Tài chính kinh doanh financial report of apple inc

SỞ GIÁO DỤC VÀ ĐÀO TẠO TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN -o0o- TÀI CHÍNH KINH DOANH FINANCIAL REPORT OF APPLE INC Giáo viên: PGS TS Lê Đức Hoàng Lớp: Quản trị KDQT TT 63B Nhóm 1: Nguyễn Việt Hoàng - 11212368 Trần Nguyệt Minh - 11213951 Nguyễn Minh Hiếu - 11212243 Lê Đức Hưng - 11212460 Nguyễn Thị Nguyệt Minh - 11213894 Vũ Đoàn Nhật Giao - 11211842 Hà Nội, 2023 Table of content I FINANCIAL STATEMENT .2 1.1 INCOME STATEMENT 1.2 BALANCE SHEET 1.3 STATEMENT OF CASH FLOWS .4 1.3.1 Cash Flow 1.3.2 Free Cash Flow (FCF) 1.3.3 Operating Cash Flow/Net Sales ratio 1.3.4 Comprehensive Free Cash Flow Coverage Ratio II FINANCIAL RATIOS .7 2.1 Apple's Asset Ratios 2.1.1 Fixed Asset Turnover 2.1.2 Days Sales Outstanding 2.1.3 Inventory Turnover 10 2.2 Apple’s Profitability Ratios 10 2.2.1 Return on Assets (ROA) .10 2.2.2 Return on Equity (ROE) 11 2.2.3 Net Profit Margin .11 2.2.4 Gross Profit Margin 12 2.2.5 Operating Profit Margin 13 2.3 LIQUIDITY RATIO .13 2.4 DEBT RATIO .14 2.4.1 Debt Ratios .15 2.4.2 Debt Ratio 16 2.4.3 Debt to Equity Ratio 17 2.4.4 Times Interest Earned 17 2.4.5 Reasons why Apple has so much debt .18 I FINANCIAL STATEMENT 1.1 INCOME STATEMENT Income Statement (All numbers in millions) 2022 2021 2020 2019 2018 Revenues Less: COGS 394,328 223,546 365,817 212,981 274,515 169,559 260,174 161,782 265,595 163,756 Gross Profit 170,782 152,836 104,956 98,392 101,839 Depreciation Other Total Operating Expenses EBIT 11,104 - 11,284 - 11,056 - 12,547 - 10,903 - 51,345 119,437 43,887 108,949 38,668 66,288 34,462 63,930 41,844 59,995 Other Income Interest Expense -334 9,543 258 8,750 803 12,629 1,807 8,805 2,005 6,500 EBT Taxes Net income 119,103 19,300 99,803 109,207 14,527 94,68 67,091 9,680 57,411 65,737 10,481 55,256 55,500 13,372 59,531 As you can see, Apple's revenue has grown steadily over the past years, while its net income has grown even more This is due to several factors, including: - The continued popularity of Apple's products, such as the iPhone, iPad, and Mac - The growth of Apple's services business, such as the App Store, iCloud, and Apple Music - The expansion of Apple's international sales Apple's financial performance has been strong over the past years The company has been able to grow its revenue and net income while maintaining a healthy gross profit margin This is a testament to Apple's strong brand, innovative products, and efficient operations However, it is important to note that Apple's growth is slowing In 2022, Apple's revenue growth was only 7.79%, which was down from the 33.44% growth it saw in 2020 This slowdown is likely due to a number of factors, including: The global chip shortage, which has impacted Apple's ability to meet the demand for its products The ongoing trade war between the United States and China, has made it more difficult for Apple to sell its products in China The increasing competition from other smartphone manufacturers, such as Samsung and Huawei Despite these challenges, Apple remains one of the most successful companies in the world The company has a strong brand, innovative products, and a loyal customer base These factors should help Apple continue to grow its revenue and net income in the years to come 1.2 BALANCE SHEET Summary Balance Sheet (All numbers in millions) 2022 23,646 24,658 28,184 4,946 135,405 42,117 352,755 2021 34,940 27,699 26,278 6,580 134,836 39,440 351,002 2020 38,016 52,927 16,120 4,061 143,713 36,766 - 2019 48,844 51,713 22,926 4,106 162,819 37,378 - 2018 25,913 40,388 23,186 3,956 93,443 41,304 - 323,888 338,516 365,725 Accounts Payable Accrued Expense Accrued Taxes Notes Payable LT Debt - Current Other Total Current Liabilities 64,115 9,982 11,128 54,763 6,000 9,613 42,296 4,996 8,773 153,982 125,481 105,392 46,236 5,980 10,260 105,718 55,888 32,687 11,964 8,784 116,866 LT Debt Other Total Liabilities 98,959 109,106 98,667 91,807 93,735 302,083 287,912 258,549 248,028 258,578 64,849 -3,068 57,365 5,562 50,779 14,966 45,174 45,898 40,201 70,400 50,672 352,755 63,090 351,002 65,339 323,888 90,488 338,516 110,601 365,725 Cash Short Term Investment Account Receivable Inventory Other Current Assets Net PPE Goodwill Other Total Assets Common Stock Treasury Retained Earnings Other Total Equity Total Equity Liability & Total Assets: Apple's total assets have remained relatively stable over the past five years, fluctuating between $323.9 billion in 2020 and $352.8 billion in 2022 The decrease in total assets is primarily due to a decrease in