !ec& Analysis $ &etrieved e+ruary /E- /01F- %rom )tt"G//tec)analysis+lo..er$word"ress$com//013/11//:/a""le2swot2 analysis/ 10 #""le $ Cn$d$D$ Market Line $ &etrieved e+ruary /E- /01F- %rom )tt"G//02advanta.e$marketline$com$li+rary$simmons$edu/@roductH "idIE?0#0C/029??;2F/>F2#E:E2#C0 //;1 FECJviewISW6(#nalysis 11 ?loom+er. ?usiness Week$ C/01FD Com"uters and @eri")erals Industry$ )tt"G//investin.$+usinessweek$com/researc)/stocks/%inancials/ratios$as"HtickerI##@L

(i)uidity *atios Current &atio Auick &atio Asset +ana ement *atios Inventory (urnover &atio !ay Sales 6utstandin. ixed #ssets (urnover (otal #ssets (urnover Debt +ana ement *atios (otal !e+t &atio (imes Interest Earned ,rofitability *atios @ro%it Mar.in &eturn on (otal #ssets &eturn on (otal E,uity +ar#et -alue *atios @rice/Earnin.s &atio 11$E0 1/$10 13$90 1F$/0 /3$9EL //$/>L 33$>3L /;$;:L /3$:0L 3E$30L /1$;:L 1:$90L /9$9>L /0$;FL 1;$>>L />$>1L $3F 0 $33 0 $F0 3;9$:9 $F/ 139$E0 1>$10 13$9/ $93 19:$>; /E$E0 10$13 $>9 9;$>9 /:$99 10$30 $>3 11$30 $>/ ;0$90 1$;1 1$EF 1$E0 1$F> 1$;> 1$;F 1$E0 1$/0

.enc!mar# Analysis (i)uidity *atios"

Current RatioG ()e Com"uter and @eri")eral E,ui"ment Manu%acturin. Industry avera.e current ratio was 1$F>- w)ile #""le Incor"orated*s current ratios %or /0112/013 were 1$;1- 1$E0- and 1$;> res"ectively$ Since #""le*s current ratio is )i.)er t)an t)at o% t)e industry*s- it can +e concluded t)at #""le is +etter o%% t)an t)e industry in terms o% "ayin. its current de+ts as t)ey come due$

'uick RatioG ()e industry avera.e ,uick ratio was 1$/0 %or /013$ #""le Inc$*s ,uick ratios %or /0112/013 were 1$EF- 1$F>- and 1$;F res"ectively$ ?ecause #""le*s ,uick ratios %or eac) year are )i.)er t)an t)at o% t)e industry avera.e- it can +e concluded t)at #""le is +etter o%% t)an t)e industry in terms o% meetin. its immediate %inancial o+li.ations wit) t)eir availa+le ,uick %unds on )and$

6verall- #""le )as +etter li,uidity t)an t)e avera.e com"any in t)e Com"uter and @eri")eral E,ui"ment Manu%acturin. Industry$ In ot)er words- #""le Inc$ is a+le to convert its assets into cas) more ,uickly t)an t)e avera.e com"any in t)e electronic e,ui"ment industry$ Asset +ana ement *atios"

Fi(ed Asset !urno)erG ()e industry avera.e %or %ixed asset turnover is 11$30 and t)e ratios %or #""le Inc$ %or /0112/013 were 13$9/- 10$13- and 10$30 res"ectively$ #""le*s )i.)er num+ers in com"arison to t)e industry indicate t)at #""le Inc$ earns more income "er dollar o% %ixed assets t)an t)e avera.e com"any in t)e electronic e,ui"ment industry$ In ot)er words- t)e )i.)er num+ers are an indicator t)at #""le is doin. a +etter Ro+ t)an t)e avera.e com"any in t)e industry in terms o% .eneratin. revenue %rom its investment in %ixed assets$

!otal Asset !urno)erG ()e industry avera.e %or total assets turnover was 0$>/- w)ile #""le*s total assets turnover ratios %or /0112/013 were 0$93- 0$>9- and 0$>3 res"ectively$ ()ese num+ers s)ow t)at #""le*s total assets turnover is )i.)er t)an t)at o% t)e industry+ut still very close- es"ecially in /013$ ()ere%ore- it can +e concluded t)at #""le earns sli.)tly more income "er dollar o% assets t)an t)e avera.e com"any in its industry$

