Free «Investment In Apple Inc» Essay
Table of Contents
There are many forms of investments available for investors today. They differ on the basis of the time frame they cover, the investors controlling them and the nature of the investment itself. However, the two main classes of investments are classified according to time that is, the short-term and the long-term investments (Zarnowitz, 1992 p.43). Most short-term investments that involve high risks get to be equally rewarding. Business people tend to concentrate more on the returns got and ignore the risks. Investments of a short period also help to finance the long-term ventures in place. Most investors invest in a single long-term investment and other several short-term meant to support it financially. The high liquidity of the short-term investment is also an advantage that attracts most business people.
Approaches to investment carry advantages and drawbacks that shape decisions of people in choosing investment portfolios (Zarnowitz, 1992 p 43). The most preferable approach to meet the globally desired goal of economic stability is the long-run technique. The method ensures appropriate planning that result to sustainable usage of resources. To create this desired balance, the legality of an investment and whether it maximizes shareholders value should be confirmed. The effect of the investment on stakeholders e.g. the customers and the employees compared to the shareholders benefits should also be considered.
Statement of purpose
The study investigates the requirements that a person willing to invest in shares of a company should consider before investing. The research relies on financial reports and documented information regarding Apple Inc, a company that I would highly recommend to my client to invest in its shares. It further gives the achievements of the company and the future benefits of investing in the company.
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Choosing a company to invest is the first step in building a portfolio. At the beginning, an investor should not begin with individual stocks. For a starter to build an investment portfolio, buying a single stock is risky than buying low-cost mutual fund that has a large group of stocks. The investor is likely to see sharp, swift changes in the value of his investment if he owns few stocks. If one has a diversified portfolio of mutual funds and ETFs, he may add in a few individual stocks. With the risk of an individual stock, greater returns would be realized. The S&P 500 added just 0.75% from 2006 through 2010; in the equivalent five years, Apple's stock rose more than 348%.
If one builds his own portfolio by picking stocks, he would save money compared to an investor who hires a person to pick stocks. When buying a stock, one is becoming a part proprietor of that company and the value of the investment depends on the progress of the company. Before investing in the shares of a company, one should focus on a familiar industry. It is also advisable to choose a brand that is favorite to the individual. The general progress of the company helps one to make a timely decision by the analysis of the earnings reports. It is also proper to find out the future plan the company in terms of being competitive in the market.
One should also consider the price and valuation. Stocks that are cheap or undervalued mean that investors are paying a low price for each dollar the company gains. This is calculated by the stock's price-to-earnings ratio, or P/E. where a company‘s share price is divided by its net income. In most cases, a P/E below 15 is seen as cheap, and a P/E above 20 is regarded expensive.
It is quiet crucial for the investor to know the stock. A company anticipated expanding rapidly is more expensive than an established company growing slowly. Here, one should compare a company's P/E to the peers in similar industries to see if it's cheaper or expensive.
It is always believed that Cheap is not always good, and expensive is not constantly bad. At times, a stock is low-priced since its business is growing less or slowing down. And at times a stock is expensive as it's widely projected to grow its earnings swiftly in few years. One should buy stocks that he can rationally anticipate will be profitable later and also look at the value collectively with prospects for future earnings.
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Assessing the financial health of a company is paramount. An investor should carefully scrutinize financial reports of the company since all public companies release quarterly and annual reports. A reliable history of profitability of the company should be considered. The investor should also endeavor to check the company s balance sheet to establish whether the company is in debts or not. The dividends paid to shareholders is another indicator of a company in good financial health.
This section consists of a comprehensive analysis of Apple Inc, a company that I would advice my client to purchase its stocks.
Apple Inc (earlier recognized as Apple Computer Inc) is an American conglomerate firm incorporated in January 3, 1977 to design, manufacture and distribute consumer electronics to clients. Ideally, the Company was established in 1976 by Steve Wozniak and Steve P. Jobs. Currently, the Company operates in five key segments; Europe, Americas, Asia-pacific, Japan and Retail. By July 2011, the Company had approximately 357 retail supplies in ten countries together with an online store. The 2011 Apple Inc Company Report indicates that; by the end of the September 24, 2011, the company had annual revenue about $ 108 billion and approximately 63,300 permanent and temporally employees worldwide.
Apple Inc is one of the world leaders in the consumer electronic industry, which has redefined the PC industry through technological innovation. Some of its known products include the Macintosh line of computers, the iPhone, iPad, iPod, iTune media browser, Mac OS X operating system among others. In this respect, Apple Inc would like consumers to perceive its products as differentiated from those of its competitors (Huang, 2001 p.133).
Basically, the Company manufactures and distributes a wide range of products such as personal computers, third-party digital applications, digital music players, media devices, communication devices, software and peripherals. For example, the Company’s application software include: Logic Studio, FileMaker Pro database, Final Cut Pro and Logic Express 9. Moreover, the company’s personal computers are: Mac Pro, iMac and Mac Mini. The Company’s main customers include: educational institutions, individual customers, SMEs, government institutions and commercial enterprises. Apple Inc sells its products through various approaches such as online stores, retail stores, network carriers, retailers, wholesalers and direct sales force.
