1

Apple Inc. 2019 FAQ/Shareholder Analysis

Student’s Name

University; Department

Course Code: Name of Course

The Professor’s Name

Date of Submission
 2

Apple Inc. 2019 FAQ/Shareholder Analysis

The analysis reviews Apple Incorporated's 2019 annual performance from economic,

market-specific, and performance comparison perspectives. These perspectives provide valuable

insights into why certain factors have influenced Apple's successes for the period under review·

Economic Conditions

Several economic conditions affected Apple Inc. in 2019, with major ones including:

Political Factors: The US-China trade war significantly impacted Apple's performance·

Apple relies heavily on China as its manufacturing hub and a significant market. Tariffs

and trade restrictions imposed uncertainty and potential cost pressures, prompting Apple

to reevaluate its supply chain and pricing strategies to mitigate risks. Dudovskly (2023)

explain that Apple has been increasingly spending funds on political lobbying over the

last two decades. For instance, in 2019, the company spent more than$7 million on

political lobbying. The subjects of the lobbying include tax policies and labor laws that

directly affects its operations.

Environmental Factors: Increasing regulatory pressures around environmental

sustainability forced Apple to focus on reducing its carbon footprint. In 2019, Apple

expanded its recycling programs and energy efficiency efforts across its supply chain·

While these initiatives helped meet regulatory and consumer expectations, they also

resulted in additional costs and resource allocation (Lu, 2024).

Currency: The U.S. dollar’s strength in 2019 impacted Apple’s international revenue.

The strong dollar reduced the value of earnings from foreign markets, contributing to

overall revenue declines. Apple accumulates more than 57% of its revenue from markets
 3

beyond the US. This implies that the strengthening of the US dollar would have a

negative implication on the revenue generation. In 2014, the company introduced a

currency hedging program to enable it to control the negative impact of a stronger USD

by hedging portions of Apple’s anticipated foreign currency exposure related to revenue

and inventory purchases. In 2019, the USD grew stronger than other foreign currencies.

As a result, the company adjusted its prices, however, this led to a decline in sales. For

instance, For instance, in Turkey, the local currency fell by33% against the USD, which

led to a decline in sales by $700 million. Consequently, that sent a warning to investors.

Global Economic Factor: economic slowdowns, particularly in Europe and China,

created headwinds that negatively, which were caused by the disappointing trading

results from Apple and a significant drop in U.S. factory orders, sparking concerns about

a potential global economic slowdown in 2019. Apple’s stock value plummeted by over

9% on Wall Street after the company issued its first revenue warning to investors since

2002, citing weaker growth. The slowdown by China was a major cause of the

performance.

Government Influence: 2019 was painful due to increased regulatory scrutiny,

especially outside of Europe, around data privacy, taxation, and antitrust issues· Antitrust

investigations against Apple brought on the threat of digital taxes, which could quite

clearly hurt profitability and how Apple conducted business.

Market Conditions

Interest Rates and Monetary Policy:

Interest rate policy has been a major concern for Apple. The US labor market remained

robust and economic activity grew at a solid pace as the “Federal Open Market

Committee (FOMC)” gradually raised the target range for the federal funds rate during

the latter half of 2019 As there were growing concerns about global economic growth,

trade disputes, and market volatility, the Committee signaled that it would closely

monitor global economic and financial trends and assess their impact on the economic

outlook. The FOMC reiterated that it expected continued expansion in economic activity,

a strong labor market, and inflation near its 2% target. The Committee emphasized that it

would take a patient approach in deciding any future adjustments to the federal funds rate

to ensure these outcomes are supported owing to the global economic developments and

subdued inflationary pressures.

In 2019, the Federal Reserve reduced interest rates by a quarter percentage point

three times, which Chairman Powell referred to as a "mid-cycle adjustment." Essentially,

this meant the Fed was lowering rates during the middle of the typical economic cycle

between growth and recession. At the time, the U.S. and China were engaged in a trade

conflict, known as the "trade war," and the Fed was concerned about its potential impact

on the economy, particularly with rising unemployment. The three small rate cuts in the

latter half of 2019 helped to support the economy. Inflation was also below the Fed's

target of 2%, as indicated by the core personal consumption expenditures (PCE) price

index, the Fed’s preferred measure of inflation in the U.S. Core PCE rose by 1.7% in

June 2019 compared to the previous year. August 1, 2019, the rates increased from 2% to

2.25%. On Sept. 19th, the rates increased 1.75% to 2.0%. On Oct. 31, 2019, the rates

increased from 1.5% to 1.75%. Consequently, there was an increase in the cost of
 5

borrowing from 2018 to 2019, for instance, as at Sept. 28, 2018, the “cash paid for debt”

was $2120 million, however, this increase to $2583 million by Sept 28, 2019. That

implies that the federal rate policy increased the cost of borrowing for the company.