6verall- #""le Inc$ )as +etter asset mana.ement t)an t)e industry avera.e$ ()is means t)at #""le receives more revenue "er dollar in assets t)an t)e avera.e com"any in t)e electronic e,ui"ment industry does$ ()ou.) #""le Inc$*s ratios are sli.)tly +etter t)an t)e industry- %rom

/0112/013- #""le*s num+ers moved closer to t)e industry avera.e and eventually to +e wit)in 0$01 o% t)e industry$ ()ere%ore- it can +e said t)at #""le was sli.)tly +etter t)an t)e industry in terms o% asset mana.ement- +ut is now very similar to t)e industry avera.e$ Debt +ana ement"

!otal *ebt RatioG ()e industry avera.e %or total de+t ratio was 0$F/- w)ile #""le*s total de+t ratio %or t)e years /0112/013 were 0$3F- 0$33- and 0$F0 res"ectively$ ()ere%ore#""le results in a +etter total de+t ratio +ecause it is %inanced less +y creditors t)an t)e avera.e %irms in its industry$

6verall- #""le )as +etter de+t mana.ement t)an t)e industry +ecause t)eir total de+t ratio is lower$ ()is indicates t)at #""le )as lower de+t levels t)an t)e avera.e com"anies in t)e electronic e,ui"ment industry$

,rofitability *atios"

Profit Mar+inG ()e industry avera.e "ro%it mar.in was /0$;FL- w)ile #""le Inc$*s "ro%it mar.ins %or /0112/013 were /3$9EL- /;$;:L- and /1$;:L res"ectively$ In com"arison to t)e industry avera.e- #""le Inc$*s "ro%it mar.ins are )i.)er indicatin. t)at- a%ter accountin. %or all ex"enses- #""le earns more money on its sales t)an t)e avera.e com"any in t)e electronic e,ui"ment industry$

Return on !otal AssetsG ()e industry avera.e %or return on total assets was 1;$>>L- w)ile #""le Inc$*s return on total assets %or /0112/013 were //$/>L- /3$:0L- and 1:$90L$ In com"arison to t)e industry avera.e- #""le Inc$*s return on total assets ratios are )i.)erindicatin. t)at #""le receives more income "er dollar o% assets t)an t)e avera.e com"any in t)e industry$

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Return on ,-uityG ()e industry avera.e return on e,uity is />$3EL- w)ile #""le Inc$*s &6E %or /0112/013 was 33$>3L- 3E$30L- and /9$9>L res"ectively$ In /011 and /01/#""le Inc$*s &6E is de%initely )i.)er t)an t)at o% t)e industry$ However in /013- #""le*s &6E decreased and ali.ned wit) t)e industry avera.e$ ()ere%ore- it can +e concluded t)at #""le Inc$ and t)e industry are very similar in terms o% &6E$ urt)ermore- t)e similarity o% t)e num+ers indicates t)at t)e rate o% return on s)are)olders* investment ex"erienced +y #""le Inc$ is similar to t)e return ex"erienced +y t)e avera.e com"any in t)e electronic e,ui"ment industry$

6verall- #""le Inc$ )as +etter "ro%ita+ility and +etter a+ility to translate sales dollars into "ro%its t)an t)e industry$ ()is is indicated +y t)e )i.)er "ro%it mar.in "ercenta.es$ In terms o% e%%iciency in .eneratin. returns %or its s)are)olders- #""le Inc$ is very similar to t)e industry- +ut still sli.)tly +etter$ Com+inin. t)ese %actors- it can +e concluded t)at #""le*s assets and e,uity are contri+utin. well to t)eir net income$ urt)ermore- in com"arison to t)e industry- #""le*s assets and e,uity are +etter contri+utions to t)eir net income t)an t)e avera.e industry %irm*s are to t)eirs$ +ar#et -alue *atios"