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Financial analysis of Apple Incl
The key profit driver is the iPhone, within the Smartphone SBU, contributing 43.47% to Net Sales in 2011, whilst the Tablet SBU accounted for the second highest contribution at 18.81%. Geographically, in 2011, Apple’s home market of the Americas provided the highest percentage of Net Sales and Operating Income at 35.40% and 40.07%7 respectively (Ignatiuk, 2009 p.23). Europe was second in place with 25.66% and 34.12% closely followed by Asia-Pacific with 20.87% and 28.37%. All markets displayed substantial growth in Net Sales during FY11 ranging from 37% in Japan to 174% in Asia-Pacific (Ogrady, 2010 p.36). Overall company performance continues to improve even in light of an uncertain and unstable economic climate
Profitability, Liquidity and Efficiency
Overall Net Sales increased 66% year-on-year, largely driven by ever increasing iPhone demand (87%) combined with extremely strong iPad demand (311%). GP% and OP% have increased from 35.20% and 22.21% in 2008 to 40.48% and 31.22%, demonstrating lean business practices in controlling COS and expenses. ROCE increased from 33.75% to 38.22% in 2011, mainly due to OP exceeding the growth of capital employed, significantly higher than the ROCE of Google (21.69%).
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Apple currently has nearly $82bn in cash or near cash equivalents held within the balance sheet. It has high liquidity, financial stability and internal financing solutions for investment. Current Ratio and Quick Ratio have been decreasing over the past 4 years however, still remain with the normal range for the technology sector. The company has efficient stock management which is able to completely turn over stock in 4days, less than half the time needed in 2010. The asset turnover has fallen slightly from 1.04 in 2008 to 0.93 in 2011; this is largely due to a $80bn increase in total assets which can be attributed to Apple’s policy of holding retained earnings on the balance sheet.
Apple Inc is the company I would recommend to a client willing to invest on shares. Despite the latest drop of the share value of the company, there are bright points to focus. The company is in a good position. The sales of iPhone 5 are projected to be at least 45 million in the fourth quarter alone. Many people have also indicated that Apple Inc. (NASDAQ:AAPL) has sorted out the supply issues which rocked the company lately. In their effort to curb the challenges of distribution of its products, Apple Inc engaged in a controlled distribution. This entailed opening up various retail outlets in major cities for easy accessibility of its products by its customers. In the USA for instance, Apple opened 284 stores, so as to enlarge its market share. In addition, Apple grabbed the opportunity of advertising and selling its products through Amazon which is one of the largest online retailers (Tosics, 2008 p.128). iPad sales went up in millions three days after the launch of the iPad Mini and in September, the company’s balance documented more than $176 billion in assets.
According to Mühlbacher, (2006 p 34), the numerous Apple stores which are conveniently located worldwide, customers are able to experience a stimulating and personalized value of the Apple brand. Customers are able to discover a wide variety of Apple products, try them out and get practical guidance from the Apple staff that is quite informative and ready to sort out any problem. The company employed its own sales persons, and developed its own customized model for distributing its products more efficiently by cutting off middle men. The company strived towards the removal of competition from the point of sale. This was achieved through the provision of a variety of products and services in its stores, products that were elegantly packaged, appealing and affordable, hence wooing the consumers to buy more (Huang, 2001 p.133).
In an effort to address its distribution challenges, Apple took the opportunity of forming strategic alliances with other companies like AT&T, Best Buy and Wal-Mart (Wright, 2000 p.23). For example, it partnered with HP to enhance the distribution of the iPod, consumer PCs and laptops. Additionally, it partnered with Harvey Norman to sell its Apple Macintosh systems in an effort to reach its online customers (Rosenbloom, 2009 p.38).
The company has the ability to gain more market share by introducing new brands and innovations to establish its control of markets and increase its sales. The company ensures that the product that it has designed is very precise and that it suits the needs of the target customers (Ignatiuk, 2009). Moreover, the company designs its products by making them adopt similar designs. Therefore, it makes it easy for customers to identify a product that has been designed by Apple. Moreover, the applications that Apple develops can be used easily on most of the products that the company manufactures without requiring a person to change the format of the applications.
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Many computer manufacturers do not own retail stores. However, Apple has managed to set up retail stores which focus on selling Apple products. As a result, a customer can be able to easily identify a location, where he can acquire a genuine apple product. Apple has also made it possible for its customers to place their orders online through Apple.com whereby the customers can get Apple products delivered directly to their location conveniently. Studies also reveal that all Apple businesses are linked thereby enabling the company to understand all the business trends in different markets across the world (Huang, 2001 p.144). This strategy also enables the company to detect any weaknesses in any of its businesses, and therefore, enables it to address any issues before they get out of hand.
It is very crucial to research on the areas pertinent to an organization before making an investment decision on the buying of shares. Apple Inc in this case is the best and reliable company which adopts unique business-level and corporate level strategies to enable it to be the most profitable company in the world. It is therefore important for one to determine the strengths and weaknesses of a company before deciding to invest. This way, a client is able to make the right decision of investment to boost his productivity and profitability significantly.
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