Financial Statement Analysis: Apple Inc. and Coca-Cola

Introduction to Financial Statement Analysis

Financial statement analysis refers to the process of developing and analyzing a company's financial statements to support decision-making. It is also essential because it helps external stakeholders — such as investors — understand a company's overall condition and evaluate its 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 organizational activities (Kunnathur, 2017). They can be evaluated based on past, present, or projected future performance and are generally governed by generally accepted accounting principles.

Apple Inc. Financial Analysis

Apple Inc. is a multinational technology company headquartered in Cupertino, California. It is an American company established in 1977 by Steve Wozniak and Steve Jobs, a visionary entrepreneur who aimed to change the world through technology. His entrepreneurial vision led to essential technological advancements. Jobs served as co-founder and 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 company retail stores (the Apple Store), a direct sales force, online stores, cellular network sellers, and wholesalers. It also retails to small and mid-sized businesses, individual consumers, educational institutions, and corporate clients (Hernández-Álvarez, Hernández & Yoo, 2019).

Initially, the company focused on producing Apple computers. The founders aimed to make small, portable computers that people could use easily at work and at home. They also sought to change the design of the machine and create one that was user-friendly. Although the response they received upon launching the project was discouraging, they did not stop. They continued working to meet customer demands and later introduced Apple II. This product revolutionized the technology industry — particularly the computer industry — and the company's sales rose from $7.8 million in 1978 to $117 million in 1980, at which point the company went public. In the early 1990s, the company recorded its highest profits, driven largely by Jobs's entrepreneurial and innovation skills (Kunnathur, 2017).

Apple creates, develops, and sells a range of technology devices, mobile communication tools, and computer devices for individual users and businesses of all sizes. It also specializes in designing and developing software, technology accessories, applications, digital content, portable personal computers, services, and other network solutions (Khan & Alam, 2014). Products include tvOS, watchOS, macOS, and iOS. The company's software and application offerings include Logic Pro X and Final Cut Pro. Its services include Apple Pay, AppleCare, and iCloud. Currently, Apple is among the world's largest and most valuable technology companies, alongside Amazon, Google, Facebook, and Microsoft. As of 2021, the company ranks as the fourth-largest personal computer vendor globally and the largest technology company by revenue.

As of the 2020 annual financial report, Apple had total revenue of $274.5 billion, making it the largest technology company by that measure. In 2018, it became the first publicly traded company in the United States to reach a market valuation exceeding one trillion dollars. Two years later, it became the first to surpass two trillion dollars in market capitalization (Hernández-Álvarez, Hernández & Yoo, 2019). The company has been ranked the most valuable brand in the world and commands a high level of brand loyalty. As of 2021, over 1.65 billion Apple-branded products are in use worldwide. As a publicly traded company, Apple faces ongoing scrutiny regarding its environmental practices, contractor conduct, and ethical behavior, including materials sourcing and anti-competitive practices.

As of June 2021, approximately forty analysts were providing 12-month price forecasts for Apple Inc. Their analysis placed the company at a median price target of $160.00, with a high estimate of $185.00 and a low estimate of approximately $90.00. The median estimate represents an increase of approximately +$23.42 from the company's previous price of $129.64. The analysts reached a consensus recommendation to buy stock in the company — a rating that had remained steady since early June 2021. Analysts had initially forecasted earnings for the company's fourth quarter of 2020 in a range between $0.54 and $0.86, with an estimated consensus of $0.71; the actual reported earnings were approximately $0.73. For the fourth quarter of 2021, analysts forecast earnings per share in a range between $0.83 and $1.27, with an estimated consensus of $1.11, representing an increase in sales from the then-current $72.5 billion.

Apple is currently the largest technology company in the world by revenue. As of 2017, the company was reported to hold approximately $250 billion in reserves and became the first publicly traded firm in the United States regarding market capitalization (Hernández-Álvarez, Hernández & Yoo, 2019). As of 2020, the company had approximately $274.5 billion in revenue and $57.4 billion in total net income, reflecting a positive increase from figures recorded in 2019. Financial analysts projected this value to increase further by the end of the fourth quarter of 2021.