Price.,arnin+s RatioG ()e avera.e industry "rice/earnin.s ratio is 1F$/0- w)ile #""le*s "rice/earnin.s ratios %or /0112/013 were 11$E0- 1/$10- and 13$90 res"ectively$ #""le*s @/E ratios are lower t)an t)at o% t)e industry avera.e$ ()is indicates t)at investors in t)e #""le Inc$ stock are willin. to "ay less %or every one dollar o% earnin.s t)at t)e com"any .enerates t)an t)e investors would i% t)ey invested in t)e stock o% t)e ot)er avera.e com"anies in t)e electronic e,ui"ment industry$

6verall- #""le )as a worse market value outlook t)an t)e industry avera.e +ecause its "rice/earnin.s ratio is lower t)an t)at o% t)e avera.e$ ()ou.) t)is is true- #""le Inc$*s @/E ratio

11

is not muc) lower t)an t)e industry avera.e and so t)e ratio is not an indicator o% "oor "er%ormance %or #""le$ Trend Analysis (i)uidity *atios"

Current RatioG #""le Inc$*s current ratio )as varied over t)e t)ree years$ In /011- #""le )ad a current ratio o% 1$;1$ In /01/- t)is decreased to 1$E0- +ut t)en increased a.ain to 1$;> in /013$ 6verall- #""le )as ex"erienced an increase in current ratio values over t)e t)ree years- re.ardless o% t)e decrease in /01/$ ()e overall increase indicates t)at #""le )as )ad more assets t)an lia+ilities and )as maintained its a+ility to "ay o%% its de+t$

'uick RatioG #""le*s ,uick ratio %rom /0112/013 )ad a .eneral increase as well$ In /011#""le*s ,uick ratio was 1$EF$ ()is decreased in /01/ to 1$F>- +ut t)en increased a.ain to 1$;F in /013$ ()ere%ore- re.ardless o% t)e decrease in /01/- t)e overall increase indicates t)at #""le )as +een a+le to "ay o%% its immediate de+t wit) t)eir availa+le ,uick %unds$

6ver t)e "ast t)ree years- #""le )as )ad increasin. trend analysis in re.ards to li,uidity$ urt)ermore- t)eir ratios )ave +een increasin. meanin. t)at #""le )as +een a+le to ,uickly convert t)eir assets to cas) %rom year to year$ Asset +ana ement *atios"

*ay Sales Outstandin+G ()e day sales outstandin. %rom /0112/013 are 1>$10- /E$E0- and /:$99$ In .eneral- #""le )as )ad an increasin. day sales outstandin. w)ic) indicates worsenin. receiva+les to sales "er day$

In)entory !urno)erG rom t)e year /0112/013- #""le Inc$*s inventory turnovers were 139$E0- 19:$>;- and 9;$>9$ In .eneral- re.ardless o% t)e s"ike in /011- #""le*s inventory turnovers )ave decreased indicatin. t)at t)ey )ave worsened in terms o% inventory turnover %rom year to year$

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Fi(ed Asset !urno)erG ()e %ixed asset turnover ratios %rom /0112/013 are 13$9/- 10$13and 10$30$ ()e .eneral decrease in %ixed asset turnover rates indicates t)at #""le is receivin. less income "er dollar o% %ixed assets %rom year to year$

!otal Asset !urno)erG #""le*s total asset turnover ratios %rom /0112/013 were 0$930$>9- and 0$>3$ ()is indicates a worsenin. total asset turnover$ urt)ermore- t)is also indicates t)at #""le receives less income "er dollar o% assets now t)an it did t)ree years a.o$ ()ere%ore- t)ere )as +een a sli.)t decrease in income "er dollar o% assets over t)e t)ree year s"an$

6ver t)e "ast t)ree years- #""le Inc$*s asset mana.ement )as worsened$ urt)ermore- t)eir total revenue "er dollar o% assets )as decreased over t)e "ast t)ree years$ Debt +ana ement"

(otal *ebt RatioG #""le*s total de+t ratios %rom /0112/013 were 0$3F- 0$33- and 0$F0$ In .eneral- t)ere )as +een an overall increase in total de+t ratios re.ardless o% t)e decrease in /01/$ ()is increase indicates a worsenin. total de+t ratio$

