FNCE 3420
Performance and Performance Evaluation (AAPL)
Financial reporting in Apple Company has been a crucial activity that has been carried with the highest level of accuracy. One might think that making performance evaluation is a simple task, however, the activity requires a lot of comparison between the company’s highest point and lowest point and together come up with a company performance evaluation. Thus, in order for this process to be a successful one, the person in charge of it should spend a lot of time and effort.
Apple Company was founded in 1977, with its headquarters based in Cupertino, California. The main aim of the company is designing, manufacturing, and distributing high-quality mobile phones, personal laptops, and light portable music players. The company also deals with middle sized businesses, educational material enterprises, and governments worldwide (“AAP L, Inc”). The company came in public on December 12, 1980, and is now publicly traded in the NASDAQ (“History of Apple, Inc”). Over the years Apple company has been able to strengthen its positions in the market and, hence, improved financial performance. There is a lot to be kept in mind before making any decisions concerning shares and other financial operations.
The table below shows the profits ratio from 2014 to 2017
Profitability Ratios of Apple, Inc.
2017 2016 2015 2014
Return on Equity 34.69% 35.62% 44.7% 35.42%
Return on Asset 18.20% 14.20% 18.39% 17.04%
Net Profit Margin 20.73% 21.19% 22.85% 21.61%
Return on equity (ROE) is a measure of company’s profits with regard to the number of shareholders that have invested in Apple Company. ROE increased from 35.42 in 2014 to 44.7 in 2015. In the year 2016 there was a drop due to some internal factors and still, in 2017, the figure has been decreasing down to 34.69%. This shows that in the year 2016 and 2017 there was a negative change in profitability with the investments made by the shareholders.
Return on Asset (ROA) is the value used to measure the company’s profit related to its total assets. Apple has been able to raise at least 1$ for any smartphone or computer accessories sold. In 2014 ROA was 17.04% which increased to 18.39%, but gradually dropped to 14.20% in 2016, this is as a result of reduced efficiency while converting assets to monetary values and earning. In 2017, however, ROA raised to 18.20% because Apple Inc. set up some strategies to enable easier conversion of assets to earn thusly increasing ROA.
Net Profit Margin is a measure related to the translation of each earned dollar into profits. From the table above, NPM was at the point of 21.61% in 2014, then it increased to 22.85% in 2015, this is as a result of more conversion of dollars into profit by the company. In 2016, however, NPM reduced to 21.19%, this suggests that dollars were converted to real profits by the company. In 2017 the value further decreased to 20.73%. The three ratios of the previous years show that Apple company’s performance has greatly deteriorated. Nevertheless, it is still able to make profits from its operations.
From the chart above, it is clearly seen that Apple Inc. has a promising profit gain year after year. Apple announced an increase in annual profit from $51.5 to $53.5 billion. One of the analysts suggested that the range can be surpassed if the sales for the Apple products turn out to be bigger than expected. Tim Cook, one of the CEOs, has recently stated that the growth in sales of iPhone products has led to higher profits and revenue. Various services, including App Store, iTunes, Apple Music, and iCloud, have been increasing the company’s annual profit by over a billion dollars. Thus, in the first quarter of 2017, 6.91 billion USD was raised. The number is three times bigger than that one of corresponding periods in the recent years (Hennessy and Najjar).
Evaluation graph
The graph above shows the performance report from made by a financial analyst working for the Apple company. It can be seen that the overall performance had been increasing since 2013 to 2015 but, in 2016, it declined a bit. A pickup point is identified and performance increases in the year 2017. The performance ratio was less in 2016. However, from the trend, it is clear that the upward movement has been going on for more than a year since the last downward slide.
The company’s stock performance provides more analytical details that provide the PEG ratio and security Market Line (SML). The CAPM model shows that Apple’s expected rate of return(ER) is higher than the risk-free rate of return. Therefore, shareholders should invest in the company’s stocks. The SML confirms whether the performance in the company is over- or undervalued. IT should be mentioned that SML is used as a tool by investors in determining whether they should invest in the company or not. As for Apple company, it is evident that various stakeholders are likely to invest and buy as many shares as possible (Fischer and Bernd).
CAPM: Rf + β(Rm-Rf)
=2.85% + 0.98 [13.14% – 2.85%]
= 12.98%
The Apple Inc. SML
AAPL is still among the good stocks to invest in. Despite the fact that there is a decrease in ROA, ROE, NPM it is still evident that shareholders and investors can still make profits. From Yahoo! Finance, the open price for AAPL is $111.13 meaning that the stocks are overvalued. Therefore, taking into account all of the analysis, this is not the best time to invest in AAPL; one should wait until its price goes down to its resistance 1 of $108.43.
Works Cited
“Apple Inc. (AAPL) | CAPM”. Stock Analysis on Net, 26 Nov. 2016. https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/DCF/CAPM. Accessed 11 April 2017.
“AAPL Profile.” Yahoo! Finance – Business Finance, Stock Market, Quotes, News, 26 Nov. 2016. https://finance.yahoo.com/quote/AAPL/history?p=AAPL. Accessed 11 April 2017.
Fischer, Bernd R., and Russ Wermers. Performance Evaluation and Attribution of Security Portfolios. Academic Press, 2012.
Hennessy, Julie, and Andrei Najjar. “Apple Computer, Inc.: Think Different, Think Online Music.” Kellogg School of Management Cases, 2017, pp. 1-24.
