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Executive Summary 

This report is investment advice for a budding client with long-term vision and objectives. Apple Inc. an American-based publicly traded which is a reputable company is appropriate for the client. The company deals with various technological products ranging from smartphones to personal computers and software products in the niche of information and communication technology. Apple’s stocks are not only valuable, but they are also vibrant and futuristic. The company itself has shown an unwavering history of exceptional performance. With an adequate size of the enterprise, sound financial condition, and a sustainable dividend payout, Apple’s AAPL stocks are a perfect investment opportunity. With a market capitalization of $ 900B and a cash hoard of about $250B, Apple proves to be a giant firm. Although the company is facing stiff competition and limited options beyond its iPhone, the financial ratio analysis points at a premium firm whose efforts gear towards splendid benefits for all. While the firm is planning to introduce new and sophisticated products into the market, it also aims at giving its competitors a technical knockout through a trademark technology. Expansion into new markets is yet another big score for Apple. 

Financial Research Report 

Introduction 

Individual goals significantly guide the choice of company stocks to invest in. Various investors have different goals; some focus on the short-term rewards from an investment while others concentrate on what they can achieve in the long run. In our client’s case, the most suitable stock to invest in is Apple’s AAPL. 

Rationale for Stock Selected 

To begin with, Apple Inc. is, without doubt, a company of choice by many (Blenko et al.2016). The company deals with brands which are primarily trusted world over. Apple Inc. is well established and has a competitive edge in the technological niche in which it operates. Best-performing stocks boast of excellent brands. The company’s stock past performance in the securities exchange made Apple a suitable choice for investment. The company’s shareholders have reaped value for their money as indicated by the stocks’ performance over the years. Intelligent investors critically consider stocks with dividends that result in high returns. A long history of financial stability backs consistent dividend payout. Apple does not only pay out dividends to its stockholders, but it also does so attractively. 

Experience in the financial sector calls for investment in either mid-cap or large-cap organizations. These are companies with adequate resources. Their assets usually define them. Apple Inc. which is the company of choice falls squarely within this category of giant firms whose market capitalization and value by assets are close to a trillion. That said; it is also prudent for a financial manager to speak of a company’s financial condition. Apple Company is in a good financial state. This segment explains the ease with which a company’s current assets, cash, and cash equivalent, as well as receivables, are in a ready to flow condition. That is to say, Apple’s liquidity is convincingly adequate to cover the firm’s obligation as and when they fall due. 

Client’s Profile 

The client is a promising young man in early thirties, the head of a family of three. He recently landed his dream job in the legal trade and takes home a good perk graced with a hefty salary and attractive annual allowances. The client is an energetic, development conscious and futuristic investor who minds his kids’ education. His desire is for the children to acquire cutting-edge education where college fee won’t be a deterrent. In essence, the fellow harbors long-term goals with life insurance and a constant income gravitating his thirst to save for the rainy days. 

During his retirement and beyond, he wishes to be self-sufficient and financially sustainable even as he would want to build up an inheritance for his children. Also, the client is not oblivious to the fact that incidents and accidents may occur which render people unable to continue providing. It is, therefore, my role as a financial manager to connect the destiny of such a mind with Apple Inc. and its AAPL stocks. 

Why Apple is Suitable for the Client 

A perfect match between the client’s goals and an excellent investment opportunity lies with Apple’s stocks. Firstly, Apple announced incredible results from its operations at the end of the year 2017. The company’s total income and the earnings per share from its stocks were reported to surpass the company’s expectation. This result would give him an excellent opportunity to entrust his money to a company whose financial report beams rays of hope on the investor’s future. 

Currently, the market capitalization of Apple is estimated to be worth more than $900 Billion. Apple is the type of company that has experienced double-digit growth, and the trend is looking up. This value is tremendous and makes Apple regarded as one of the mightiest companies in the world. 

Apple is a leader and has cut its niche in the smartphone industry (Blenko et al. 2016). Apple Inc. products are very prime and well to do technological gadgets which are displaying an unprecedented global penetration and wide adaptability (Khan, Alam, & Alam, 2015). The company took the market by storm when it launched the iPhone 8 and iPhone X. These two products drove a crazy smartphone sale which saw Apple’s income burst out. Well, this provides an excellent investment opportunity for the client. 