short-term investments, which may be due to a shift in investment strategy or an increase in capital expenditures Current Assets: Current assets, including cash, short-term investments, accounts receivable, and inventory, have increased from $93.4 billion in 2018 to $135.4 billion in 2022, indicating a strong liquidity position for the company Property, Plant, and Equipment (PPE): Apple's PPE has increased from $41.3 billion in 2018 to $42.1 billion in 2022, indicating that the company is investing in its infrastructure to support growth Current Liabilities: Apple's total liabilities increased from $258.6 billion in 2018 to $302.1 billion in 2022 The increase in total liabilities is primarily due to an increase in long-term debt, which suggests that the company is taking on more financial risk to invest in its business or return cash to shareholders Total Liabilities: Apple's total liabilities have increased from $258.6 billion in 2018 to $302.1 billion in 2022, primarily due to an increase in long-term debt Total Equity: Apple's total equity decreased from $110.6 billion in 2018 to $50.7 billion in 2022 The decrease in total equity is primarily due to a decrease in retained earnings, which may be due to increased dividends or share buybacks Overall, Apple's balance sheet shows a strong liquidity position with high current assets and manageable levels of debt The company's investment in PPE and stable total assets show that Apple is wellpositioned for continued growth However, the decrease in retained earnings and total equity over the past five years may indicate that the company is returning more cash to shareholders or pursuing other strategies that are reducing its equity position 1.3 STATEMENT OF CASH FLOWS Cash flow analysis is an important aspect of a company's financial management because it underscores for the company the cash that's available to pay bills and make purchases—generally, money it needs to run and grow the business Companies, investors, and analysts examine cash flow for various reasons, including for insight into a company's financial stability and health, and to inform decisions about possibly investing in a company Statement of Cash Flow (All numbers in millions) 2022 2021 2020 2019 99,803 94,680 57,411 55,256 59,531 Total Depreciation And 11,104 Amortization - Cash Flow Other Non-Cash Items 10,044 11,284 11,056 12,547 10,903 2,985 6,517 5,076 -27,694 Total Non-Cash Items 21,148 14,269 17,573 17,623 -16,791 Accounts -1,823 -10,125 6,917 245 -5,322 Net Income/Loss Change In Receivable 2018 Change In Inventories 1,484 -2,642 -127 -289 828 Change In Accounts Payable Change In Assets/Liabilities Total Change In Assets/Liabilities Cash Flow From Operating Activities Net Change In Property, Plant, And Equipment 9,448 12,326 -4,062 -1,923 9,175 -7,909 -4,470 2,962 -1,521 30,013 1,200 -4,911 5,690 -3,488 34,694 122,151 104,038 80,674 69,391 77,434 -10,708 -11,085 -7,309 -10,495 -13,313 -306 -33 -1.524 -624 -721 -9,560 -3,075 5,453 57,460 32,363 633 -1,518 Net Change In Intangible Assets Net Acquisitions/Divestitures Net Change In Short-term Investments Net Change In LongTerm Investments Net Change In Investments - Total Investing Activities Other Cash Flow from Investing Activities Net Long-Term Debt -9,560 -3,075 5,453 58,093 30,845 -1,780 -352 -909 -1.078 -745 -22,354 -14,545 -4,289 45,896 16,066 469 -4,078 11,643 3,462 -1,842 Net Current Debt 3,955 1,022 -963 -5,977 -37 Debt Issuance/Retirement Net - Total Net Common Equity Issued/Repurchased Net Total Equity Issued/Repurchased Total Common And Preferred Stock Dividends Paid Financial Activities Other Cash Flow From Financial Activities Net Cash Flow -123 12,665 2,499 -7,819 432 -89,402 -85,971 -72,358 -66,116 -72,069 -89,402 -85,971 -72,358 -66,116 -72,069 -14,841 -14,467 -14,081 -14,119 -13,712 -6,383 -5,580 -2,880 -2,922 -2,527 -110,749 -93,353 -86,820 -90,976 -87,876 -10,952 -3,860 -10.,435 24,311 5,624 Free Cash Flow 111,443 92,953 73,365 58,896 64,121 Stock-Based Compensation 9,038 7,906 6,829 6,068 5,340 Document continues below Discover more from: Finance FIN300 999+ documents Go to course Bai tap Gia tri thoi gian cua tien 10 Finance 100% (63) GT học phần Chủ nghĩa xã hội khoa học K Tr 67 Tr144 78 Finance 100% (17) Bài tập Nguyên Lý thống kê có đáp án 38 Finance 95% (205) Bai Tập Nguyen Lý Thống Ke Bản Đủ 38 Finance 95% (41) Chapter answer key 28 Finance 100% (10) Ch answer keys FOR corporate finance Finance 100% (10) Common Dividends Paid Stock -14,841 -14,467 -14,081 -14,119 -13,712 1.3.1 Cash Flow Apple's