Apple is a critical player in the technology industry, particularly in the telecommunications equipment segment of the electronic technology sector. Over the previous five years, however, the broader telecommunication industry recorded a stagnant growth rate of approximately 0.0 percent — a trend worsened by the ongoing pandemic. During this period, firms within the technology industry contracted by approximately 0.8 percent. Apple remained strong despite these economic challenges. As a major industry player, the company recorded $247.5 billion in annual sales and approximately $53 billion in profits, placing it at the top in terms of profitability. The company also performs well in the smartphone category, despite trailing behind Huawei and Samsung. In 2018, Apple's smartphone sales accounted for approximately 15 percent of the total global smartphone market share. The company's revenue, price, and income trends recorded positive growth over the past five years and were expected to continue that trajectory (Khan & Alam, 2014).

This section reviews Apple's key financial ratios between 2016 and 2020. The company's current ratio stood at 1.86 in 2016 and fell substantially over the subsequent two years to 0.8 in 2018. However, Apple rebounded from that low, and by 2020 its current ratio had recovered to 1.36. By the end of the 2016 financial year, the company's total asset turnover was 0.67, a figure that declined in 2017 to 0.61. The company subsequently implemented measures and strategies that improved total asset turnover over the following three years, reaching 0.85 by the end of the 2020 financial year. Return on assets was 10.1 percent in 2016 and increased to 17.7 percent by the end of the 2020 fiscal year. The company's debt ratio rose substantially over the period, from 23.4 percent in 2016 to 30.4 percent by 2020 (Khan & Alam, 2014).

Business ethics are the guiding principles or beliefs upon which an organization's operations are based, encompassing responsibility to customers, employees, stockholders, and shareholders. The fundamental principle underlying Apple Inc.'s business ethics is "use good judgment." The company's mission statement calls for environmentally friendly operations and the provision of safety and health incentives to employees. However, the company has been observed to fall short of implementing this policy, and various non-ethical practices toward employees have been reported (Hernández-Álvarez, Hernández & Yoo, 2019). It is also considered unethical to maximize shareholder returns at the expense of employees. Choosing profit over employee welfare is regarded as an ethical violation of the highest order. The company has been further involved in controversies over the exploitation of employee rights (Kunnathur, 2017).

The company's expendability policy also raises significant concerns. Employees are led to believe that their experience with Apple guarantees long-term employability, yet they are eventually laid off — a practice that amounts to extracting maximum effort from workers while serving shareholder interests. Additional ethical issues include pollution and toxins, irresponsible marketing, environmental harm, and anti-social financial practices. For instance, in 2019, Apple received one of the worst ecological reporting ratings and was flagged for the potential use of hazardous chemicals such as PVC. The company can improve its ethical performance by developing a formal code of ethics, making ethical practice a strategic priority, creating tools to measure the effectiveness of its ethical programs, and providing sufficient support to ensure all staff members comply with ethical requirements (Khan & Alam, 2015).

With many technology companies weakened by the ongoing pandemic, investors may reasonably question whether Apple is simply an overvalued technology stock. However, the company has established a solid competitive strategy and consistently stays ahead of challenges and competitors, positioning itself for continued active growth. Apple has shown no signs of losing its pricing power or market dominance. The prices of its most expensive products — most notably the iPhone — have recorded steady growth in recent years. Considering the company's current market share, revenues, and the optimistic projections made by analysts, it represents a compelling investment opportunity for those looking to buy shares in a top-tier technology company. While volatility is inherent in any market investment, Apple's recent strong business performance and robust pricing power suggest a healthy financial outlook for the coming years (Khan & Alam, 2015).

Analysts indicate that Apple is well positioned and recommend buying and holding the company's stock rather than trading it actively. The company has delivered strong quarterly results, and its stock has remained resilient despite recent challenges, including the coronavirus pandemic.