role of financial management:
- interdependence with other key business functions
interdependence with other functions- Operations: need to design and develop iPhone models based on allocated funds
- Marketing: depends on finance for secondary market research data (sales trends over demographics etc.)
- Human resources: needs budget to address union/employee demands
- Finance: depends on Marketing to increase sales for revenue
- objectives of financial management
- profitability,
- growth,
- efficiency,
- liquidity,
- solvency
objectives of financial management
influences on financial management
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internal sources of finance – retained profits
internal sources of finance- Value of Apple’s retained profits has significantly declined in recent years:
- from (==66% in 2018) to (9% in 2021==)
- Apple has (recently) implemented a share repurchase scheme
- → to increase earnings per share
- → +40% in 2018 to. reach (COMPANY EVALUATION OF) US$2.2 trillion in 2022
- → to increase earnings per share
- Value of Apple’s retained profits has significantly declined in recent years:
-
external sources of finance
external sources of finance- Apple has become highly geared (low solvency)
- increased debt to equity ratio:
- from ==270% in 2019==
- to ==596% in 2022==
- Apple’s strategy (see Apple’s highly geared strategy):
-
increased debt financing to take advantage of historically low interest rates globally
-
- increased debt to equity ratio:
- Apple has become highly geared (low solvency)
-
influence of government – company taxation
influence of government- subject to US corporate tax
- previously (==35% of profits==) → holding funds overseas to avoid
- ==after 2017 : reduced (21% of profits==) → Apple moves funds back to US
- → pays ==$38 billion== in reprieve
- Ireland exception:
- (in 2014) EU found Apple paying Ireland <1% tax rate
- → instructed to repay 13 billion (euros)
- → appealed and ongoing legal battle
- → instructed to repay 13 billion (euros)
- (in 2014) EU found Apple paying Ireland <1% tax rate
- subject to US corporate tax
-
global market influences – economic outlook, interest rates
global market influences- recent economic growth (China & India):
- → +++ demand for iPhones
- low economic outlook:
- Covid:
- → + unemployment → less consumption
- → China lockdowns → supply chain bottlenecks
- Covid:
- Rising inflation:
- → rising interest rates in 2022
-
-
threatens Apple’s highly geared strategy
-
- as mentioned prior: interest rate → Apple’s strategy of debt financing
-
- → rising interest rates in 2022
- recent economic growth (China & India):
-
TODO finish case study summary for processes (financial ratio trends, causes) 🔺 📅 2024-03-02
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TODO bullet point draft responses to all possible question variants ⏫ 📅 2024-03-02
processes of financial management
- planning and implementing – financial needs, budgets, record systems, financial risks, financial controls
- debt finance:
- Apple’s total liabilities increased by over ==520%== (past decade)
- ← (largely) due to ==increased long-term debts==
- see Apple’s highly geared strategy
- Apple’s total liabilities increased by over ==520%== (past decade)
- equity finance:
- Apple raises equity finance by selling shares on the NASDAQ
- considered less risky
- BUT → profits shared among a greater number of shareholders
- Apple raises equity finance by selling shares on the NASDAQ
- debt finance:
- monitoring and controlling – cash flow statement, income statement, balance sheet
monitoring and controlling - financial ratios
financial ratios- liquidity:
- steady decline in liquidity
- current ratio (current assets ÷ current liabilities)
- ==107% in 2021 to 88% in 2022==
- Due to ==23% increase== in current liabilities
- gearing:
- debt to equity ratio (total liabilities ÷ total equity)
- from (==270% in 2019) to (596% in 2022==)
- → highly geared = less solvent
- see Apple’s highly geared strategy
- from (==270% in 2019) to (596% in 2022==)
- debt to equity ratio (total liabilities ÷ total equity)
- profitability:
- gross profit ratio (gross profit ÷ sales)
- n/a
- net profit ratio (net profit ÷ sales)
- significant sales growth
- ← due to demand for electronics in COVID
- significant sales growth
- return on equity ratio (net profit ÷ total equity)
- return on owner’s equity has largely increased (recent years)
- (==87.9% in 2020) to (197% in 2022==)
- ← due to decreased retained profits (==dividends funded by debt finance==)
- ← also due to share buybacks (reduces owner’s equity)
- return on owner’s equity has largely increased (recent years)
- gross profit ratio (gross profit ÷ sales)
- efficiency: – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio (sales ÷ accounts receivable)
- expense ratio (total expenses ÷ sales)
- increased (==12% in 2021) to (13% in 2022==)
- shows minor decrease in Apple’s efficiency
- increased (==12% in 2021) to (13% in 2022==)
- accounts receivable turnover ratio (sales ÷ accounts receivable)
- relatively unchanged
- expense ratio (total expenses ÷ sales)
- comparative ratio analysis – over different time periods, against standards, with similar businesses
- liquidity:
Apple’s highly geared strategy:
- Selling bonds (increasing debt)
- → to repurchase shares ($90.2 billion in 2022) (decreasing owner’s equity)
- taking advantage of historically low interest rates to raise funds
- fewer shareholders → greater return per share
- happy shareholders → high bonuses for management
- BUT, this is threatened by rising interest rates in 2022 (caused by inflation)
numbers:
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what is Apple’s recent trend in liquidity?
? -
A Current Ratio of: 107% in 2021 → 88% in 2022
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Due to 23% increase in current liabilities
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What is apple’s recent trend in earnings per share, what caused it?
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Liquidity (current ratio)