6verall- #""le Inc$*s increasin. total de+t ratio indicates t)at #""le is accruin. more de+t and )avin. increase trou+le "ayin. it o%% over t)e t)ree year s"an$! ,rofitability *atios"

Profit Mar+inG #""le Inc$*s "ro%it mar.in %rom /0112/013 were /3$9EL- /;$;:L- and /1$;:L$ ()ou.) t)ere was a s"ike in t)e "ro%it mar.in in /01/- more .enerally- #""le*s "ro%it mar.in )as decreased indicatin. t)at t)eir "ro%it "er item sold %rom year to year )as decreased$

Return on !otal AssetsG ()e values %or &6# %or #""le %or /0112/013 were //$/>L/3$:0L- and 1:$90L$ 6verall- #""le Inc$*s return on total assets )as decreased over t)e

13

t)ree year s"an des"ite t)e s"ike in /01/$ ()is indicates t)at #""le )as +een receivin. less income "er dollar o% assets over t)e t)ree years$

Return on ,-uityG #""le Inc$*s &6E %or /0112/013 were 33$>3L- 3E$30L- and /9$9>L$ Generally- #""le )as ex"erienced a decrease in &6E over t)e t)ree years re.ardless o% t)e increase in /01/$ ()is indicates t)at #""le is im"rovin. in in terms o% receivin. more income "er dollar o% e,uity$

6verall- t)e "ro%ita+ility ratios %or #""le indicate t)at t)e com"any is worsenin. in terms o% "ro%it mar.in and return on total assets$ ()is means t)at #""le*s "ro%it "er item sold and amount earned "er dollar o% assets )ave diminis)ed since /011$ 6n t)e ot)er )and- #""le Inc$*s return on e,uity )as im"roved$ ()is indicates t)at #""le is receivin. more income "er dollar o% e,uity t)an t)ey were in /011$ +ar#et -alue *atios"

Price.,arnin+s RatioG #""les "rice/earnin.s ratio %rom /0112/013 were 11$E0- 1/$10and 13$90$ In .eneral- #""le*s increasin. values indicate t)at #""le Inc$ )as im"rovin. "rice/earnin.s ratios$ ()is means t)at t)rou.)out t)e t)ree year s"an- t)e amount an investor in #""le Inc$ is willin. to "ay %or one dollar o% re"orted "ro%its )as steadily increased$

6verall- +ecause #""le*s "rice/earnin.s ratio )as increased- it can +e concluded t)at #""le*s market value is increasin. over time$

Du,ont Analysis" &6E /011 /01/ 33$>3L 3E$30L I I I Ket @ro%it Mar.in /3$9EL /;$;:L x x x #sset (urnover $93 $>9 x x x E,uity Multi"lier 1$E/ 1$F9

14

/013

/9$9>L

/1$;:L

$>3

1$;:

()e ta+le a+ove can +e used to +reak down #""le Inc$*s return on e,uity into an e,uation in w)ic) t)e net "ro%it mar.in is multi"lied +y t)e asset turnover and an e,uity multi"lier$ In re.ards to t)e &6E values- t)e ta+le indicates a .eneral decrease in return on e,uity- re.ardless o% t)e s"ike in /01/$ ()e ta+le s)ows t)at t)e net "ro%it mar.in decreased sli.)tly over t)e t)ree year s"an- t)ou.) t)ere was a sli.)t increase in /01/$ urt)ermore- t)e asset turnover value decreased +y 0$10 %rom /011 to /013$ In res"onse to t)e return on e,uity values- t)e e,uity multi"lier .enerally increased %rom /011 to /013- +ut did decrease in /01/ w)en t)e net "ro%it mar.in and return on e,uity s"iked$ ()e !u@ont #nalysis )el"s ex"lain )ow t)e return on e,uity s)ould +e inter"reted and +roken down w)ile also ex"lainin. w)at ratios are taken into consideration in order to arrive at %inal &6E "ercenta.es$ Firm *is# Analysis #lt)ou.) #""le is seen as t)e one o% t)e leadin. com"anies in electronic e,ui"ment "roduction- it still %aces its own individual risks$

