Analysis on Apple Inc. 's Financial Statement (Group Assignment on BUS-600)

In this chapter, we learned the basic accounting principles and analysis techniques.  These allow us to be able to read and understand company’s  financial status through the key statements such as the balance sheet, the Income statement, statement of cash flows, as well  as the shareholder’s equity statement.  With applying these knowledge and theories onto Apple’s case, I observe the following facts and trend from Apple’s Q3 report:

(1)         From the Income statement, Apple’s business financial status is in an excellent condition.  Comparing to the Q3 in the previous year, its total revenue increase by 82%.  Its total revenue reaches the record high up to $28.571 billions.

(2)        Within the fiscal year, the revenue in the Q3 has a 16% increases against previous quarter Q2.

(3)         Although the biggest revenue came from the market in the US, the Asian Pacific market growth rapidly in a speed faster than any other areas up to 247%.

(4)         In the US and European market, the products unit sale were increased not in an aggressive rate (9% in US, and 1% in Europe) comparing to the same quarter last year, but the revenues were significantly increased by 63% in US and 71% in Europe.  This means the revenue in each product unit is largely boosted, which is different from most of the consumer electronic products with lowing sale price.

(5)         Among different products, iPhone champions the major business income in terms of both products units and revenue.  In this fiscal year, iPhone market is in a sharp increase phase on top of all other products.  Its product units sold and revenue in this year increase by 142% and 150% respectively comparing to the last year.  Therefore, it leads to a conclusion that Apple will continue taking iPhone and its service as the core products in their product portfolio. 

(6)         The report also shows that the iPad and its related products and service have soon become another money making product in this year and in the near future.  This product sector gains the biggest increase in the past year on both the product units (183%) and the revenue(179%).

(7)         Another major trend can be found from this report. We noticed that all the iPod products start to phase out from Apple’s product portfolio. Its sale volume and related revenue were quickly dropped down in -20% and -14% respectively.  This also means that Apple has moved its product focus on more high-end high profit margin products such as iPhone and iPads etc..

(8)         From Apple’s operation statement, we learn that Apple’s net income this year increases by nearly double (98.856%) from last year $9.705 billions to $19.299 billions. 

(9)         Apple’s balance sheet shows that the company’s total asset was significantly increases from $75.183 billions in last year up to $106.758 billions.  While its liability changes from last year’s  $27.392 billions to current one with $37.415 billions, leading to a liquidity ratio at 2.8533.

(10)     Apple’s shareholder’s equity now is the same as the total company’s asset, which gives the company’s financial leverage at a value around 1.35.  That means Apple company is operated in a very healthy and conservative financial status.  

(11)     Apple’s statement of cash flow shows the business financial transactions for operation and investment activities.   With large amount of initial money in hand ($11.261 billions), in this fiscal year, Apple’s cash generation by operation activities get over doubled from last year’s $12.912 billions to $27.100 billions in this year.  Its investment was also heavily increased almost three times comparing to the last year up to $27,283 billions.

(12)      In overall statement, I agree with Apple on its accounting statement and its operation strategy. Although Apple is now in its peak time from business point of view, there are many challenges and threatens a head of them. With missing the genius leader like Steve Jobs, will Apple be able to maintain the momentum and creativity? That is the question everybody is asking.  Facing strong competition from Samsung, HTC etc. on the smart phones, many brand names on the tablets, Apple will have a very tough battle a head of them.   In my view, Apple’s success is not purely due to its advanced technologies, or business execution, the success mostly come from the fact that Apple is leading the fashion and trend for the high tech electronic devices and products.  If Apple in the post Steve era could not continue the leadership on this front, the pyramid could collapse. the success mostly come from the fact that Apple is leading the fashion and trend for the high tech electronic devices and products. If Apple in the post Steve era could not continue the leadership on this front, the pyramid could collapse.

Day 4 – Organizational Behavior (BUS-600)

1. Organizational Behavior (OB) provides a three step techniques to solve organizational problems: Step one is problem definition. It finds the gap and deviation of the results from expectation, manages the level of problem scope, and identifies the issue as a source problem or causal chains. The second step is to analyze the problem and understand the causes. The third step is the action planning, which contain the sub-steps like set specific goal, define activities/resources/needs/ responsibilities, set timetable, forecast outcomes, develop contingencies, formulating detail plans and implement, supervise executions of the plan.
2. APCFB is a human psychology model – starting from assumption, affecting perception, drawing conclusion, prompting feeling, and driving behavior.
3. Expectation theory outlines the factors that produce motivation with individuals. Motivation serves as a function of how an employee’s actions translate into a reward.
4. Good leader should have the vision, commitment, and management aspects of leadership. He/she need to be creative and pay attention on active listening to gain the insight. They should understand the power on the job. Power is derived from more than a title. There are five forms of powers: Coercive power (based on fear to be punished), Reward power (based on expectation of receiving praise or reward), Referent power (being admired regardless of formal job status), Legitimate power (holding a hierarchy position), and Expert power (own special skill, knowledge or experiences).
5. Basic organizational model contains six elements that define the organization. They are Strategy, Policies and Procedures, Structure, System, Climate, and Culture.
6. From system theory point of view, a company is an organization with functions much like a body. It goes through a series of growth and crisis period during its lifetime, showing as an evolution and revolution pattern.

