End of Module Project

Explain the key sources of finance for your company. For example what is the mix of share
capital and long term loans, does this company appear to be risky from a gearing point of
view? (350-500 words)

Identify the key elements of working capital and discuss any particular strengths or
weaknesses which you feel the company has in this area. (350-500 words)

Discuss the company's exposure to risks generally and exchange rate risk in particular due
to their involvement in international markets. How does the company manage these risks,
and how successful do you think the company is in this? (400-500 words)

Evaluate the success of corporate restructuring activities undertaken by your chosen

company in the last five years or so. For example, has it acquired new subsidiary
companies, entered into joint ventures or undertaken divestment, and how successful has
this been? (400-500 words)

Abdulmohsen Usama A Almandil

14 November
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Table of Contents
The key sources of finance for Apple..............................................................................................2
Does this company appear to be risky from a gearing point of view?........................................3
Analysis of Apple's Working Capital..............................................................................................3
Apple's working capital elements................................................................................................4
The Working Capital's Strengths.................................................................................................5
Working capital Weaknesses.......................................................................................................6
The company's exposure to risks.....................................................................................................6
Risks of Exchange Rate...............................................................................................................7
Apple Manages These Risks and Its Success..............................................................................7
References........................................................................................................................................8
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Introduction

The company selected for this end-module project is Apple, which is used in full module

discussions. The end-module project shows the main sources of finance alongwith the gearing

ratio performance in the firm. Then the assignment shows elements of working capital and their

working capital value effects on strengths and weaknesses of the company. After discussing

these measures of latest finical report, the assignment goes towards risks that Apple is facing due

to internationalization, in particular exchange rate risks. Afterwards, the company’s strategies for

solving these risks are discussed below. In the last of end-module project, success of corporate

restructuring activities undertaken Apple in the last five years is evaluated.

The key sources of finance for Apple

Apple is the largest company in the world with a $2.65 trillion market valuation and

continues to produce exceptional growth in revenue, earnings, and free money flow per share.

Apple has the best debt utilization in its sector because its return on invested capital exceeds its

weighted average cost of capital by a wide margin. Leveraged debt and increasing equity have

been used successfully by Apple in its capital structure. Apple employed the dept technique to

lower taxes since the company didn't want to relinquish its cash hoard at the time's 35% tax rate.

Since Apple's market value is approximately eight times more than its long-term debt, most of its

funding comes from its shares (Haslam, Tsitsianis, Andersson & Yin, 2013). Below are Apple's

financial statistics.
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Figure 1: Figures for the fiscal quarter that ends on September 29, 2022

The gearing ratio can be determined by looking at the aforementioned financial report.

The most common method for calculating a corporation's gearing ratio is to show the proportion

of debt to the total of long-term funding, which is the sum of the debt of the company and equity

of its stockholders divided by the debt of the company (i.e., debt/(debt+equity) (Al Mheiri, Al

Hosani, Saif & Nobanee, 2021). The financial information above indicates that Apple's gearing

ratio for the previous fiscal quarter, which ended on September 29, 2022, was 0.74 (Muradoglu,

Bakke & Kvernes, 2005).

Debt / (debt + equity) = Non-current liabilities / (non-current liabilities + Stakeholders’ Equity)

= 148,101,000 (148,101,000 + 50,672,000)

= 0.74
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Does this company appear to be risky from a gearing point of view?

For checking Apple’s effectiveness from the gearing point of view, its competitor

Samsung is the best option. Interestingly, Samsung's gearing ratio (2.834) is significantly greater

than Apple's due to the company's overall debt foundation. Apple's product demand is stronger

than supply, unlike Samsung, whose supply dominates demand. It follows that Apple has less

debt than Samsung in terms of capital invested. Apple may thus be seen as a better company to

invest in. For Apple, brand equity is a crucial source of finance. It is best known for its high-end

products and cutting-edge technologies (Montgomerie & Roscoe, 2013). However, Apple must

catch up regarding third-party sourcing and product promotion in a cutthroat market (Zhang,

2022).

Analysis of Apple's Working Capital

Working capital at Apple is an indicator of its productivity and operational stability.

