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: DJIA Fundamental Analysis

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Assignment topic: DJIA Fundamental Analysis
Format: APA
Number of pages: 4 pages / 1100 words

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Apple Inc

History of Apple Incorporated

Apple is a multinational technology company that is based in America. Its headquarters are found in California, Cupertino. Apple Company develops, designs, and sells computer software, consumer electronics, and online services. It is highly recognized as one of the Big Technology companies with Amazon, Google, Microsoft, and Facebook. Apple Company started in 1970 when Steve Wozniak and Steve Jobs, who were two great friends, came up with a personal computer and named it Apple (O’Grady 2009).

Later on, they invented a dozen computers and registered the brand ‘Apple International Computer.’ This was on the 1st of April in 1976. It was the first personal computer. At first, the company focused on developing a system for the average user who doesn’t possess unique knowledge and skills. It was a revolution in the history of computers until the end of 1990 when the company started deteriorating. The company incurred huge losses, but in 1997, it resumed its operations.

The company released its first music player iPod in 2001, which quickly became famous. Apple computer launched its online store, the iTunes store, in 2003. The operation management of the Apple link involved the application of 10 OM decisions mute to make sure that all aspects of the business are running smoothly. In operations management, the ten decisions are related to best quality management, capacity designs, location strategy, and inventory management in either area of operation.

Dividend Discount Model

The dividend discount model is a quantitative framework to predict the price of the company’s stock founded on the theory of perception that its present-day price net is worth the sum of the future dividend payments when the discount is conducted to their present value. In other words, the Dividend Discount Model is a valuation model that looks to establish a fair share price for a stock; grounded on the dividends a company provides comparison is made to other companies with specific metrics guide to ensure the financial health of a company and stock riskiness.

In the instance of Apple Company, the Dividend Discount Model, as executed by the stock news, indicates a negative outcome of 88% relative to the original price.

Current Price  DDM Fair Value Target:        Forecasted Gain:

$165.29             $19.78                                   -88.38%

Residual Income Model

The residual income model is an equity valuation criteria founded on the ideology that the value of the stock of a company equals the future residual income discounted present value at the appropriate equity cost. Apple has grown its earnings at an annual rate of 67% during the last five years and is projected to grow its earnings at 20% over the next five years. The company’s current return on equity is 44% compared to the 49% average return on equity of the computer peripherals industry. However, the company’s ROE is significantly higher than the ROE from the previous few years(https://www.sec.gov/Archives/edgar/data/320193/000032019318000145/a10-k20189292018.htm).

Free Cash Flow Model

Knowing the company’s free cash flow allows the organization to choose upcoming projects to increase the stockholder’s worth. Furthermore, having a plentiful FCF shows that a business can remunerate its monthly dues. Companies can also use their FCF to expand business operations or pursue other short-term investments.

Apple’s latest twelve months free cash flow yield is 3.8%. Apple’s free cash flow yield for fiscal years ending September 2017 to 2021 averaged 5.1%. Apple’s operated at a median free cash flow yield of 5.5% from the fiscal years ending September 2017 to 2021.

Price Ratio Analysis

P/E ratio  comparable firms 2013 2014 2015 2016 2017
Apple Inc 12.14 15.57 12.43 13.65 16.88
Samsung Electronics Co., Ltd 6.93 8.67 9.98 11.41 8.69
Google Inc 28.39 26.78 33.57 28.21 24.41

Price to Earnings of comparable firms, Historical data source: Bloomberg

Figures are in millions of $

Furthermore, Apple Inc. has a current P/E ratio of 16.88, which is higher than Samsung, and this gives expectations for higher future earnings growth in the future. Nevertheless, Google has maintained a higher current P/E ratio than Apple.

Recommendation

  • Improve the average collection period for accounts receivable.
  • Improve efforts to collect debts, i.e., hire a debt collection agency.
  • Offer discounts to early payers
  • Reduce credit terms

Conclusion

In conclusion, financial analysis assists in determining the health of a company and its stability. It also gives an investor an idea of how a company operates.

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