Founded in 1977, Apple Inc. (AAPL, Financial) is a name which almost all of us are aware of. Involved in the production of mobile phones, music players, laptops, tablets, software and computer and mobile applications, Apple has in the recent past emerged as a favorite household brand. Lately, the company has come up with Apple Pay, with a view to facilitate mobile payments. The best thing about Apple is its ability to keep coming up with new innovative products. From IPhone to Apple Pay there is no match for the products offered for sale by the company.
Apple’s financial performance in the past four years, starting in 2010, has been spectacular. With the exception of the year 2013, net sales and net income of Apple Inc. have invariably increased. The highest increase in net sales and net income was recorded in 2011 when the former increased by 66% and the latter by 85%. From 2010 to 2014, Apple’s sales grew by 326% and net income by 380%. The trend is, without a doubt, upward and expected to persist. The growth rates will not be as high as they used to be in 2011 or 2012 as the company has converted almost all of its prospective customers to actual customers.
One of the most important factors that has caused Apple’s sales to increase at an unprecedented rate is its innovative products. Apple spends a lot on research and development. In the year 2014, the R&D budget of the company increased by 35%, from $4,475 million to $6,041 million. As the quality and features of Apple’s products are increasing, its development costs are increasing, too. After all, for a company operating in a highly competitive market and invariably changing technological environment, keeping aloof from spending on R&D seems to be a destructive idea.
Presently, Apple has cash reserves of over $140 billion. The cash balance of the company is gigantic, greater than the foreign exchange reserves of most of the under-developed countries. A huge cash reserve is on the one hand a blessing and on the other hand is a curse. Cash reserves increase a company’s liquidity and make it less dependent upon external sources of finance while keeping it from becoming a highly financially leveraged organization. The excess cash can be used for expanding the organization, pursuing new growth projects and paying dividends to the stockholders. Despite all the blessings that massive cash reserves bring with them, they have a huge opportunity cost. They can be invested in some profitable venture like expanding into new markets to increase stockholders’ wealth. Most of Apple’s cash reserves are outside the U.S. Bringing them back to the country will cause a substantial amount to be deducted in the form of tax. This high-expected tax return payment has barred Apple from bringing its cash reserves into the U.S.
Apple’s stock prices have, in the past year and a half, increased from $69.76 to $127.60. In all four quarters of 2014, it paid dividends to its stockholders. The company, in the first quarter of 2014, paid $0.43; in the second quarter $0.47. In the third quarter another $0.47 was paid and in the final quarter $0.47 in dividends to its stockholders.
The future prospects of Apple seems to be glowing. The company is expected to grow at an even greater rate than at which it had in the past. The company is profitable, efficient and smart. It knows how to avail itself of very opportunity that knocks at its door. However, as regards companies associated with the production of innovative products, to predict something with utmost certainty is plainly impossible since everything hinges upon the company’s ability to keep coming up with innovative products. Nevertheless, we have sufficient reasons to expect Apple to keep dominating the market in the future.
