SWOT Analysis Strengths ● Apple was listed as the most valuable brand in 2013 with a brand value of $104.3 billion ● Strong market position and consumer trustworthiness ● A full variety of software, products, and apps that are all interlinked and maintain each other ● Reputation of highly innovative, well-functioning, well-designed business products and sound performance ● Held approximately $137 billion in cash during 2013 with no debt Weaknesses ● High levels of cash were concerning to shareholders because it was not being returned to them ● Most of their cash was held overseas and could face a repatriation tax up to 35% ● High prices of products deter consumers to seek similar products by competitors at lower prices ● Decreasing market share due to Android-powered devices Opportunities ● High demand for new products such as the iPad Mini and iPhone 5 ● The growth of mobile advertising ● Increasing demand for cloud-based services ● Growth of tablet and smartphone market provides an opportunity to expand market share Threats ● Rapid technological changes forcing them to keep up with the competition and with what consumers are wanting ● Samsung, their biggest competitor, is their current provider for application processors ● 2013 tax increase will have a negative effect on Apple ● Demand for Android operating systems over Apple’s ● Competitors such as Wal-Mart and Amazon moving into the online music market Detailed Analysis Excess Cash Forecast Using the accompanying spreadsheet, a forecast was completed to estimate the effect of paying all excess cash for 2012 as dividends to shareholders. From the information available, it was determined that the amount listed as interest expense is actually interest income for which adjustments were made. To estimate interest income for future years, a rate of 0.9% was applied to total cash since detail on investments was not available. This rate was calculated by
dividing the interest income ($1088) by the total cash on hand ($121,251) before the payout. Required cash in the forecast is defined as current liabilities plus a three-month cushion of operating cash. Three to six months is a general rule of thumb; however, three months was selected since Apple is a profitable, growing company and did not have a recent history of insolvency. Using all excess cash to pay a large special dividend would require Apple to bring cash holdings from overseas resulting in repatriation taxes. The tax rate is adjusted to 35% for 2012, the payout year. If Apple paid all excess cash ($ 57,932 million) in 2012, the excess cash amount would rebound in two years to over $ 86 million and by 2017 almost triple the excess cash. Several ratios were calculated on the forecast and are detailed below. Return on Equity From the actual 2012 Return on Equity to the 2012 forecast of paying out all excess cash, there is an increase in ROE from 35.3% to 60.2%. The higher ROE indicates how well a company’s management is deploying the shareholder’s capital. After the payout in 2012, the ROE decreases each year until finally reaching 20.1% in 2017. It is important to note however, that share buybacks can artificially boost ROE. Therefore, a falling ROE is a problem.
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- Fall '16
- Finance, Dividend, excess cash