Apple and Coca Cola Financial Statement Analysis

Financial Statement Analysis

Financial statement analysis refers to developing and analyzing a particular company’s financial statements to help with the decision-making processes. It is also essential since it helps external stakeholders such as investors understand its overall condition and evaluate the business value and financial performance. Internally, it is used as a tool to monitor and manage the organization’s finances. A company’s financial statements record essential financial data on all organization’s activities (Kunnathur, 2017). They can be evaluated based on past, present, or future performance. They are generally centered on the “generally accepted accounting principles.”

Apple Inc. Financial Analysis

Company Background

This is a multinational technology company with its headquarters in Cupertino, California. It is an American company established in 1977 by Wozniak and Steve Jobs, a great American visionary who aimed to change the world and use technology. His vision of entrepreneurship led to the creation of the essential technological advancement on earth. He was the co-founder and the chief executive officer of Apple Inc. The two were the principal founders of the company, alongside Ronald Wayne, whose contribution to the creation of the iPhone, iMac, and iPad cannot be ignored. Apple Inc. is a publicly-traded company whose products are sold through the company’s retail stores, the Apple Store, direct sales force and online stores, and the cellular network sellers and wholesalers. It also retails to mid-sized and small businesses, clients, education, management, and initiative trades (Hernández-Álvarez, Hernández & Yoo, 2019).

Initially, the company ventured into the production of Apple computers. The founders aimed to make small and portable computers for people to use easily at their places of work and their homes. In addition, they sought to change the design of the machine and create one that was human-friendly. However, the response they received upon launching this project was discouraging, but they did not stop. They continued working hard to meet every demand of customers and later introduced Apple II. This product revolutionized the technology industry, particularly the computer industry, and the company’s sales shot from 7.8 million USD in 1978 to 117 million USD in 1980. The company went public from this point. In the early 1990s, the company recorded its highest profits because of Job’s entrepreneurial and innovation skills (Kunnathur, 2017).

Apple Inc.’s Industry Outlook

The company creates, develops, and sells various technology devices and mobile communication tools, and computer devices for users and different business sizes. It also specializes in designing and developing software and technology accessories, application and digital content, portable personal computers, services, and other network solutions (Khan & Alum, 2014). Some of the company’s products include the tvOS, watchOS, macOS, and iOS. The different software and application have logic pro X and filmmaker pro. In addition, the applications by the company include Apple play, AppleCare, and the iCloud service. Currently, it is among the world’s largest and most valuable technology companies alongside Amazon, Google, Facebook, and Microsoft. As of 2021, the company has been placed as the fourth largest personal computer vendor globally and the most significant technology company by revenue.

As of the 2020 annual financial report, the company has a total revenue of 274.5 billion dollars, making it the most significant technology company. In 2018, it was the first publicly traded company in the United States to be placed at a value of more than one trillion dollars. Two years later, it became the first publicly-traded company in the United States to be set at a value of over two trillion dollars (Hernández-Álvarez, Hernández & Yoo, 2019). The company has been ranked the most valuable brand globally and has a high brand loyalty level. As of 2021, over 1.65 billion products branded Apple are used around the world. Being a publicly-traded company, it is under constant criticism about its environmental practices, contractors’ practices, and ethical behavior, including materials sourcing and anti-competitive behavior.

Apple Inc.’s Analyst Forecast

As of June 2021, about forty analysts are currently offering a price forecast for 12 months. Their current analysis has placed Apple Inc. at a median target of 160.00 coupled with an estimate, high enough at 185.00. The analysis has also set the multinational company at a low estimate of about 90.00. This estimate of the median represents an increment of about +23.42 from the company’s previous price of 129.64. The analysts have reached a current agreement and recommend buying stock in the company, a rating that has been steady since early June 2021 and remained unchanged. The analysts have initially given their forecast in the company’s fourth quarter in 2020 with a range in earnings between 0.54 and 0.86 and an estimated consensus of 0.71. The profits that were reported were about 0.73. In the fourth quarter of 2021, the analysts have made a forecast and placed the earnings per share range between 0.83 and 1.27, and an estimated consensus of 1.11. This shall be an increase in sales from the current 72.5 billion dollars.