Day 3 – Accounting (BUS 600)

1. Accounting system records a given company’s financial status on asset it own, liabilities it owe, its operation performance, its financial situation and its cash flow.  Fundamental accounting rules are in the areas for entity, cash and accrual accounting, objective, conservatism, going concern, consistency and materiality.
2. There are three key financial statements. They are the balance sheet, the income statement and the statement of cash flow. 
3. Balance sheet covers company’s asset, liability and owner’s equity.  They have the relation represented by a fundamental accounting equation:

Assets (A) = Liabilities (L) – Owner’s Equity (OE)

4. Accounting uses journal double entry system which is easier to check and verify the account data. In typical accounting entry, people use  left ( Debit) and right (Credit) in T-table format. For a company, a net working capital is defined as the current assets subtracting the current liabilities.
5. Income statement shows the “flow” of activities and transactions over a specific period. The income comes from the Revenue subtracting the Expenses. Key terminologies on this front include Gross Margin (=Sales – COGS), Cost of Good Sale (COGS = Beginning inventory + Net Purchases – Ending Inventory), Operation Profit (the earnings before interest and tax (EBIT)), and Net Income (The pure income after tax and all other cost).
6. The Statement of Cash Flow gives the financial status and transaction flow. It covers operation activities, investment activities, and financial activities.
7. The accounting statements can be interpreted by using ratios. Liquidity ratios give measure for the cash on hand that can be converted to pay all the bills (LR = Asset/Liability).  Capitalization ratios give the measure for company’s liabilities, investor’s financing and funding. It includes the Financial Leverage (= (Total liabilities + Owners’ Equity)/OE) and Long-term Debt to Capital (= long term debt/(liabilities + OE) ).  Activity Ratios give the measure for how actively the firm’s assets are being deployed. It includes Assets Turnover per period (= Sales / Total Assets), Inventory Turns per Period (= COGS/Average Inventory Held During the period), Days Sale in Inventory (= Ending Inventory / (COGS/365) ).  The Profitability ratios provide the measure for how profitable the company is in the relation to the assets and sales. They are the Return on Sales (ROS = Net Income / Sales), and Return of Equity (ROE = net Income / Owner’s equity).
8. Company’s operating results can be analyzed and managed using variances, such as Purchase Price Variance, Material or Labor Efficiency Variance, Material Price Variance, and Material Efficiency Variance.

Day 2 -- Ethics

1. Though the primary purpose for doing business is to make money and get profit, business owner and employees can’t do whatever they want only based on their business interest.  They first have to be honest citizen. They have to be responsible for the entire society.
2. In typical business operation, one may encounter many different issues such as: environmental issues, corporate restructuring, employee privacy issues, diversity in race and genders, sexual harassment, conduct of multinational corporations (bribery), and other illegal operation conducts.
3. Ethics normally can’t be clearly defined as black or white, right or wrong. The gray shade areas make the ethics be relativism.  There are four type of relativisms: naive relativism (individual standard), role relativism (private and public roles), social group relativism (social norms to render ethical judgment), and culture relativism (moral standard under different culture).
4. Stakeholder analysis provides a tool to weight various elements and reach a decision. It evaluates all the harms and benefits to every stakeholders including the decision maker, executives, customers, shareholders, supplies, government, special interest groups, affected communities, the environment, future generations, competitors, as well as the layers and court.
5. US government passed a law in 2002 to regulate the ethics for business conduct. The law is called Sarbanes-Oxley Act 2002, which legislate ethics in corporate America.  This law includes four group of rules: Financial accounting rules, Internal control rules, executive ethical conduct rules, and ethical conduct rule for related parties.
 

Day 1 -- Marketing

1. Marketing is one of the most important segments for business. It is a process by which companies create value for customers and build strong customer relationships in order to capture value from customer in return.  Marketing integrates all the functions of a business and speaks directly to the customer through advertising, salespeople, and marketing activities. 
2. Marketing strategy process have seven key steps: (i) Customer analysis; (ii) Market analysis; (iii) Competition and self evaluation; (iv) Distribution channels; (v)  Marketing mix; (vi) Business Economics; (vii)Revision and extension.
3. Customer analysis give us a clear picture on who are your targeting customer, what is your customer need, which category of the customer, what value you can bring to your customer, what is buying process, who need the product and how important the product or service to them.
4. Market analysis help us to understand the market nature, size, variation, growth trend, and segment, etc..  From this analysis, we will learn competitive factors, the key information about the product on the market such as qualities, price, the way of advertising, R&D background and services.
5. Competitive analysis will help one to identify his product and company position in the market in term of business size, share, reputation and historical performances. It can basically be summarized as SWOT analysis.  This analysis will identify one’s strength, find his weakness, grasp the opportunity, and understand the threat and challenges.  Through that he/she will have a better knowledge on our true position in the competitive market place, and further to specify our target and objectives, develop his special plan, goal and strategy.
6. Market mix addresses the key concepts for what we called the 4Ps: that is, Product, Place, Promotion, and Price.   The product identification will guide one to make differentiation in his product. Know the market place will help him to better reach the market segment, build good distribution channels.  
7. Promotion provides the best and efficient way to motivate, attract and sometimes educate the customer to adapt this product. And finally price will be set depend on its product quality, an true cost, as well as profit and strategy plan.
8. Finally one needs to make correct evaluation on the economics. This includes detail financial calculation on business breaking even point, fixed cost, payback period, economic environment and its impact on the product business goal.
9. These analysis need to be frequently revised and adding extensions to accurately track the market changes, the new product need, and new market trend.