Cash Flow: Apple has consistently maintained a positive net cash flow over the years, indicating its ability to generate cash from its operations, investments, and financing activities However, the magnitude and direction of cash flow changes in different categories have varied Cash Flow from Operating Activities: Apple's cash flow from operating activities has shown a positive trend over the years In 2018, the cash flow from operating activities was $77.434 million, and it increased by approximately 12% in 2019 to $69.391 million In 2020, there was a further increase of about 16% to $80.674 million Apple's positive trend in cash flow from operating activities can be attributed to its strong product line-up, brand loyalty, and effective cost management The company has been able to generate substantial cash from its core business operations, driven by consistent demand for its iPhones, Macs, iPads, and services Cash Flow from Investing Activities: The cash flow from investing activities has experienced significant fluctuations In 2018, the cash flow from investing activities amounted to $16.066 million However, in 2019, there was a notable shift to a positive cash flow of $45.896 million, indicating increased investments and acquisitions In subsequent years, the cash flow from investing activities fluctuated, with negative values recorded in 2020 (-$4.289 million) and 2022 (-$22.354 million) The fluctuations in cash flow from investing activities reflect Apple's strategic decisions regarding investments and acquisitions The positive cash flow in 2019 indicates significant investments and acquisitions made during that period, while negative values in other years suggest more modest investment activity or divestitures Cash Flow from Financing Activities: The cash flow from financing activities has generally been negative, indicating more cash outflow than inflow related to financing activities In 2018, the cash flow from financing activities amounted to -$87.876 million The trend continued with negative values in subsequent years, with a slight improvement in 2022 (-$110.749 million) The negative cash flow from financing activities is primarily driven by debt issuances, repurchases of equity, and dividend payments The negative cash flow from financing activities is primarily due to Apple's debt issuances, equity repurchases, and dividend payments These actions are part of the company's capital structure and financial management strategies, including leveraging debt to fund operations or return value to shareholders Overall, Apple has maintained a positive net cash flow, indicating a strong financial position The positive cash flow from operating activities highlights the company's ability to generate cash from its core operations However, the fluctuations and negative trends in cash flow from investing and financing activities can be attributed to Apple's investment decisions, debt management, and dividend payments It's important to note that these trends are subject to the company's strategic initiatives, market conditions, and financial goals, which can influence cash flow patterns 1.3.2 Free Cash Flow (FCF) Apple's FCF has been consistently positive over the past five years, with a total of $401.8 billion generated over the period FCF has been driven by strong operating cash flows, offset by significant investments in PP&E and acquisitions FCF increased significantly from $64.1 billion in 2018 to $111.4 billion in 2019, before declining to $92.9 billion in 2020 and increasing again to $111.4 billion in 2022 1.3.3 Operating Cash Flow/Net Sales ratio Indicates how much cash is generated for every dollar of sales made by the company 2022: $122.151 billion / $394.328 billion = 0.31 2021: $104.038 billion / $365.817 billion = 0.28 2020: $80.674 billion / $274.515 billion = 0.29 2019: $69.391 billion / $260.174 billion = 0.27 2018: $77.434 billion / $265.595 billion = 0.29 The trend in the Operating Cash Flow/Net Sales ratio for Apple over the past five years shows a relatively consistent level of operating cash flow generated for every dollar of sales made The ratio has ranged between 0.27 and 0.31 over the five-year period, indicating that Apple has been able to generate a consistent level of cash from its operations relative to its sales, which is a positive sign for investors 1.3.4 Comprehensive Free Cash Flow Coverage Ratio This ratio measures the ability of a company to cover its capital expenditures and dividend payments with its free cash flow In Apple's case, this ratio has remained