Apple’s Revenue, Price, and Income Trend Analysis

The company is currently placed as the largest technology company in the world by revenue. As of 2017, the company was reported to reserve about 250 billion dollars and became the first publicly traded firm in the US and the world regarding market capitalization (Hernández-Álvarez, Hernández & Yoo, 2019). As of 2020, the company had about 274. 5 billion dollars and 57.4 billion dollars total income, having recorded a positive increment from the figures recorded in 2019. The financial analysts have also projected this value to further increase by the end of the fourth quarter of 2021. Apple Inc. is a critical player in the technology industry, particularly in the telecommunication equipment industry in the electronic technology section. However, over the previous five years, the telecommunication industry has seen a stagnant growth rate, recorded at 0.0 percent. Things have mainly been made worse by the ongoing pandemic.

During the mentioned period, the firms within the technology industry have reduced by approximately 0.8 percent. Apple has, however, remained strong despite the economic challenges. Being among the major players in the technology industry, the company has recorded 247.5 billion dollars in annual sales and an extra 53 billion dollars in profits. These figures have placed the company at the top leading company, based on profitability. Moreover, the company performs best in the smartphone category, despite trailing behind Huawei and Samsung. In 2018, the company’s smartphone sales accounted for 15 percent of the total smartphone share of the market. The company’s revenue, price, and income trend has recorded a positive increase over the past five years and is expected to maintain the trend (Khan & Alam, 2014).

Apple Inc.’s Financial Ratio Analysis

This segment will review the company’s financial ratios between 2016 and 2020. The company’s ratio for 2016 was at 1.86and reduced substantially over the subsequent two years to 0.8 in 2018. However, the company has made a rebound from that low ratio, and as of 2020, the company’s financial ratio was at 1.36. By the end of the 2016 financial year, the company’s total asset was at 0.67, a value that fell in the subsequent year, 2017, to 0.61. Fortunately, the company was able to implement measures and strategies that led to improved total asset turnover in the following three years, which led to a total asset turnover of 0.85 by the end of the 2020 financial year. The return on assets also recorded a 10.1 percent in 2016 and increased to 17.7 percent by the end of the 2020 fiscal year. Another important ratio is the company’s debt ratio which has risen substantially over the years from 23.4 percent in 2016 to 30.4 percent by 2020 (Khan & Alam, 2014).

Altman’s Z-score Calculation

Apple Inc.’s Ethical Concerns and How to Improve

Business ethics are set ideologies or beliefs that an organization’s operations are based upon. Generally, it is the responsibility of the customers, employees, stockholders, and shareholders. The fundamental principle applied by the business ethics of Apple Inc. is “use good judgment.” The company’s mission statement clearly states that the operations to be environmentally friendly and ensure the provision of safety and health incentives to its employees. However, it has been observed that the company has failed to implement this policy, and various non-ethical cultures towards the company’s employees have been reported (Hernández-Álvarez, Hernández & Yoo, 2019). It is additionally unethical for the firm to maximize the returns received by shareholders at the employees’ expense. Choosing money-making over the employees’ lives is considered an unethical practice in its highest order. The company has further been involved in controversies overexploiting the rights of the employees (Kunnathur, 2017).

Also, the company’s expendability policy comprises of great merit. Employees are made to believe that their experience in the company can guarantee them employability for a long time, but they are eventually laid off. This shows the company’s policy to make its employees willing slaves while increasing shareholders. More ethical issues that have been observed include pollution and toxins, irresponsible marketing, environmental concern, and anti-social finance. For instance, in 2019, the company has the worst ecological reporting rating and included the possible use of hazardous chemicals like PVC. The company can improve its ethical performance by developing a code and making ethical practice a strategic priority. The company can also create a tool for measuring how effective its methods are and provide support to its staff and ensure that everyone abides by the ethical requirements of the company (Khan & Alam, 2015).