Still, the company is utilizing its service division which is raking in substantial non-iPhone related income. Apple services division contributed about 66% of the surplus income in 2017. This division focuses on the company’s base, comprising powerful technologies, in entirety rather than the sales made. This division facilitates growth projections and enables the company to generate more profitability. 

Going forward, the Apple’s iPhone is getting more valuable features; the OLED screen and the Augmented Realty Capability. The iPhone models in possession of these features are taunted to be impressive and irresistible. Without fear of contradiction, Apple is heading somewhere great, and so it would be good to write up a check in favor of the company’s shares. Here is a company that is by far the most innovative in the covetous world of technology and information system (Zhang, 2017). A service division backs the company and perfectly complements its operations. A combination of these facts means there can be no hill insurmountable in Apple’s way into a bright future. 

It is also worth investing in Apple because within the last ten years investors have gained tremendous value. The company stocks have grown tremendously during the decade. Quantitatively, the value of Apple’s stock has seen a 780% growth. In a bid to stabilize the value of its shares, Apple’s management has checks and balances mechanisms in place. They routinely repossess additional shares from the hands of the public through a buy-back policy. This exercise ensures that the supply of the valuable stocks at any one time shouldn’t surpass the demand, therefore, creating room for the public desire and appreciation of shares. 

Benefits of Investing in AAPL Stocks 

Constant Payout 

The company’s ability to pay and sustain a dividend payout to its clients is synonymous with a real deal. However, it is crucial to know that there are still best investment opportunities in companies which do not comply with the rule of dividends. The good thing is, in 2012, Apple begun paying quarterly dividends to shareholders on their stocks. Some positive effects contributed to Apple's quarterly dividend plan. Top of the list is the twin products; iPad and iPhone. The two items are what Steve Jobs foundation treat as a natural spring. They provide reliable, consistent, and steady source of income. This financial catchment could allow the company to remit shareholders dividends annually and increasingly sustainably. It is important to note that Apple would spend 28% of its profits to pay out dividends, a low and manageable figure. One can also realize that the company is way above reproach and can always sustain its obligation to put a smile on shareholders’ faces through a dividend payout. Nonetheless, Apple’s cash reserve of $250 Billion or thereabout acts as a safe fall back plan in the unlikely event of income failing to sustain shareholders’ dividend payout. 

Product Synchronization 

Apple’s products are amazingly interconnected and work together in sync. This advantage drives traffic towards the company’s products with a significant reliance on them. We are talking about a company whose iPhone, iPad, Macintosh and Apple watch can compatibly transmit iMessages throughout each other. The prestige and convenience that users of these products acquire in simple terms translate to company’s growth and development. Again, as loyal customers of Apple products have displayed from long ago, the uncompromised and unmatched quality borne by Apple’s products and accessories is a sales driving force. Buyers who throng the company stores don’t mind paying an extra dollar for Apple trademark. The quality and value of their money compel them to make the purchases. 

Financial Analysis of Apple 

Financial analysis merely is evaluating finance-related issues to establish a company’s suitability as an investment vehicle. The review examines aspects of the balance sheet, income statement, and the cash flow statement. Ratio analysis is an efficient method of carrying out the study. 

Current Ratio 

This ratio is an expression of an organizations wealth versus deficit. By quantifying the company’s total current assets about its current liabilities, one can deduce the ratio. A high current ratio shows that a company is capable of paying its debts, cover expenses and settle any long-term obligation. Apple’s current ratio for the year 2015 was 111%. A 14% surge saw the company stand at 135% in 2016. However, there was a slight drop in the following year 2017 by 7% (NASDAQ.com, 2018). With this in mind, it’s utterly obvious that Apple is basking in financial prowess. Such an impressive ratio implies that the company can pay its way in the industry. 

Earnings per Share 

This factor of financial analysis is crucial to shareholding. It describes the net income distributable among shareholders. In addition to that, it helps a company determine the value of its stocks. In 2015, shareholders received $9.58 per share held with Apple (NASDAQ.com, 2018). The trend is relatively constant; $9.42 to one share in 2017 wasn’t a bad sign for investors given competition and other challenges within the industry. It is proper to say Apple’s value of a stock is attractive considering an EPS price that is forecasted to hit $13.49 in the financial year 2020 having gone through $11 and $12 in the preceding years. 

