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ACCA Reg. No.

1422195

Table of Contents

1. Introduction

1. Company Profile

2. Products

3. Aims and Objectives

4. Research Questions

Information Gathering

2.1 Source of Information

2.2 Information Collection Methods

2.3 Limitation

2.4 Ethical Issues

Accounting and Business Techniques

Criticism of Accounting Techniques

Performance Analysis

5.1 Business Performance Analysis

5.2 Financial Performance Analysis

Conclusions and Recommendations

List of References

Notes

Appendix 1

10

Appendix 2

11

Appendix 3

1. Introduction

One of the most crucial decisions I had to make before starting my Research and Analysis Project (RAP) was to choose a topic that would not only give me enough scope to portray my skills but also it could help me in brushing up on the skills and knowledge I obtained during my ACCA studies. I have always been interested in looking for the connection between financial results of a company and its actual performance in the market. The connection between these two ideally means you can fairly predict what is going to happen in future with the company by looking at the trend those financial figures of the company show. But a very striking factor of the recent downturn in economy was that some of those companies that showed very promising financial results still could not survive through it. Examples of such companies are American International Group, Inc. (AIG), Enron Corporation.

This phenomenon triggered my interest in finding the relation between financial performance indicators and the companys position in the market. And I had the best opportunity in the shape of RAP to put this to practice. This makes the basis of the reason for my choice of The Business and Financial Performance of an organisation as a subject for my RAP.

After deciding the topic, I had to make a choice for the company on which I would perform these analyses. After careful consideration, I chose Apple Inc. as the subject company for my project.

There were many reasons behind my choice. Firstly, I wanted to choose a large and diversified organisation. Because if the organisation was small or medium sized and was only based in one or two countries then its results might have been tampered by the economic condition of the country, which obviously would not do justice to the true potential of the organisation.

Secondly, Apple was named as one of the Top 10 Most Innovative Companies in a report released by Cheskin, a strategic consulting and research firm, and Fitch: Worldwide, an international brand and design firm (Macnews: Apple named among top 10 most innovative companies). Apple has so far been

able to establish a unique recognition in the eyes of consumers as a company with the most unique and innovative products (Apple, Google tops in loyalty survey, 2006).I wanted to find out for myself that what are the secrets behind Apples success, and how they employ their assets to get the maximum out of them.

Thirdly, Apple is a very popular organisation, it is always in the news, and I was more inclined towards choosing an organisation about which I can easily accumulate data and information.

I chose Samsung as a competitor for Apple. Because Apples most revenue generating product is iPhone and Samsung is the company which makes products that give direct competition to Apples iPhone as well as iPad.

1.1) Company Profile

Apple Inc. is an American multinational company that was established in April 1976. Apple Inc was cofounded by Steve Jobs, Stephen Gary Wozinak and Ronald Wayne (Linzmayer, 2004). Apple was incorporated on January 3, 1977, without Wayne, who sold his share of the company back to Jobs and Wozniak for $800. Multi-millionaire Mike Markkula provided essential business expertise and funding of $250,000 during the incorporation of Apple (Apple Chronology, 1998).

The company was named Apple Computer, Inc. for the first 30 years, but then it was changed to Apple Inc. which marked the beginning of a new era for the company because it has then entered into the market of consumer electronics and the revolution was about to begin.

1.2) Products

The first product was Apple-1 computer. Steve Jobs and Wozniak sold a van and two calculators and raised money to finance their business. Jobs did the marketing job and found a computer store The Byte Shop who said they would buy Apple-1. Then later in the Summer Wozniak started working on Apple-2 and it was far more successful than Apple-2. Apple-2 was the first microcomputer to use colour graphics with the television set as screen.

Apple then produced Apple-3, iMac, Mac Pro, Macbook Pro which proved to be very successful with the exception of Apple-3. The year of 2001 and in the years to follow Apple brought life changing products, like the launch of iPod in 2001. And then in 2007 iPhone changed the world of mobile and now iPad has proved to be a revolutionary product.

1.3) Aims and Objectives

Performance evaluation of a company draws a picture of position of the company; financially as well as strategically. As stated earlier, main objective of this report is to analyse the business and financial performance of the company. This will provide a clear view of how the company has performed in the past, and is performing at present.

One of the objectives of the report is to conduct a position audit of the company with the help of different models and ascertain a strategic position of the company in the market. While conducting a position audit, this report will scan the environment of the company with the help of Porters Five Forces at first. Then I aim to assess the position of the organisation within that environment with the help of SWOT analysis. Other than these issues, I would look to find the core competencies of Apple; what are those things that they are doing to stay ahead of the competition, what are the factors that enable them

to get competitive edge over their rival organizations, and what are those steps that they should take to sustain their competitive edge.

After taking account of the strategic position of the company I will move to the financial side of performance. I have chosen Samsung as a competitor for Apple. In this section, I will compare results and findings obtained from ratio analysis of both companies.

And then I will look for a relationship between Apples strategic position and financial results which would help me in determining how the company has exploited its strategic position to achieve financial goals or how the company has used its strong financial position to deliver the strategic objectives.

In the end, I will derive my conclusions based upon the finding and results.

1.4) Research Questions

In my project I will concentrate on finding as accurate as possible answers for the following questions:

What is the strategy that Apple is following?

What are those characteristics or critical success factors that give Apple a competitive edge?