Recommendations

With many technology companies going down having received a blow from the ongoing pandemic, one might be nervous about making a bet on apple. One might be wondering if the company is simply an overvalued technology stock. However, the company has established a solid competitive strategy and stays ahead of challenges and competitors. This has placed it in a position of continued active growth in the years to come. The company has not indicated any sign of losing its pricing and market power. The prices of its most expensive products like the iPhones have continuously recorded steady growth in recent years. Looking at the current market share and revenues the company has coupled with the optimistic projections made by analysts, it is a good time to invest in the company and buy shares, considering that the stock is a top-notch technology company. Volatility should be expected since this is business and is controlled by market forces, but this should not be a big issue for concern since the company has recently shown a strong business performance. Its pricing power also indicates a robust performance in the coming years (Khan & Alam, 2015).

Computation

Analysts’ Opinions of the Company’s Stock Value

Analysts say that the company is in a good position and recommends buying and owning the company’s stocks rather than trading. The company has delivered excellent quarter results, and the company’s stock has remained unchanging despite the recent challenges, including the coronavirus pandemic.

The Coca-Cola Company Financial Analysis

Company Background

The company is also a multination United States-based company founded by a pharmacist known as John Stith Pemberton in Atlanta, Georgia, in 1886 and has grown over the years to become among the world’s largest companies in the world manufacture and distribution of non-alcoholic beverages. In 1889, the brand and the formula were sold to Asa Griggs Candler for about 2,300 dollars, equivalent to about 67,000 dollars. Candler incorporated the company in Atlanta in 1892. It is among the most valuable brands globally and is famous for brands like sprite, diet coke, and Fanta. It has had its operations as a franchise system of distribution since Candler took over (Noor, 2020).

Industry Outlook

The company is primarily interested in retailing, manufacturing, and distribution of non-alcoholic beverages. It produces a largely concentrated syrup sold to different bottlers across the world with exclusive territories. The anchor bottle is in North America and is called Coca-Cola Refreshments (Noor, 2020). The company has operations in the Middle East, Africa, Asia, and North America in over 200 countries. It has approximately 500 brands and has the largest market share in this industry, with a capitalization of 102 billion dollars. This is above the industry average of 75 billion dollars. The leading competitor that the company has is PepsiCo, and to stay on top, the Coca-Cola Company has devised various strategies to ensure that PepsiCo does not outdo it.

Analysts’ Forecast

The company currently has 22 financial analysts providing the price forecast for the company over 12 months. The results have placed the company at a median target of 60.00 and high and low estimates of 67.00 and 53.00. This estimate represents a positive increase of +8.30 from the previous price, which placed the company at a median of 55.40. The first quarter of 2021 set the earnings and the shares at a range between 0.47 and 0.55 and a consensus estimate of 0.50. The company reported earnings of 0/55, thereby exceeding the analysts’ expectations by a positive value of 9.15 percent. The second quarter has been placed at a range between 0.51 and 0.59 and an estimated consensus of 0.55, while that of the third quarter is at a range between 0.58 and 0.64 with an estimated agreement of 0.60 in 2021.

Revenue, Price, and Income Trend Analysis

As of 2021, the company has been placed at a value of 33,014 million dollars in revenue, taking the fifth position out of the total of 74 companies within this industry. The company has also posted 87,296 million dollars in assets, ranking three out of 74. Further, the profitability margin has recorded a positive increment to 23.5 percent. A report was done to determine the company’s position after comparing the crucial financial ratios. The company’s median values concluded that the company’s condition in 2020 has remained about the same, typical to the financial state of other companies in the same industry beverages. However, the trends indicate that its average ratios are slightly higher than those of the other companies; hence, it has the highest result. This means that the company’s position is better than most companies in the industry.