Price to Earnings Ratio (P/ER) 

For every one dollar that Apple receives as profit, it dedicates a percentage of it towards the investor as a reward. This reward is what is called price to earnings ratio. The current share price that investors receive is a translation of the income per unit of their investments. Apple’s price to earnings ratio was 12.45 in 2015. It rose to 13.49 in 2016 and a stunning five units rise to clock 18.32 in 2017 (NASDAQ.com, 2018). The tendency of Apple’s P/ER is an upward trend which means investors are likely to earn more on their stocks in the future. With such significant growth in P/ER, the client is set to thrive in Apple’s shares. 

Quick Ratio 

Also known as the acid-test ratio, it is the ratio that determines if a company can meet its short-term liabilities. In the three years; 2015, 2016, and 2017, Apple’s quick ratio was above 1. That means the company’s ready assets are more than current liabilities. The effect is that Apple is sufficient to offset its short-term debts without having to sell its long-term assets. The long-term assets of Apple are precious revenue generators which propel the firm’s chief operations. 

Profit Margin 

Profit margin ratio portrays the actual profit or net income earned from sales. It gives the real position of revenue left after deducting all expenses from sales. Investors are interested in a high-profit margin since for them it is an assurance of dividend payout. Elsewhere outsiders use the profit margin of the company to analyze the firm’s efficiency of operations and financial status. Apple’s profit margin for the years 2015, 2016, and 2017 are 23%, 21%, and 21% respectively (NASDAQ.com, 2018). An analysis of this procures the need for the management to cut on spending budgets to boost profitability. Otherwise, the margins are relatively stable. 

Cash Ratio 

Cash ratio indicates the ability of a company to offset its current liabilities with its cash and cash equivalents. This ratio takes a closer consideration of the management’s ability to pay off all its debts when immediately called upon without the need to liquidate some of the assets in the company’s possessions. Apple points at having more liabilities than its liquid cash at any particular point in time. In the year 2015, the company had a 0.52 cash ratio. This ratio improved tremendously in 2016 to 0.85 but registered a drop to 0.74. The rise could be as a result of a well-drawn up strategy to increase the company’s cash reserves. 

Recommendations 

Having considered Apple Inc. a company that is recognized widely with excellent brands, it would be advisable to invest in its shares. The company has sound financial health and grand plans for the future that are leading up to expansion and greater success. The shareholders have also drawn considerable benefits from investing their resources in the company. Therefore with positive projections, one is bound to succeed if financially attached to this company. Also, make investing simple by finding out a few real stock market basics. By diversifying your portfolio, you boost profits as well as minimize investment risks (Peleg & Raviv, 2017). Spreading investments is a good idea. Here is a quick recap of what could ensure added security and income too; financial sectors from banks to real estate companies can be a fertile breeding ground to grow your resources. 

Consumer staples category is also promising. People will always buy food and food items despite a recessionary period. Technological and industrial departments are other powerful contestants in the investment bid. With giant companies like Google and Microsoft on the technical side and capital machinery, aviation and airlines on the industrial and manufacturing end, you can always rest assured to make it in investment. In a nutshell, diversifying investment in stocks is an advisable way of maximizing gains in the stock market since it helps to optimize on investment opportunities. 

Risks Involved 

The smartphone industry is highly competitive and quite dynamic. Should the company make any errors in the iPhone product, the resultant mistake would have a substantial devastating effect on the company’s wellbeing. The company’s most significant success in profit generation lies in the iPhone. The iPhone market is at a mature phase therefore growth in sales is low, and yet this contributes to more than 60% of revenue to the company. The company initially grew tremendously, but in 2016, it reported the first decline in sales. 

To further compound the declining sales is the fear that the company’s innovation has no much to offer beyond the iPhone. There is a concern that the company is no longer as innovative as before. Since the year 2011 when Tim Cook took over the leadership in the company, it has unveiled only two new products. One is the Apple Watch which did not quite succeed; some folks allude to it as a commercial failure. There is also the Homepod which came to being in 2017. The Homepod had no much difference with Amazon’s Echo. 