Since #""le is well2known %or "roducin. )i.)2,uality "roducts %or t)eir consumers- t)e "rices o% t)eir "roducts are some o% t)e )i.)est in t)e market in com"arison to t)eir com"etitors$ Conse,uently- since "roducts are so ex"ensive- consumers ex"ect innovative "roducts in return$ In /013- #""le released a +ud.et i@)one in order to .et an a%%orda+le device out to customers and +roaden its consumer market$ ()ou.) t)is seemed like a sa%e move %or t)e com"any- it was im"ortant t)at #""le did not sacri%ice too muc) o% t)eir "ro%it mar.ins or .o too low2end in terms o% "roduct ,uality w)ile doin. so$ Moreover+y .oin. 7down2market-8 %ocusin. on a "roduct t)at is c)ea"er and somew)at outside #""le*s traditional +usiness model- #""le ran t)e risk o% +ein. well outside its com%ort
15

4one$ #lt)ou.)- consumers were anxious %or #""le to +roaden t)e i@)one line- t)e release o% a c)ea"er i@)one- w)ic) meant t)e release o% a lower ,uality "roduct- could )ave ruined #""le*s )i.)2,uality "roduct re"utation$ Konet)eless- #""le released t)e i@)one EC in /013$

#""le Incor"orated relies on t)e .lo+al economy$12 I% t)e .lo+al economy was to .o t)rou.) any issue suc) asG dro""in. em"loyment rates- or net wort)- +usiness and consumers may +e less willin. to s"end money$ ()is in turn- would a%%ect t)e demand %or #""le "roduct$1/ ()e economy is a risk in itsel%- and since #""le is reliant on it- t)ey would directly +e a%%ected i% any economic stru..le was to arise$

In order to cut down on its o"eration costs #""le outsources most o% its "roduction out o% t)e =nited States$1/ ()ey also )ave outsourced its distri+ution to outside com"anies$ ()is means t)at #""le )as little control over t)e manu%acturin. and distri+ution o% t)eir "roducts$ I% any o% t)ese outsourced com"anies and %irms were to +e a%%ected +y an issue- #""le*s distri+ution and "roduction would +e a%%ected$

()e electronic industry is steadily .rowin.$ !ue to t)e o"en and steadily risin. industrymany ot)er com"etitors )ave emer.ed to take advanta.e o% t)is .rowin. market$ ()e com"etition in t)e %ield )as caused electronic manu%acturers to "roduce similar "roducts as eac) ot)er$ #s more "roduct variety and "ricin. o"tions +ecome availa+le- t)e consumers are .iven more c)oices$ ()is "uts #""le at risk +ecause t)eir com"etitors may .ra+ t)eir tar.et market and could "otentially in%luence a c)an.e in t)eir +rand loyalty$ ()is makes com"etition a very lar.e risk %or #""le$

#""le )as +een %ocusin. on u"datin. "re2existin. "roduct suc) as its i@)ones- and i@ods w)ic) are currently in t)eir sevent) .eneration- rat)er t)an releasin. new "roduct$ Com"etitors )ave taken advanta.e o% #""le*s lack o% innovation t)is year and released

12

ME #""le &isks &evealed$M Apple Inc. /AAPL01$ K$"$- n$d$ We+$ 3 #"r$ /01F$ N)tt"G//seekin.al")a$com/article/>EF:E12E2a""le2risks2revealedP$

16

excitin. "roducts into t)e market suc) as Samsun.*s smart watc)$ ?ecause o% #""le*s tendency to u"date "re2existin. "roducts t)at are already on t)e market- consumers may delay t)eir "urc)ases$

#s a lar.e com"etitor in t)e tec)nolo.y industry- #""le )eavily relies on intellectual "ro"erty and "atents in order %or t)em to "roduce new and innovative "roducts$ #ny kind o% intellectual "ro"erty also comes wit) a licensin. a.reement$1/ I% #""le is una+le to renew any o% its licensin. a.reements t)ey may lose t)e a+ility to com"ete wit) t)e current markets ex"ectations o% its "roducts$