consistently high over the past five years, indicating that the company has enough free cash flow to cover its capital expenditures and dividend payments In 2022, the comprehensive free cash flow coverage ratio was 1.92, which is a positive sign for investors Overall, Apple has shown strong financial performance over the years, with positive operating cash flow, consistent free cash flow, and strategic investments in long-term growth opportunities The company has also been returning value to its shareholders through dividend payments and share repurchases while reducing its debt II FINANCIAL RATIOS The value of financial ratios stems from their capacity to indicate how Apple performs as a percentage of a benchmark We may compare financial ratios in a meaningful way with industry competitors and historically by utilizing percentages These comparisons enable us to spot performance and other patterns inside a corporation with relative simplicity We will compare the financial ratios of Apple Inc to its biggest competitors: Samsung Electronics Co., Ltd 2.1 Apple's Asset Ratios In simplest terms, asset utilization ratios assess how well Apple's management team uses its limited resources Popular asset utilization ratios include inventory turnover, fixed assets turnover, and many more Total Asset Turnover The total asset turnover ratio shows how much revenue Apple generates in terms of its assets under management Formula: Total Asset Turnover = Sales / Total Assets Analysis: Apple’s total asset turnover has been increasing steadily over the last five years, from 0.73 in 2018 to 1.12 in 2022 while Samsung company have decreased from 0.8 in 2018 to 0.7 in 2019 and have remained the same in turnover until 2022 The increase in Total Asset Turnover of Apple company in 2022 suggests improved efficiency compared to the previous year It indicates that Apple has been successful in generating more sales relative to its total assets, indicating improved asset utilization 2.1.1 Fixed Asset Turnover The object of this ratio is to determine whether Apple is fully utilizing its property, plant, and equipment to generate revenues For this analysis, a review of historical trends, as well as comparing them to industry competitors, are excellent choices for financial analysts Formula: Fixed Asset Turnover = Sales / Fixed Assets Analysis: In 2018, Apple’s fixed asset turnover was 6.4 In the next four years, the firm would continually improve the utilization of its fixed assets, ending 2022 at 9.36 This shows that the company is improving the utilization of its fixed assets on a continuous basis, which is way more efficient than Samsung - only an average of around 2.0 2.1.2 Days Sales Outstanding The days’ sales outstanding ratio shows investors how long it takes Apple to collect funds from the sale of their products or services The quicker Apple can collect its money, the quicker it can reinvest the funds into operations Thus, a low day count is optimal Formula: DSO = Ave Accounts Receivables / (Annual Sales / 365) Analysis: Apple’s days’ sales outstanding ended 2018 at 28.2 days and 2022 at 25.2 days As we can see, in 2021, the DSO in 2021 is 21.1 days but the DSO in 2022 is 25.2 days This indicates that the company’s accounts receivable department may not have performed well in its collection practices Maybe this may indicate that the company loosened its credit policies and or collection practices As we can see, Apple has a pretty stable credit policy, they only need 25 to 30 days to collect their money back Samsung on the other hand needs around 50 days to collect money 2.1.3 Inventory Turnover The inventory turnover ratio tells investors how many times Apple was able to cycle through its inventory stock As with most asset utilization ratios, this calculation is best analysed using historical records, as well as competitors’ comparable ratios Formula: Inventory Turn = COGs /Ave Inventory Analysis: In 2018, Apple’s inventory turnover (using COGs) was 37.17 In the next several years, the firm would substantially improve its inventory practices, which led to an inventory turnover of 38.79 in 2022 This trend indicates that the firm may be continually improving its inventory handling practices Samsung on the other hand, has an average of inventory turnover (COGs) of around 4.7, which shows that Apple has handled inventory turnover more efficiently than its competitor 2.2 Apple’s Profitability Ratios Because of this essential topic, finance professionals have come up with various profitability ratios These ratios