Typically, current liabilities are subtracted from current assets to determine the working capital.

It is a crucial sign of the company's capacity to carry on with business as usual in the absence of

new financing (Lind, Pirttilä, Viskari, Schupp & Kärri, 2012).

Apple's working capital elements

Elements of working capital are current assets and current liabilities. Money, cash

equivalents, short-term investments, accounts receivable, stock inventories, and the share of

prepaid obligations that would be paid within a year are all examples of Apple's current assets.
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Figure 2: Current Assets for 2010-2022

The accounts payable, salaries, taxes due, and the current part of long-term debt due

within a year are all included in Apple's current liabilities (Leeson & Boopathi, 2016).

Calculations of working capital

Working Capital = Current Assets - Current Liabilities

Figure 3: Financial figures from 2019-2022

Working capital for the year 2022 from the above figure;

Working capital = 135,405,000 – 153,982,000

Working Capital = -18,577,000

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For year 2021, working Capital is 9,355,000; for 2020 it is 38,321,000 and for 2019

working capital is 57,101,000

The Working Capital's Strengths

Financial analysts claim that Apple's working capital in 2021 is substantially more stable

compared to the prior year. The COVID-19 pandemic's economic effects explain this peak in

2020. Meanwhile, as nations adjust to the obstacles presented by the epidemic, global financial

markets and consumer spending are beginning to thaw up again in 2021. Additionally, a rise in

revenue might be anticipated when Apple unveils its newest flagship models in the fourth quarter

of 2021. Apple Inc.'s 2021 Working Capital stabilized and strengthened its activities and sales

(Hofmann & Kotzab, 2010).

Working capital Weaknesses

Apple Inc. has strengths, but it also has drawbacks, just like many businesses in its sector.

As Apple has negative working capital, it indicates that not all of the company's current liabilities

can be covered by its current assets. Short-term debt exceeds short-term resources for the firm.

Negative working capital shows insufficient liquidity, poor short-term viability, and difficulties

meeting debt commitments when they come due (Thuvarakan, 2013).

The company's exposure to risks

Apple Corporation has been dealing with several following risks in its international

operations, with its well-known reputation worldwide where it sells its computer goods to clients

(Cardoso, 2017).

 Regionally: Supply and production for Apple Inc. goods are handled by contracted

companies in the United States, Europe, and Asia. Typically, Asia is where Apple Inc.'s
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hardware goods are finally assembled. The logistics of Apple Inc.'s goods are susceptible

to delays from various factors, including unforeseen natural calamities, artificial crises,

system breakdowns, and economic or political concerns.

 Company-Specific: Another risk is that Apple outsources the majority of the logistics and

shipping for its goods, so it cannot completely manage any potential dangers. Although

Apple depends on other partners for quantity and quality, Apple Inc. is ultimately held

liable if something bad happens with the goods over time, which is still an additional

danger that Apple confronts and cannot control.

 Nationally: The ongoing worldwide crisis has significantly influenced corporate retail

performance; Apple Inc. Inc. is no exception. Global economic repercussions make it

difficult for suppliers to get the required components, which could expose the business to

the risks of a supply shortage and pricing volatility.

Risks of Exchange Rate

The danger that changes in the exchange rates among currencies will impact a firm's

operations and earnings is known as exchange rate risk. The currency exchange rate exposes

Apple to three different categories of risk: transaction risk, translation risk, and economic or

operational risk (Tien, 2019).

Apple Manages These Risks and Its Success.

Apple is a global technology leader regarding successful international business operations, in

terms of product innovation and handling the inherent foreign exchange risk exposures in their

global operations. To lessen the consequences of currency exchange risks, Apple combines

operational and currency-based tactics (Picardo, 2017), such as:

 Diversifying good marketplace and manufacturing facilities:

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 Diversifying financing: A firm can raise cash in the industry with the lowest cost of funds

by accessing capital markets in multiple significant countries.

 Currency risk-sharing agreements: These contracts stipulate how equally the two parties

to a sales or buy agreement will bear the risk of fluctuating currency rates.

