1 Apple Inc Group 3 Lynne Keating Taylor

1 Apple Inc. Group 3: Lynne Keating, Taylor Dean. Lipson, Kenneth Lum and Pom Te Anau 6/14/2021 Apple Inc.

2 Introduction Apple was founded by Steve Jobs, Ronald Wayne and Steve Wozniak on April 1 st, 1976, and its headquarters is in Cupertino, California Apple is world renown for being one of the leading companies in providing consumer electronics, such as phones, laptops, portable music devices and tablets The current CEO of Apple is Tim Cook, whom took over responsibility of the company after Steve Jobs retired on August 24 th, 2011 Most recently released the IPhone 6, selling more than 10 million units in the opening weekend alone 6/14/2021 Apple Inc.

3 Management Team Senior executive team consists of 15 members (12 men and 3 women) CEO Tim Cook Board of directors consists of 8 members (6 men and 2 women) Chairman of the board Arthur D. Levinson 6/14/2021 Apple Inc.

4 Industries Due to Apple’s success and large size, the company operates in many different industries, such as: Computer Software Computer Hardware Consumer Electronics Most of their revenue comes from consumer electronics Consumer electronics total revenue in the US has grown from $181 billion in 2010 to $207. 2 billion in 2013, and is projected to reach $214 billion in 2015 6/14/2021 Apple Inc.

5 Emerging Products The key emerging products in the consumer electronics industry are: 3 D printers and HD televisions Health and fitness devices Smart watch Apple is currently operating, or planning to operate in many of these emerging product lines Recently released IOS 8, which consists of many health and fitness apps Apple is going to enter the television market in the near future 6/14/2021 Apple Inc.

6 Industry Recommendation Market Weight Competition Key Bond Covenants 6/14/2021 Apple Inc.

7 Market Weight Technology companies issuance of debt has been on the rise in recent years. • 26 billion in tech debt sold in 2000. • 113 billion in tech debt solid in 2013. Technology companies are offering very low rates. • Microsoft offers 2. 125% for their 10 year bond. • Google offers 3. 85% for their 10 year bonds. 6/14/2021 Apple Inc.

8 Market Weight Technology companies have low risk of default for the short term. • Google has around $60 billion in cash. • Microsoft has around $88 billion in cash. Risk associated with the longer term bonds. • If interest rates begin to rise, these long term, low yielding, bond’s value will decrease. • Also, the changing nature of innovation in the technology industry gives us cause for concern. 6/14/2021 Apple Inc.

9 Competition Google is a leading company in the technology industry. Microsoft is one of the largest companies in the world. IBM is an information technology company that has been around for over one hundred years. HP is headquartered in Palo Alto California and operates in the technology industry. 6/14/2021 Apple Inc.

10 Key Bond Covenants Apple’s bond covenants do not: “Limit the amount of indebtedness or lease obligations that may be incurred by us and our subsidiaries. Limit our ability or that of our subsidiaries to issue, assume or guarantee debt secured by liens. Restrict us from paying dividends or making distributions on our capital stock or purchasing or redeeming our capital stock. ” -Apple Inc. 6/14/2021 Apple Inc.

11 Credit Rating S&P Rating of AA+ in 2014 Based on the companies stable outlook Did not Receive a AAA, due to high business risk and intense competition in their industry EBITDA and FCF rose in 2014 6/14/2021 Apple Inc.

12 Customer Concentration Customers are consumers, SMB, education, enterprise and government markets Sell products directly through retail, SMB and online locations No single customer accounted for more than 10% of sales 6/14/2021 Apple Inc.

13 Labor Productivity Rely almost exclusively on outsourced partners located primarily in Asia Not only for Manufacturing but also for software development Apple is not in direct control of Production 6/14/2021 Apple Inc.

14 Investment Merits Liquidity Working Capital Structure Market Position Other things to keep in mind: • Interest Coverage • Leverage • Change in Cash Flows. 6/14/2021 Apple Inc.

15 Liquidity and Working Capital Liquidation: 6. 57 Current Ratio: 1. 08 Quick Ratio: . 89 Working Capital: 5. 083 billion 6/14/2021 Apple Inc.

16 Capital Structure Debt: 35. 295 billion: 24% Equity: 111. 547 billion: 76% Common Stock: 23. 3 billion Debt-Equity Ratio: 31. 64% Re= 2. 55 +. 66 (5. 38)= 6. 1% WACC= 5. 2% 6/14/2021 Apple Inc.

17 Market Position 6/14/2021 Apple Inc.

Phones Period Q 3 Q 3 6/14/2021 2014 2013 2012 2011 18 Samsung Others 23. 7% 11. 7% 32. 2% 12. 8% 31. 2% 14. 4% 22. 7% 13. 8% Apple Xiaomi Lenovo LG 5. 2% 2. 1% 1. 0% - 5. 1% 4. 7% 3. 7% 0. 4% 5. 0% 4. 6% 3. 7% 49. 3% 43. 6% 46. 0% 59. 4% Apple Inc.

19 Tablets 6/14/2021 Apple Inc.

Most Valuable American Company 20 MOST VALUABLE STOCKS IN THE S&P 500 INDEX (USA Today) Company (billion) Apple Microsoft Exxon Mobil Google Berkshire Hathaway Johnson & Johnson Wells Fargo Wal-Mart General Electric Procter & Gamble $238. 1 6/14/2021 Symbol Market value AAPL MSFT XOM GOOGL BRKA JNJ WFC WMT GE $669. 6 $408. 7 $402. 7 $376. 6 $357. 6 $302. 8 $267. 3 $265. 7 PG Apple Inc.

21 Other Financial Tools Interest Coverage Ratio: EBIT/interest expense Leverage: • Debt Ratio: Total Liabilities/Total Assets= 0. 52 • *Less than. 5 is ideal Cash Flows • In the past year Apple’s had a large decrease in Investments but an even larger purchase of stock. This decreased FCF by about 4 billion dollars. 6/14/2021 Apple Inc.

22 Conclusion & Recommendations Technology sector is fair with regard to the market Currently interest rates are tremendously low and cannot stay at these levels forever As interest rates begin to rise, the yield from Apple’s long term bonds will decrease in value We recommend holding bonds from Apple for the short term 6/14/2021 Apple Inc.