take a look at Apple’s profits from different perspectives By reviewing profits from different angles, investors can have a well-rounded understanding of the profitability of an organization 2.2.1 Return on Assets (ROA) With this ratio, investors prefer to see a relatively high return on assets This indicates that the organization is optimally using assets to generate profits Formula: ROA = Net Income / Total Assets 10 Analysis: Apple’s return on assets ended 2018 at 16.28% Over the next five years, the organization would substantially improve its return on assets ending 2022 at 28.29% This shows that the firm is doing an excellent job not only with growing sales with fewer assets but also in controlling asset growth as well Apple’s return on assets has outperformed Samsung for over years 2.2.2 Return on Equity (ROE) This elation is because the return on equity ratio indicates to investors how much a company made in profits in relation to equity invested This trend shows that a company is making more profits with equity used Formula: ROE = Net Income / Total Equity Analysis: Apple’s return on equity has ballooned from 53.83% in 2017 to over 196.96% in 2022 The substantial growth in return on equity may be attributed to the company’s realignment in its capital budgeting structure Specifically, it seems like the company is relying more upon debt for growth and operational purposes as compared to equity Apple’s return on equity has outperformed Samsung for over years 2.2.3 Net Profit Margin If you want to see how well a management team is doing, check out Apple’s net profit margins This is because just about all line items between revenues and net profits are under the control of the company’s 11 management team Increasing net profits are fantastic However, declining net profits, over time, are disturbing Formula: Net Profit Margin = Net Income / Total Revenues Analysis: Apple’s net profit margin ended 2018 at 22.41% In the next four years, the organization’s net profit margin would moderately grow to 25.31% This moderate growth should be a welcome delight to investors Sustained net profit margin growth over the long term shows that the company is wellmanaged, with costs under control and revenues climbing As we can see for years, Net profit margin of Apple has always been better than Samsung 2.2.4 Gross Profit Margin The gross profit margin tells investors, in percentage form, how much funds are available after raw materials are paid The higher the gross profit margins, the more money is available to pay for other costs within the company Formula: Gross Profit Margin = (Revenues – COGS) / Revenues Analysis: Apple’s gross profit margin has been continually improving, for the most part, over the last three years In 2019, the organization’s gross profit margin was 37.82% In the next three years, the gross profit margin 12 would grow moderately to 43.31% This shows that the firm was doing an excellent job in negotiating raw material costs, or they were passing along increased raw material costs to their customers through higher product prices Regardless of which hypothesis holds true, the result is the same, a healthy gross profit margin consistently In the last years, the gross profit margin of Samsung was higher than Apple in 2020 and 2018 while Apple had the gross profit margin greater than Samsung in 2022, 2021 and 2019 2.2.5 Operating Profit Margin The operating profit margin ratio helps investors understand how much profits, from the perspective of operations, Apple is generating as compared to total sales for the same timeframe This ratio is a great indicator of how well the company’s management team is controlling operations Formula: Operating Profit Margin = EBIT / Revenues Analysis: Apple’s operating profit margin ended 2018 at 22.59% In the next four years, the company’s operating profit margin continually grew, ending 2022 at 30% In some instances, operating profit margin growth is a result of cost-cutting measures taken on by the management team However, in Apple’s case, it seems more like the company is increasing revenues through increased utilization of assets under management instead For the last years, Apple has had a better operating profit margin than Samsung The only time Samsung had a better operating profit margin than Apple was in 2018 2.3 LIQUIDITY RATIO Apple has a current ratio of 0.94 It indicates that the company may have difficulty meeting its current obligations Low values, however, not indicate a critical problem If Apple has good long-term prospects, it may