#s a w)ole #""le is a .enerally sta+le com"any- )owever t)ey )ave t)e "otential to develo" )i.) risk %actors$ .eta and Industry 6ver t)e course o% #""le*s li%e- it )as "roven to +e a dominant %orce in t)e industry %or com"uters- electronic devices- and "eri")eral e,ui"ment$ ()ere%ore- it is no sur"rise t)at t)e com"any is very similar- +ut mar.inally less risky- t)an t)e market %or investin.$ Its +eta is listed di%%erently on several sources suc) as 0$:F COa)ooS inanceD- 0$9F C&eutersD- and 1$01 CGoo.le inanceD w)ic) is consistent wit) our calculations o% 0$93$ =sin. a risk2%ree rate o+tained on t)e ?loom+er. we+site o% 3$;0L w)ic) is t)e =$S$ (reasury +ond rate over 30 years as o% #"ril //01F$ #lso- we c)ose to use E$00L %or t)e market w)ic) led us to our exact +eta answer o% $ 93F/0>$ urt)ermore- a%ter usin. a re.ression line to determine t)e statistic- alon. wit) ;0 data "oints %or t)e #""le and SJ@ "rices- Ex)i+it demonstrates our %indin.s$

Firm -aluation
-aluation /sin +ultiples

17

=sin. t)e valuation usin. multi"les met)od- we were a+le to calculate #""le Inc$*s stock$ ?y multi"lyin. t)e industry*s @/E ratio +y #""le*s Earnin.s "er S)are CE@SD we were a+le to determine t)e com"any*s current stock "rice$ ()e industry*s @/E ratio was e,ual to 1F$/0 and #""le*s E@S was e,ual to F0$03$ 6ur calculations resulted in a current stock "rice o% BE;>$F3$

Dividend Discount +odel In order to veri%y our calculations o% #""le*s current stock "rice- we used t)e !ividend !iscount Model$ We %irst needed to %ind t)e %ollowin. varia+lesG !1- rE- and .$ irst- we calculated rE usin. t)e C#@M model Cri I r% T CCrm U r%DViDD$ or t)e risk2%ree rate- we o+tained t)e =$S$ (reasury +ond rate over 30 years as o% #"ril /- /01F %rom t)e ?loom+er. we+site$ We determined t)e risk2%ree rate to +e 3$;1L$ We c)ose to use a market risk "remium o% EL sinceas we discovered in class discussions- any rate +etween / and >L can +e Rusti%ied and we received a "ositive stock "rice wit) t)at rate$ We t)en com"uted +eta +y doin. a re.ression analysis usin. )istorical stock "rices %or #""le Inc$ and t)e SJ@ E00$ We t)en calculated t)e returns %or eac) o% t)e mont)ly stock "rices %or t)e "ast %ive years C/0092/01FD and ran t)e re.ression test$ rom t)e re.ression analysis- we determined t)e +eta to +e $93F/$ We t)en "lu..ed t)ese varia+les into t)e C#@M model to %ind ri$ We determined t)at ri I 0$03; T C0$0ED C$93F/D I $>/:1 or >$/:L$ Kext we needed to %ind #""le*s dividend .rowt) rate$ irst- we %ound )istorical .rowt) rates %or t)e "ast t)ree years and calculated a "ercent c)an.e to determine t)e "ast .rowt) rates$ Since dividend in%ormation could not +e %ound %or years leadin. u" to /01/- we calculated values %or . usin. t)e years /01/2/013 and %ound a .rowt) rate o% /3$/EL$ 6ur next ste" was to locate analyst*s estimates o% #""le Inc$*s .rowt) rates w)ic) we %ound to +e /9$::L$ inally- we calculated t)e retention ratio and multi"lied it +y #""le*s &eturn on E,uity C&6ED as a %inal