Financial Ratio Analysis

The company’s current ratio indicates the company’s ability to cover its short-term debts. By the end of the 2016 financial year, the company posted a 1.28 current ratio (Noor, 2020). A current ratio of above 1 is a positive indicator showing its ability to cover its short-term debt. In 2017, the current ratio recorded a positive increment to 1.34, which is also good. However, the current ratio dropped in the two subsequent years to 1.05 in 2018 and 0.76 in 2019 but could recover in 2020 when it recorded a current ratio of 1.32. The deterioration was a result of the decrease in assets. This is an indication that the company had liquidity issues. Quick ratio focuses on covering debt using the current assets. This also increased to 1.25 in 2017 from the previous 1.18 in 2016, after which it declined in the following years to 0.63 in 2019 and increased in 2020 to 0.65. Receivable turnover has been following the same trend. Similarly, the cash ratio was declining over the past four years to 0.41 in 2019. Generally, the company’s condition had been getting worse over the last three years, as shown by the financial ratio, but things slightly changed for the better in 2020.

Altman’s Z-score Calculation

Ethical Concerns about the Company and how to Improve

Since the 90s, the multinational company has constantly faced accusations of unethical practices in several areas, including anti-competitiveness, channel stuffing, product safety, pollution, intimidation of employees, health concerns, environmental concerns, and racial discrimination (Noor, 2020). These are claims that the company has tried so hard to fight off, but the shame is sticking nonetheless. For instance, the company has received the worst carbon management and reporting policy and is also the leading polluter by plastic. In 2020, the company faced a lawsuit that cost it millions due to plastic pollution. The company can improve its ethical performance by developing strategies to reduce emissions into the atmosphere and developing a code of conduct that every member of the organization must abide by, failure to which consequences are implemented. The company should also create policies in the best interest of their employees and that employees are also content with.

Recommendation

The pandemic has caused several disruptions in the company’s operations, especially with many entertainment venues and restaurants being shut down. This hurt the company’s sales to a great length. However, when deciding on an investment option, it is recommended that one should look at the long-term returns. With the positive developments regarding the COVID-19 vaccine, things appear to return to normal for the company by the third quarter of the 2021 fiscal year. Despite the reduced sales due to the struggles caused by the pandemic, the CEO, in a recent report, said that they are still confident they are on the right track, judging by their progress in the current quarter. Further, the market is projected to record a growth rate of 6.8 in the following five years.

Computation

Analysts’ Opinions of the Company’s Stock Value

Analysts’ opinions about the company are that the stock has remained about the same from last year and is within the normal range of the other companies in the industry. However, Coca-Cola Company has recorded higher ratios than the other companies; hence, it is on the rights track. This indicates a better position than the majority of companies in the industry.

Questions

Discrepancies between the Computed and Actual Stock Prices

The discrepancy is primarily due to the use of different computational methods that might have been used to determine the actual stock prices. Several computational methods can be used, which might be one of the sources for obtaining different values. Another source of the discrepancy results from data input and the decimal places used (Sun, 2012). This can be a cause for marginal errors that might lead to the differences observed.

Assumptions of Capital Market Theory

This theory is a positive theory that predicts the behavior of investors instead of how they should behave (Fama, 2018). The CAPM allows one to measure the significant risk associated with individual security and the relationship between this risk and the expected returns. This theory has eight assumptions;

1. Every individual can lend and borrow money at a rate of return that is risk-free.

2. Every investor has the same one-time horizon.

3. There exists no inflation.

4. There exist no personal income taxes.

5. There exists no transaction cost.

6. There exist many investors, and each can affect the stock price by their selling and buying decisions.

7. Capital markets are always in equilibrium.

8. Every investor has identical probability distributions for subsequent rates of return.