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    Apple

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    Veni Gupta
    1) Apple's financial performance has been extraordinary with 30% annual revenue growth, gross margins increasing from 23% to 48%, operating margins from 0% to 35%, and net margins from 0% to 26%. 2) Despite this, Apple's balance sheet shows it behaving more like a technology company and bank, holding large cash reserves of over $100 billion while maintaining little to no debt. 3) The document evaluates various options for how Apple could distribute some of this cash to shareholders, including dividends, share repurchases, or issuing preferred stock, while maintaining its financial strength.

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    Apple

    Uploaded by

    Veni Gupta
    118 views12 pages
    1) Apple's financial performance has been extraordinary with 30% annual revenue growth, gross margins increasing from 23% to 48%, operating margins from 0% to 35%, and net margins from 0% to 26%. 2) Despite this, Apple's balance sheet shows it behaving more like a technology company and bank, holding large cash reserves of over $100 billion while maintaining little to no debt. 3) The document evaluates various options for how Apple could distribute some of this cash to shareholders, including dividends, share repurchases, or issuing preferred stock, while maintaining its financial strength.

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    1) Apple's financial performance has been extraordinary with 30% annual revenue growth, gross margins increasing from 23% to 48%, operating margins from 0% to 35%, and net margins from 0% to 26%. 2) Despite this, Apple's balance sheet shows it behaving more like a technology company and bank, holding large cash reserves of over $100 billion while maintaining little to no debt. 3) The document evaluates various options for how Apple could distribute some of this cash to shareholders, including dividends, share repurchases, or issuing preferred stock, while maintaining its financial strength.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    118 views12 pages

    Apple

    Uploaded by

    Veni Gupta
    1) Apple's financial performance has been extraordinary with 30% annual revenue growth, gross margins increasing from 23% to 48%, operating margins from 0% to 35%, and net margins from 0% to 26%. 2) Despite this, Apple's balance sheet shows it behaving more like a technology company and bank, holding large cash reserves of over $100 billion while maintaining little to no debt. 3) The document evaluates various options for how Apple could distribute some of this cash to shareholders, including dividends, share repurchases, or issuing preferred stock, while maintaining its financial strength.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    What is appropriate financial policy for this

    industry?
    Short product life cycles,
    R&D-intensive,
    K-intensive,
    Brand-intensive,
    heavy innovation => very risky
    => Low/zero debt => High cash balances
    => No dividends, no share repurchases
    => Low inventory Apple is doing everything you would recommend for
    this industry – why is everyone getting so angry?
    How is there financial performance?
    • 30% CAGR revenue growth …beginning on an $8 billion base!
    • Gross Margins from 23% to 48%!!
    • Operating Margins from 0% to 35%!!!
    • Net Margins from 0% to 26%!!!!
    • Cash Flow >> Net Income!!!!! Why?
    • Look at their cash conversion cycle…
    • Wow…no equity or debt issuance to finance growth…
    There performance may be even better than
    you think…
    • ROE Dupont Breakdown
    2006 2012
    • ROE 20% 36%
    • Net Margin 10% 27%
    • Asset Turnover 1.1 0.9
    • Leverage 1.7 1.5
    •
    • Why are Asset Turnover and Leverage declining? ROE could have been
    as high as 50%+
    Revisiting their B/S– what is their true asset
    intensity?
    • Book Value based balance sheet
    Assets L&NW
    ……………… ……………..
    Cash 121 OL 58
    OA 55 NW 118
    …………. ………………
    Total: 176 Total: 176
    Revisiting their B/S- let’s look at MVs
    • Book Value based balance sheet
    Assets L&NW
    ……………… ……………..
    Cash 121
    EV 438 MV 559
    …………. ………………
    Total: 559 Total: 559
    Apple financials Behaves like a Tech
    company and a bank
    A Tech company
    Assets L&NW
    ……………… ……………..
    Asset 438 Equity 438

    A Bank
    Assets L&NW
    ……………… ……………..
    Cash 121 Equity 121
    How much excess cash (end of 2012)?
    Cash 121
    -Taxes 29 (121*69% Ireland*35% tax)
    -Buffer 20 (Two years of Operating Expenses)
    ……….. ………..
    Excess 72