During 2019, the Federal Reserve reduced interest rates due to economic

ambiguity· This action reduced borrowing costs, benefiting Apple by lowering the cost of

capital· With cheaper financing, Apple could invest in innovations and expand its

operations to contribute to overall growth. Namely, low lending rates facilitated Apple's

funding of new product lines like the iPhone 11 series and added services such as Apple

TV+ and Apple Arcade. Fluctuations in interest rates have a direct impact on the

performance of the Stock prices of a company..

Other market conditions also affected the company. For instance, relatively stable

labor costs and inflation in 2019 created a suitable environment for Apple to expand its

workforce further without significant increases in wage pressures. Apple has established

its manufacturing operations in China due to the overall cost-effectiveness of resources.

One of the compelling factors is the the availability of cheaper labor. However, labor

costs are steadily increasing in developing countries, particularly in China. Another

significant factors is inflation. Apple is also impacted by rising inflation rates in the U.S.

due to its substantial cash reserves. The company has been affected in the case where the

hedge fund billionaire David Einhorn who is an investor in the company sued the

company to force it to allocate USD 137 billion in dividends to help mitigate the negative

effects of inflation. Apple was also affected by regulatory challenges. Many legal scorns

raided the Apple Company, especially in antitrust disputes and patent violations. The

company had to overcome these challenges while launching new products and services
 6

that drove revenue growth. For instance, the launch was very successful and offset the

presumptions of negativity from regulatory scrutiny. In 2019, the US “Department of

Justice” declared investigations on Apple’s anti-competitive behavior based on its

product “App Store.” The case had a negative consequence on the company’s stock

prices, which adversely fell in May,2019 (Sheetz, 2019).

Performance Comparison

PE Ratio: PE ratio is derived from dividing the share price with the earnings per share. A

high PE implies that the stock price might be overvalued. On 30th September, 2018,

Apple’s PE ratio was 18.12. On 30th September, 2019, as its PE ratio was 18.29

(Macrotrends, 2024). An increased PE ratio means that these investors could pay more

for the dollar of earnings that Apple generated.

PB RATIO: The price-to-book ratio, or PB ratio, which compares Apple's market value

to its book value, ended at 9.55 as at 30th September, 2018 and increased to 10.64 as at

30th September, 2019 (Macrotrends,2024).· Such a rise indicates a greater market

valuation of Apple's assets and signifies strong investor sentiment about the company's

potential to maintain growth. This also implies that the stock was leaning towards

overvaluation.

ROA-Return on Assets: By 30th September, 2018, the ROA was 15.99%. As at 30th

September, 2019, the ROA was 16.06% (Macrotrends, 2024). This rise proves that Apple

was more efficient in drawing profits from assets in 2019 compared to the preceding

year; hence, it increased its investment in new projects amidst the world's economic

slowdown.
 7

ROE stands for Return on Equity: This is the ratio that the return that the company

accumulated on its assets. It is derived from dividing the net income of the company with

its shareholders’ equity. Apple's ROE increased from 48.68% as per the 30th of

September, 2018 to 53.82% as per the 30th of September, 2019 (Macrotrends, 2024). This

means that the company was more effective in converting its equity into profits. This is

likely to increase stock prices as investors would have positive expectations.

Conclusion

In 2019, Apple faced the challenges of the US-China trade war, fluctuations in currency

valuation, and other regulatory issues. However, for each force of nature, Apple had strategic

responses like adjustments in supply chains and capitalization of favorable interest rates that

helped them remain tall. Global economic headwinds reduced the efficiency of assets by a few

per cent, but investor confidence remained high, reflected in the increasing PE and PB ratios·

The period-to-period regulatory scrutiny that Apple continues to face notwithstanding, the

company reported strong year-over-year growth, a function of its resilience despite the

challenging environment.
 8

References

Lu, Y. (2024). Financial statement analysis and revenue forecast for Apple Inc. In SHS Web of

Conferences (Vol. 181, p. 02020). EDP Sciences.

Macrotrends. (2024). “AAPL.” https://www.macrotrends.net/stocks/charts/AAPL/apple/roa

Sheetz, M. (8 June,2019). Adding up the big threats to Apple. CNBC.

https://www.cnbc.com/2019/06/05/the-possible-cost-to-apples-stock-from-tariffs-

antitrust-regulation.html

Dudovskly, J. (7 July, 2023). Apple PESTEL Analysis. Business Research Methodology.

https://research-methodology.net/apple-pestel-analysis-4/