be able to borrow against those prospects to meet current obligations 13 Apple maintained a current ratio of between 1.28 in 2017 and 1.36 in 2020 These ratios indicate that Apple can repay its debts due within one year out of its assets The ratio of 1.36 in 2020 means that Apple has $1.28 of current assets in every dollar of current liabilities Apples, therefore, is healthy and can repays its short-term liabilities + Apple has a Cash Ratio of 0.47 It indicates that there are more current liabilities than Cash, Cash Equivalents, Marketable Securities, and the company does not have sufficient cash on hand to pay off its short-term debt + Apple has a quick ratio of 0.88 It indicates that the company cannot currently fully pay back its current liabilities + Apple has a current ratio of 0.94 It indicates that the company may have difficulty meeting its current obligations Low values, however, not indicate a critical problem If Apple has good long-term prospects, it may be able to borrow against those prospects to meet current obligations because of the appeearance of newly developed products have the same shape, view, outlook with tthe previous one and because of the pandemic, pple, like many other companies, faced challenges in the production and availability of its products due to factory closures, transportation disruptions, and other related issues These factors could have potentially affected Apple's inventory levels during the pandemic This is 2.4 DEBT RATIO Debt is a great tool for businesses There are two basic justifications for why businesses encourage debt build-up The first factor is that certain managers are excellent at profiting from loans Simply allow management to take out extra loans if a business wants to expand or invest in a new project The procedure is all too frequently as simple as breathing Businesses also like debt since interest payments are frequently tax deductible Using debt is typically far more affordable than using equity financing because of the potential tax benefits for debt 14 If we look at their total liabilities over time, we’ll see that they have 10 times their debt over the past decade As we can see in the balance sheet, Apple has been consistently taking on new debt According to the MarketWatch article, on August 1, 2022, they raised another $5.5 billion in debt At the same time, Apple has also been vigorously reducing their cash reserves Since the beginning of 2020, Apple has reduced their cash reserves from $107 billion to just under $50 billion 2.4.1 Debt Ratios Organizations love to use debt There are two main reasons why companies embrace the action of debt accumulation The first reason is some managers excel at making money from borrowed money If a company wishes to grow, or invest in a new project, just let managers borrow more money All too often, this practice is as easy as breathing A second reason why businesses love debt is that interest payments are often tax-deductible Because of the possible tax benefits for debt, using debt is usually significantly cheaper than equity financing Financial experts often utilize three standard ratios for debt analysis since it is crucial to comprehend a company's debt condition The ratios are the debt ratio, debt to equity ratio, and times interest earned Debt Ratios Ratios Numerator Operation Denominator Debt Ratio Debt / Total Assets 15 Debt/Equity Debt / Common Equity Times Interest Earned EBIT / Interest Expense Debt Ratios Ratios 2022 2021 2020 2019 2018 Debt Ratio 34.04% 35.53% 12.52 31.92% 31.30% Debt/Equity 236.95% 197.68% 12.52 119.40% 103.51% 12.45 5.25 7.26 9.23 Times Interest 12.52 Earned 2.4.2 Debt Ratio The debt ratio compares a company’s debt, which may include short-term debt as well as long-term debt, with total assets As we all know, there are only two ways to finance a company, either debt or equity If a company has a high debt ratio, then the firm is highly leveraged In other words, the organization may face substantial financial risk because of its obligations to repay the principal and interest on the debt borrowed This situation often creates peril in the event of a revenue decline or overall economic slowdown The higher this percentage, the more a company uses debt for funding its operations as well as for growth In contrast, if a company has an incredibly low or no debt ratio, this means that the organization is operating using only equity for operations and growth This situation can more than piss off investors because of the missed opportunities to make money on borrowed money (using debt) The debt ratio tells investors how well a company manages its debt usage Formula: Debt Ratio = (Short-Term Debt + Long-Term Debt) / Total Assets Debt Ratio 2022 2021 2020 2019 2018 Debt 120,069 124,719 112,436 108,047 114,483 Total Assets 351,002 351,002 323,888 338,516 365,725 Debt Ratio 34.04% 35.53% 34.71% 31.92% 31.30% Apple’s debt ratio ended 2018 at 31.30% Over the next four years, the organization’s debt ratio would continually climb, ending 2021 at 35.5% The continued increase of the company’s debt ratio coupled with the organization’s continued reduction in equity shows that the firm is shifting its capital structure to include more debt and less equity—a risky strategy However, in 2022, it shows that Apple’s debt ratio 16 slightly decreased which means that Apple managed to reduce their uses of debt for funding its operations 2.4.3 Debt to Equity Ratio The debt-to-equity ratio indicates how much debt is used as compared to equity This is just another way of looking at the use of debt for a company This ratio shows investors a good comparison between debt and equity Formula: Debt to Equity Ratio = (Short-Term Debt + Long Term Debt) / Total Equity Debt to Equity ratio 2022 2021 2020 2019 2018 Debt 120,069 124,719 112,436 108,047 114,483 /Total Equity 50,672 63,090 65,339 90,488 110,601 Debt to Equity ratio 236.95% 197.68% 172.08% 119.40% 103.51% The organization’s debt to equity ratio ended 2018 at 103.51% In the next several years, the company’s debt to equity ratio ballooned to 236.95% Again, this ratio adds support to the hypothesis that the firm is continually relying on debt for expansion andin operations as compared to equity 2.4.4 Times Interest Earned The times' interest earned ratio is important for banks and other lenders This is because the ratio compares operating income with interest expenses The higher this ratio, the more likely a company is to be able to afford its interest payments If this ratio continually trends higher, then an organization is continuously increasing the risk In contrast, if this trend declines, then this indicates that an organization is paying off its debt Times Interest Earned 2022 2021 2020 2019 2018 EBIT 119,437 108,949 66,288 63,930 59,995 / Interest Expense 9,543 8,750 12,629 8,805 6,500 Times Interest Earned 12.52 12.45 5.25 7.26 9.23 Time interest earned by Apple was 9.23 at the end of 2018 The organization's interest earned ratio would steadily decline over the following three years, primarily as a result of their interest expense soaring from 17 $3.5 billion to more than $12.6 billion In 2021, the firm did take measures to lower their times' interest earned ratio, which led to a ratio of 12.45 The increase in times interest earned for 2021 was due to the organization’s EBIT increase as well as a modest reduction in interest expense payments for the year 2.4.5 Reasons why Apple has so much debt The reason why they’re borrowing so much money is to deploy in areas that produce greater returns For Apple specifically, this seems to be in areas starting with stock buybacks Stock buybacks are essentially when a company goes into the stock market and buys their own shares This not only increases demand for Apple stock but also reduces the supply of Apple stock When a company buys back their own shares, these shares become what is known as treasury stock At this point, companies have the right to sell these shares back on the market if they want to, but more times than not, companies decide to retire these shares which basically means to remove them from the supply permanently Over the past several years, Apple has been buying back record amounts of shares Almost every quarter, they’ve been buying back $15 to $25 billion worth of Apple stock which has reduced the supply of Apple stock substantially Within the last 10 years, the number of outstanding Apple shares has fallen from 26 billion shares to 16 billion shares 18 This is one of the main reasons that Apple has been able to continue growing its market cap parabolically despite already being so large In the end, while Apple is more leveraged than ever before, it’s not exactly a bad thing because it’s extremely strategic It’s not like Apple is taking on credit card debt at a 20% interest rate to buy something Rather, Apple is taking on debt at historically low interest rates to better navigate high inflation while also pumping up its stock price both technically and fundamentally This is a brilliant way to protect the long-term future of the company and its shareholders 19