18

met)od to %ind t)e dividend .rowt) rate C. I &6E W C1 2 !@S/E@SD C/9$9>L W C1 U 11$F0/F0$03D$ =sin. t)is e,uation- we calculated . to +e /1$FFL$ ?ased on t)ese t)ree di%%erent met)ods %or calculatin. . and t)e %act t)at #""le )as not announced any %uture "lans %or new "roducts- +ut only "lans %or im"rovements to older models- we estimated #""le*s dividend .rowt) rate to +e /F$>/L$ We ex"ected t)is .rowt) rate to +e )i.) +ecause #""le "roducts are still very )i.) in terms o% demand and t)e com"any is always develo"in./innovatin. its older models$ #%ter solvin. %or t)e ri and .- we could %inally solve %or t)e "roRected dividends in /01F usin. t)e %ormula !1 I !0C1T.D$ Since !1 I 11$F0C1 T /F$>/LD- we calculated !1 to +e 1F$/3$ Kow- usin. t)e calculations %or !1- we were a+le to calculate t)e stock "rice usin. t)e %ormula @0 I !1/Cri U.D$ In solvin. %or @0 t)ou.)- we used t)e economy*s .rowt) rate %or our . varia+le instead o% #""le*s$ ()e "redicted .lo+al economic .rowt) rate over t)e next %ive years is 1$:9L$ ()ere%ore- we determined t)at today*s stock "rice was e,ual to B/1;$/3- C1F$/3/>$/:L 2 1$:9LD$

Calculation of Intrinsic Stoc# ,rice ()e last ste" in our "rocess leadin. u" to our %irm*s accurate valuation was to %ind a wei.)ted avera.e o% t)e stock "rice t)at we received usin. t)e valuation usin. multi"les met)od and t)e !ividend !iscount Model$ In order to calculate t)e wei.)ted avera.e- we decided to assi.n a 30L wei.)t o% our %inal stock "rice to t)e "rice t)at we received %rom t)e valuation usin. multi"les met)od and a :0L wei.)t to t)e "rice t)at we received %rom our !iscount !ividend Model$ Since t)e !!M takes into consideration more as"ects o% t)e %irm w)en calculatin. t)e stock "rice includin. t)e estimated dividend .rowt) rate- estimated rate o% return"lus t)e economy*s "roRected .rowt) rate and t)e valuation usin. multi"les met)od only uses t)e industry*s @/E ratio and t)e %irm*s E@s- we %elt t)at t)ese wei.)ts were a""ro"riate in order to

19

determine t)e %inal stock "rice$ Wit) t)ese wei.)ts C@0 I C0$30CBE;>$F3D T C0$:0CB/1;$/3DD- we %ound an avera.e intrinsic stock "rice o% B3/1$>9$

Conclusion and *ecommendation

#%ter reviewin. #""le*s %inancial records- examinin. t)eir riskiness- and com"utin. t)e %irm*s value in terms o% dividends- we determined t)at #""le is overvalued$ #ccordin. to Oa)ooS inance- t)e market value o% #""le Inc$ as o% #"ril 3- /01F was BE3>$:9$ We com"uted #""le Inc$*s avera.e intrinsic stock "rice to +e B3/1$>9$ ?ased on t)ese two num+ers- it seems clear t)at #""le Inc$ is overvalued$ However- #""le itsel% is a very stron. and consistent com"any and )as "roven to +e sta+le over time$ #""le Inc$ contains many di%%erent "roRects %rom com"uters- cellular ")ones- and music c)annels and t)ere%ore is a multi%aceted +usiness$ #""le*s "ro%it mar.in- &6#- and &6E %or exam"le- are )i.)er t)an t)at o% t)e industry "rovin. t)at des"ite t)e economy risin. out o% a recession- #""le is still doin. si.ni%icantly well$ !es"ite t)e intrinsic value o% #""le*s stock +ein. )i.)- +ased on calculations and analyst "roRections- #""le Inc$ )as stron. +rand loyalty- many .ad.ets t)at are )i.)ly sou.)t a%ter- and a com"etitive ed.e t)at s)ould ease investors anxieties w)en decidin. on w)et)er or not to invest in #""le Inc$Q t)is com"any is )ere to stay$

20

Appendix
Ex!ibit A"

Ex!ibit ."

21

Ex!ibit C"

Ex!ibit D"

22

Ex!ibit E"

Ex!ibit F"

23

24