Apple Inc. Cash Management Analysis

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Making sound decisions in financial management require the analysis of cash flow and management statements. Such an analysis gives stakeholders such as investors the opportunity to make critical decisions whether or not to invest in a company or a product. In order to get a deeper understanding of the fluctuations in cash, investments and financing activities a cash flow and management analysis is necessary in order to achieve such. The goal of this essay is to analyze Apples cash and profitability rate. This essay will also discuss the use of horizontal and vertical analysis in order to prove its importance in financial management.

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Assessment of Cash Flow Statement

One of the most important financial statements is the cash flow statement. This is designed to depict a firm’s cash inflow and outflow over a given period of time. This assessment will aid the firm’s management team, investors and analysts measure the operations of the firm. There are three main categories which Apple Incorporated uses for its cash flow statement: Investing activities, operating activities and financing activities.

Investment Cash Flows Activities1

From 2015 to 2016, there has been an increasing trend for payments for the acquisition of property, plant and equipment. The fiscal year of 2015 produced payments of $11, 247 million and increased in 2016 to $12,734 million. By the end of fiscal year 2017 there was a slight decrease to $12, 451. In the fiscal year 2017 the highest inflow of cash from sales of marketable securities was $94, 564 million. An outflow of $56,274 million was recorded in 2015, decreased to $45,977 million in the fiscal year of 2016 and then experienced a slight increase in fiscal year 2017 to $46,446 million. Apple invested its earnings in order to expand their business which is why they experienced negative cash flow from their investment activities. With that being said, this is a positive for apple as they their investments are used to expand, which will create more opportunities for investors in the long run.

Operating Cash Flow Activities.

This section of the cash flow statement is usually the first. This begins with net income from which adjustments are made in order to reconcile the net income from the cash generated by its operational activities. After this, more adjustments are made for the increase or decrease in assets or liabilities. In the fiscal year of 2017 there was a slight increase in net income of $2,664 million. There was also a decreasing trend in the amortization and depreciation expenses. The depreciation and amortization expense in the fiscal year of 2016 was $10,505 million which is a decrease of 3.1% and stood at $10,157 million in fiscal year 2017. There were also considerable changes made to inventory from 2015 to 2016. Inventories increased by %238 million in 2015 and experienced a decrease in fiscal year 2016 to $217 million. From 2016 to 2017 inventories experienced drastic changes. Inventories decreased by $217 million in fiscal year 2016, however, increased to $2,723 million during the 2017 fiscal year. There was a drastic decrease in accounts payable from $5,001 million in fiscal year 2015 to $1,837 million in fiscal year 2016. More drastic changes came between 2016 to 2017. Accounts payable was $1,837 in 2016 but increased to $9,618 million by fiscal year 2017. The fiscal year of 2015 experienced a decreasing trend as total cash generated from operating activities was $81, 266 million. The total cash generated from operating activities in 2016 was $65, 824 million and decreased in fiscal year 2017 to $63, 598 million.

Financing Cash Flow Activities.

In the fiscal year 2015 through 2017, Apple Inc. experienced and substantial amount of cash outflow for its financing activities. The fiscal year of 2015 experienced the highest amout outflow for the repurchases of common stock in the amount of %35, 253 million. The highest inflow of cash came from issuance of term debt which was a net of $27,114 million. Dividend and dividend equivalents experienced an increasing trend. The fiscal year of 2015 dividend increase and equivalents was $11, 561 million and increased to $12, 150 million in fiscal year 2016. The 2017 fiscal year also saw an increase in the outflow of payments for dividends and dividend equivalents of $12,150 million. This is a testament to Apples commitment to paying its stockholders consistently. Based on the financing activities there has been an outflow of cash over three fiscal year periods. The fiscal year of 2015 produced total cash used in financing activities of $17,716 million and increased to $20,483 million in the fiscal year of 2016. This number decreased to $17,347 million in the 2017 fiscal year.

Apple’s financing activities shows an outflow of cash over the three fiscal years. In the fiscal year 2015 the total cash used in financing activities was $17,716 million and increased to $20,483 million in the fiscal year 2016 which decreased to $17,347 million in the fiscal year 2017.