 Back-to-back loans: Also referred to as a credit swap, this deal involves two businesses

from separate nations agreeing to lend each other money for a set time before returning

the borrowed funds.

 Currency swaps are a well-liked tactic that resembles back-to-back loans but does not

appear on the balance sheet. In a currency swap, two businesses borrow in the

marketplaces and with the currencies where they can both get the greatest rates and

subsequently exchange the money they get.

Conclusion

Whether in the technology industry or outside, Apple has an unrivalled valuable brand

name. Apple's services division is favourably impacting the company's profits, and this trend will

last for many years. Its gearing ratio and working capital show that Apple still appears to be a

great long-term investment for investors.

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References

Klinger, G. D., Adams, J., & Howley, K. (2022). Money Talks: Alan Greenspan's Free Market

Rhetoric and the Tragic Legacy of Reaganomics. Springer Nature.

Muradoglu, G., Bakke, M., & Kvernes, G. L. (2005). An investment strategy based on gearing

ratio. Applied Economics Letters, 12(13), 801-804.

https://doi.org/10.1080/13504850500365780
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Al Mheiri, R., Al Hosani, N., Saif, E., & Nobanee, H. (2021). Ratio analysis of Apple. Available

at SSRN 3895231. http://dx.doi.org/10.2139/ssrn.3895231

Zhang, X. (2022, July). Analysis of Business Model and Financial Operation: Evidence from

Apple. In 2022 2nd International Conference on Enterprise Management and Economic

Development (ICEMED 2022) (pp. 455-459). Atlantis Press.

https://doi.org/10.2991/aebmr.k.220603.074

Haslam, C., Tsitsianis, N., Andersson, T., & Yin, Y. P. (2013, December). Apple's financial

success: The precariousness of power exercised in global value chains. In Accounting

Forum (Vol. 37, No. 4, pp. 268-279). No longer published by Elsevier.

https://doi.org/10.1016/j.accfor.2013.05.001

Montgomerie, J., & Roscoe, S. (2013, December). Owning the consumer—Getting to the core of

the Apple business model. In Accounting Forum (Vol. 37, No. 4, pp. 290-299). No longer

published by Elsevier. https://doi.org/10.1016/j.accfor.2013.06.003

Leeson, J., & Boopathi, C. (2016). Concept of working capital management. International

Journal of Commerce, Business and Management, 5(2), 372-377.

https://www.researchgate.net/publication/313477460_CONCEPT_OF_WORKING_CAP

ITAL_MANAGEMENT

Lind, L., Pirttilä, M., Viskari, S., Schupp, F., & Kärri, T. (2012). Working capital management in

the automotive industry: Financial value chain analysis. Journal of purchasing and supply

management, 18(2), 92-100. https://doi.org/10.1016/j.pursup.2012.04.003

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Hofmann, E., & Kotzab, H. (2010). A supply chain‐oriented approach of working capital

management. Journal of business Logistics, 31(2), 305-330.

https://doi.org/10.1002/j.2158-1592.2010.tb00154.x

Thuvarakan, S. (2013). Impact of working capital management on profitability in UK

manufacturing industry. Available at SSRN 2345804. Thuvarakan, Senthilmani, Impact

of Working Capital Management on Profitability in UK Manufacturing Industry

(September 27, 2013). http://dx.doi.org/10.2139/ssrn.2345804

Cardoso, E. A. R. P. (2017). Examining the differences of the internationalization strategies of

two of the major brands in the smartphone industry-Apple inc. versus Samsung

electronics (Doctoral dissertation). http://hdl.handle.net/10071/13973

Tien, N. H. (2019). International distribution policy comparative analysis between samsung and

apple. International journal of research in marketing management and sales, 2020(1), 2.

https://www.researchgate.net/publication/338719419_International_distribution_policy_c

omparative_analysis_between_samsung_and_apple

Picardo, E. (2017). Exchange Rate Risk: Economic Exposure. Journal of Finance and

Economics, 6(1), 253-261.

https://www.investopedia.com/articles/forex/021114/exchange-rate-risk-economic-

exposure.asp