Apple Strategies 

As much as Apple could be trading a highly competitive and risky field, Steve’s innovation can attract investors given its massive reward potential going ahead. The company is poised to positively deliver as it has been doing (Thao & Tsanthaiwo, 2017). Apart from planning to introduce new products in 2018 to boost its premium brand image, of course with superior user experience, Apple is set to increase penetration into the Asian Pacific where smartphone prevalence is still low ( Khan, Alam & Alam, 2015). 

Consumers are upbeat about new inventions and always quench their thirst for Apple products whenever they enter their stores regardless of the prices. In a show of might and buying prowess, loyal and new customers spend big bucks within the Apple stores to have the reality of Steve Jobs piece of mind in their hands (Khan, Alam & Alam, 2015). 

Caption this; the release of iPhone X and the overwhelmingly positive comments following its introduction is astonishing. The thrill witnessed a shoot in AAPL share price to $169 a heart throbbing 46% increase. Alongside an estimate of $200 per share in the value of its stock, economic predictions can bet on the company’s market capitalization at a Trillion mark shortly. 

Final Thought 

It makes sense to admit that in spite of the tough economic times and the product evolution challenges, Apple is pretty sitting well within its niche. The company is well placed to maximize its economic moat within a competitive industry of the Smartphone technology (Blenko et al., 2016). 

References 

NASDAQ.com. (2018). AAPL Key Financial Ratios . Retrieved 22 February 2018, from https://www.nasdaq.com/symbol/aapl/financials?query=ratios 

Blenko, D., Waldron, K., Cornelius, J., Nespoli, G., & Lee, D. (2016). Organizational Analysis: Apple Retail Stores. 

Khan, U. A., Alam, M. N., & Alam, S. (2015). A critical analysis of internal and external environment of Apple Inc. International Journal of Economics, Commerce and Management , 3(6), 955-961. 

Peleg, S., & Raviv, A. (2017). The Risk Spiral-the Effects of Bank Capital and Diversification on Risk Taking. 

Thao, T., & Tsanthaiwo, S. (2017). Apple Inc. In the Years to Come. 

Zhang, Q. (2017). Research on Apple Inc’s Current Developing Conditions. Open Journal of Business and Management, 6(01), 39. 

Appendices 

Apple Income Statements 

Period Ending:	Trend	9/30/2017	9/24/2016	9/26/2015	9/27/2014
Total Revenue		$229,234,000	$215,639,000	$233,715,000	$182,795,000
Cost of Revenue		$141,048,000	$131,376,000	$140,089,000	$112,258,000
Gross Profit		$88,186,000	$84,263,000	$93,626,000	$70,537,000
Operating Expenses
Research and Development		$11,581,000	$10,045,000	$8,067,000	$6,041,000
Sales, General and Admin.		$15,261,000	$14,194,000	$14,329,000	$11,993,000
Non-Recurring Items		$0	$0	$0	$0
Other Operating Items		$0	$0	$0	$0
Operating Income		$61,344,000	$60,024,000	$71,230,000	$52,503,000
Add'l income/expense items		$2,745,000	$1,348,000	$1,285,000	$980,000
Earnings Before Interest and Tax		$64,089,000	$61,372,000	$72,515,000	$53,483,000
Interest Expense		$0	$0	$0	$0
Earnings Before Tax		$64,089,000	$61,372,000	$72,515,000	$53,483,000
Income Tax		$15,738,000	$15,685,000	$19,121,000	$13,973,000
Minority Interest		$0	$0	$0	$0
Equity Earnings/Loss Unconsolidated Subsidiary		$0	$0	$0	$0
Net Income-Cont. Operations		$48,351,000	$45,687,000	$53,394,000	$39,510,000
Net Income		$48,351,000	$45,687,000	$53,394,000	$39,510,000
Net Income Applicable to Common Shareholders		$48,351,000	$45,687,000	$53,394,000	$39,510,000