In light of the total analysis of cash flows, the 2015 fiscal year had an inflow of $7, 276 million, however, the fiscal years of 2016and 2017 experienced an outflow of $636 million and $195 million in cash. Apples liquidity was strong in 2015, however, declined in the last two years of the analysis.

Profitability Ratios

Gross Margin Ratio

Gross margin ratio compares the gross margin of a business to the net sales. This ratio can measure how profitable a company sells its inventory or merchandise. In other words, the gross profit ratio is essentially the percentage markup on merchandise from its cost. (Profitability Ratios | Example.) The formula for gross margin is:

The gross margin for Apple for the past three years is:

Gross MarginNet SalesGross Margin Ratio %

2017$ 88,186$ 229,23438.5%

2016$ 84,263$ 215,63939.1%

2015$ 93,626$ 233,71540.1%

As we can see from the above table it shows the gross margin ratio is slowing declining from 40.1% in the fiscal year 2015 to 38.5% in the fiscal year 2017.

Profit Margin

The profit margin ratio can measure how much net income is earned with each dollar of sales produced. In other words, the profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business. (Profitability Ratios | Example.) The formula for profit margin is:

The profit margin for Apple for the past three years is:

Net IncomeNet SalesProfit Margin Ratio %

2017$ 48,351$ 229,23421.1%

2016$ 45,687$ 215,63921.2%

2015$ 53,394$ 233,71522.8%

As we can see from the above table it shows that Apple is converted 22.8% of their sales into profit for the fiscal year 2015, and 21% of their sales into profit for the fiscal years 2016 and 2017.

Return on Assets

The return on assets ratio is another profitability ratio that shows how profitable a company is based on its total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period. (Profitability Ratios | Example.) The formula for return on asset is:

The return on assets for Apple for the past two years is:

Net IncomeAverage Total AssetsReturn on Assets Ratio %

2017$ 48,351$ 375,31912.9%

2016$ 45,687$ 321,68614.2%

The return on assets show for the fiscal year 2016 for every dollar that Apple invested in assets during the year produced 14.2 of net income and 12.9% for the fiscal year 2017. This could be a healthy return rate and investors can compare Apple’s return with other companies and get a true understanding of how well Apple manages their assets.

Return on Equity

The return on equity ratio or ROE measures the companies’ ability to generate profits from the money that their shareholders have invested. In other words, the return on equity ratio shows how much profit each dollar of common stockholders’ equity generates. (Profitability Ratios | Example.) The formula for ROE is:

The return on equity for Apple for the past three years is:

Net IncomeShareholder’s EquityReturn on Equity Ratio

2017$ 48,351$ 134,04736.1%

2016$ 45,687$ 128,24935.6%

The return on equity for the 2016 fiscal year is 35.6%. This implies that Apple is able to generate $.356 per dollar invested in the company by its shareholders.

Horizontal and Vertical Analysis

Horizontal Analysis

Horizontal analysis also referred to as a comparative financial statement analysis, reviews consecutive balance sheet, income statements, or statement of cash flows from period to period. The purpose and most important information can often reveal from this is a trend. Doing a comparison of statements over several periods can reveal the direction, speed, and extent of a trend. Horizontal analysis has two techniques that are popular and they are: year-to-year change analysis and index-number trend analysis.

Year-to-year analysis can compare financial statements over short periods of time, which are usually 2 to 3 years. Index-number trend analysis is a very useful tool if you need to do a long-term trend analysis. With the index-number trend analysis it would require you to use a base period for all items, this preselected number is usually set at 100.

Vertical Analysis

Vertical analysis also referred to as common-size analysis is useful when trying to understand the fundamental makeup of the financial statements, and it also uses data from one year not multiple years. For example, if we look at Apple’s balance sheet in the fiscal year 2017, inventories were $4,855 and total assets were $375,319 then inventories would be 1.29 of inventory to total assets. This analysis can also allow management and investors to compare their numbers with other companies in the same industry. If the numbers are in close proximity that means Apple is within the industry standard and if the numbers are way off then management can look to see why the company is not within the industry standard.

In conclusion, the cash flow and management analysis show that Apple is doing well. Its cash flow statement is positive and the profitability ratios that I discussed show that Apple is profitable. As long as Apple keeps creating profitable technology they will continue to do well as a company.

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Apple Inc. Cash Management Analysis. (2019, Nov 13). Retrieved December 6, 2022 , from

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