    But, what is more astounding is that a simple forecast shows that cash
    builds up again v. quickly in a base case – back to $140 billion in three
    years!
    Dividend Analysis
    Before Repatriation
    Required Cash 20,550 Debt 68,742
    Excess Cash 1,16,562 Equity 1,27,346
    Other Assets 58,976    
    Total 1,96,088 Total 1,96,088

    Repatriation Tax 33,113

    After Repatriation Post Dividend


    Required Cash 20,550 Debt 68,472 Required Cash 20,550 Debt 68,472
    Excess Cash 83,449 Equity 94,233 Excess Cash 0 Equity 10,784
    Other Assets 58,976     Other Assets 58,976    
    Total 1,62,975 Total 1,62,705 Total 79,526 Total 79,256

    Cash available for dividend 83,449


    Shares Outstanding 939.1
    Max Dividend/Share $88.86
    Net Income 41,747

    Pre Shares Outstanding 939.1   Post Shares Outstanding 939.1


    Pre EPS $44.45 Post EPS $44.45
    Pre Price $450.50 Post Price $361.64
    Pre P/E 10.13   Post P/E 8.14
    Share Repurchase Analysis
    Before Repatriation
    Required Cash 20,550 Debt 68,742
    Excess Cash 1,16,562 Equity 1,27,346
    Other Assets 58,976    
    Total 1,96,088 Total 1,96,088

    Repatriation Tax 33,113

    After Repatriation After Share Repurchase


    Required Cash 20,550 Debt 68,472 Required Cash 20,550 Debt 68,472
    Excess Cash 83,449 Equity 94,233 Excess Cash 0 Equity 10,784
    Other Assets 58,976     Other Assets 58,976    
    Total 1,62,975 Total 1,62,705 Total 79,526 Total 79,256

    Cash available for repurchase 83,449


    Share Price 450.50
    Max Shares Repurchased 185.2
    Total Shares 939.1
    Pro Forma Shares 753.9
    Percent Repurchased 19.7%
    Net Income 41,747

    Post Shares
    Pre Shares Outstanding 939.1   Outstanding 753.9
    Pre EPS $44.45 Post EPS $55.38
    Pre Price $450.50 Post Price $450.50
    Pre P/E 10.13   Post P/E 8.14
    Ipref Analysis
    Before Repatriation
    Required Cash 20,550 Debt 68,742
    Excess Cash 1,16,562 Equity 1,27,346
    Other Assets 58,976    
    Total 1,96,088 Total 1,96,088

    Repatriation Tax 33,113 Current Value $450 (stock price)

    After Repatriation $250 (face value of 5 iPrefs)


    Required Cash 20,550 Debt 68,472 Total Value with iPref $350 (new stock price)
    Excess Cash 83,449 Equity 94,233 $600
    Other Assets 58,976    
    Total 1,62,975 Total 1,62,705 Value Unlocked $150 per share

    Face Value of iPref $50


    Annual Dividend $2
    Total Shares 939.1 mil 0.94 billion
    Amount Spent on 5 iPrefs per shareholder 9391 mil 9.4 billion
    Net Income 41,747 42 billion

    $ billion $ per share


    Apple Net Income $42 $45
    Less: iPref Dividends $9.4 $10
    Pro forma net income $33 $35
    Constant P/E multiple 10.0
    New Apple Price per Share $350

    Current Price per Share $450


    Change in Price per Share ($100)
    Ipref Analysis Contd.
    Face Value of iPref 50
    Annual Dividend 2
    Total Shares 939.1 mil 0.94 billion

    Amount Spent on 5 iPrefs per shareholder 9391 mil 9.4 billion


    Net Income 41747 42 billion

    billion per share


    Total Shares 0.94
    Apple Net Income 42 45
    Less: iPref Dividends 9.4 10
    Pro forma net income 33 35
    Constant P/E multiple 10
    New Apple Price per Share 350

    Current Price per Share 450


    Change in Price per Share -100

    Current Value of One Share 450

    Total Value with iPref 250 (face value of 5 iPrefs)


    350 (new stock price)
    600

    Value Unlocked 150 per share

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