Apple Statements of Financial Position 

Annual Income Statement (values in 000's) Get Quarterly Data 

Period Ending:	Trend	9/30/2017	9/24/2016	9/26/2015	9/27/2014
Current Assets
Cash and Cash Equivalents		$20,289,000	$20,484,000	$21,120,000	$13,844,000
Short-Term Investments		$53,892,000	$46,671,000	$20,481,000	$11,233,000
Net Receivables		$35,673,000	$29,299,000	$30,343,000	$31,537,000
Inventory		$4,855,000	$2,132,000	$2,349,000	$2,111,000
Other Current Assets		$13,936,000	$8,283,000	$15,085,000	$9,806,000
Total Current Assets		$128,645,000	$106,869,000	$89,378,000	$68,531,000
Long-Term Assets
Long-Term Investments		$194,714,000	$170,430,000	$164,065,000	$130,162,000
Fixed Assets		$33,783,000	$27,010,000	$22,471,000	$20,624,000
Goodwill		$5,717,000	$5,414,000	$5,116,000	$4,616,000
Intangible Assets		$2,298,000	$3,206,000	$3,893,000	$4,142,000
Other Assets		$10,162,000	$8,757,000	$5,422,000	$3,764,000
Deferred Asset Charges		$0	$0	$0	$0
Total Assets		$375,319,000	$321,686,000	$290,345,000	$231,839,000
Current Liabilities
Accounts Payable		$74,793,000	$59,321,000	$60,671,000	$48,649,000
Short-Term Debt / Current Portion of Long-Term Debt		$18,473,000	$11,605,000	$10,999,000	$6,308,000
Other Current Liabilities		$7,548,000	$8,080,000	$8,940,000	$8,491,000
Total Current Liabilities		$100,814,000	$79,006,000	$80,610,000	$63,448,000
Long-Term Debt		$97,207,000	$75,427,000	$53,329,000	$28,987,000
Other Liabilities		$40,415,000	$36,074,000	$33,427,000	$24,826,000
Deferred Liability Charges		$2,836,000	$2,930,000	$3,624,000	$3,031,000
Misc. Stocks		$0	$0	$0	$0
Minority Interest		$0	$0	$0	$0
Total Liabilities		$241,272,000	$193,437,000	$170,990,000	$120,292,000
Stock Holders’ Equity
Common Stocks		$35,867,000	$31,251,000	$27,416,000	$23,313,000
Capital Surplus		$0	$0	$0	$0
Retained Earnings		$98,330,000	$96,364,000	$92,284,000	$87,152,000
Treasury Stock		$0	$0	$0	$0
Other Equity		($150,000)	$634,000	($345,000)	$1,082,000
Total Equity		$134,047,000	$128,249,000	$119,355,000	$111,547,000
Total Liabilities & Equity		$375,319,000	$321,686,000	$290,345,000	$231,839,000

Apple Cash Flow Statements 

Period Ending:	Trend	9/30/2017	9/24/2016	9/26/2015	9/27/2014
Net Income		$48,351,000	$45,687,000	$53,394,000	$39,510,000
Cash Flows-Operating Activities
Depreciation		$10,157,000	$10,505,000	$11,257,000	$7,946,000
Net Income Adjustments		$10,640,000	$9,634,000	$5,353,000	$5,210,000
Changes in Operating Activities
Accounts Receivable		($6,347,000)	$476,000	($3,318,000)	($6,452,000)
Changes in Inventories		($2,723,000)	$217,000	($238,000)	($76,000)
Other Operating Activities		($5,318,000)	$1,055,000	($283,000)	$167,000
Liabilities		$8,838,000	($1,750,000)	$15,101,000	$13,408,000
Net Cash Flow-Operating		$63,598,000	$65,824,000	$81,266,000	$59,713,000
Cash Flows-Investing Activities
Capital Expenditures		($12,451,000)	($12,734,000)	($11,247,000)	($9,571,000)
Investments		($33,542,000)	($32,022,000)	($44,417,000)	($9,027,000)
Other Investing Activities		($453,000)	($1,221,000)	($610,000)	($3,981,000)
Net Cash Flows-Investing		($46,446,000)	($45,977,000)	($56,274,000)	($22,579,000)
Cash Flows-Financing Activities
Sale and Purchase of Stock		($32,345,000)	($29,227,000)	($34,710,000)	($44,270,000)
Net Borrowings		$29,014,000	$22,057,000	$29,305,000	$18,266,000
Other Financing Activities		($1,874,000)	($1,570,000)	($1,499,000)	($1,158,000)
Net Cash Flows-Financing		($17,347,000)	($20,483,000)	($17,716,000)	($37,549,000)
Effect of Exchange Rate		$0	$0	$0	$0
Net Cash Flow		($195,000)	($636,000)	$7,276,000	($415,000)