How has Apple performed in past three years financially?

What are those areas where there is still room for improvement for Apple?

This report is split in two parts; one is business analysis and the other is financial analysis. Business analysis will throw light on the strategies being followed by Apple and how successful they have been in pursuing their strategic targets. And the financial analysis will comprise of accounting techniques and other financial tools for the purpose of evaluation.

2. Information Gathering

2.1) Sources of Information

There are two available sources of information for any research work; primary data and secondary data. My research methods were more inclined towards secondary data because I did not have any direct reference in Apple Inc. But I also tried to gather primary data as well. I visited Apple Store in Bullring, Birmingham and collected information from staff present there about Apples after sale services.

Apples financial statements were of great help in finding useful information about the company. Financial statements do not only include financial data but also include information about the strategies of the company, situation of the market, suppliers, competition and a lot more.

There is huge data available over the internet about Apple. But the cause of concern here was choosing only that information which was reliable.

The main sources of information that I used to gather data are as follows;

Financial Statements

The main source of information about the company was its financial statements. From financial statements I extracted figures for sales, costs, profits, assets, liabilities etc. All these figures will make basis for conducting a financial assessment of the business.

Apples Website

Apples website was the most reliable source of information about Apple. It proved very helpful and answered a lot of questions I had in my mind. Apple has explained a lot of issues on their websites including their policies and strategies about environmental issues. Their website is also the best source to get information about their latest products.

Newspapers

Newspapers are a very reliable source of information regarding industry issues, market situations, product reviews and success of any particular strategy of companies. This source also helped me in finding the ethical issues with companies, major developments in the strategies and implications of Apples former CEO Steve Jobs death on the company.

Internet

Internet is the most convenient and easiest source of collecting information but the problem with this source is of authenticity and reliability of information. So I made sure I use only that information from internet which is highly reliable.

ACCA Studies

The main source of my knowledge and skills about the subject is derived from ACCA studies. During my ACCA, I studied various subjects, for example, Financial Reporting (F7), Corporate Reporting (P2), Business Analysis (P3), Advance Financial Management (P4), Advanced Performance Management (P5), and all these subjects added towards my knowledge to carry out a business and financial analysis.

2.2) Information Collection Methods

The methods for collecting information vary according to the nature of the data. For example one needs interviews, questionnaires, surveys and meetings in order to collect primary data. But as explained earlier my report is based more on secondary data, so I mostly used Apples website, financial statements, and reviews by various newspapers and journals.

In order to attain primary data, I visited Apple Store situated in Bullring, Birmingham. I talked to the staff present there and I gathered information about their after sales services, and how their after sales services are adding value for their customers.

I took help of search engines like Google to search data about Apple and then I screened that data and confirmed the reliability of the data.

2.3) Limitations

The biggest limitation for me to collect primary data was that I do not have any direct reference in Apple and any access to the managerial staff or a reliable source from company was hard to come by.

An inherent limitation with the use of information extracted from financial statements is always the accuracy of the information. Financial statements are crafted out with the use of accounting estimates and accounting policies which makes this information susceptible to accuracy.

Financial statements represent historic data, and historic information is not such a good basis for conducting a forward looking assessment. Financial statements can also be distorted because of related party transactions.

Since my financial analysis is based on the figures reported in the financial statements thus it contains all those inherent limitations that financial statements are subjected to.

Another hindrance in my collection of information was relying on the authenticity of the data I gathered from internet.

2.4) Ethical issues

A few ethical issues that I faced during my preparation of the project were mainly related with the gathering of information. While preparing a report about any organisation, it is very important to make sure that the information one uses for the preparation of the report is authentic and reliable. If the information is not reliable, then it would be highly unethical to make conclusions and judgments about

an organisation on the basis of unreliable data. To cope with this problem I made sure that the information I use in my report is from authentic sources.

This was my first experience of writing such a report, so I did not have much knowledge about referencing and plagiarism. To cover my lack of knowledge I searched Harvard Referencing System and made sure that if I use anyone elses work on my report I use it with a proper reference to the origin of the information.

3. Accounting And Business Techniques

The accounting and business techniques used to evaluate the performance of Apple are as follows;

SWOT Analysis

SWOT analysis is a tool for position audit of a company. It refers to Strengths, Weaknesses, Opportunities and Threats for an organisation. The basic assumption of a SWOT analysis is that a company must align internal activities with external realities to be successful. The SWOT analysis provides a framework for analyzing strengths and weaknesses (internal), and opportunities and threats (external). It helps to focus on strengths, to minimize weaknesses, and to take the greatest possible advantage of opportunities available (Pahl and Richter, 2007)

The shortcoming of SWOT analysis is that in recent years companies have started to believe that SWOT analysis is a waste of time. Two studies have examined SWOT. Menon et al. (1999) asked 212 managers from Fortune 1000 companies about recent marketing strategies implemented in their firms. The findings showed that SWOT harmed performance. When Hill and Westbrook (1997) examined the use of SWOT by 20 companies in the UK in 1993-94, they concluded that the process was so flawed that it was time for a product recall (Armstrong, 2004).

Porters Five Forces Model

Porters fiver forces model is a model that evaluates the state of competition within the environment of the company. This model focuses on five forces that shape competition within an industry. These five forces are;

1. The risk of entry by potential competitors

2. The intensity of rivalry among established companies within an industry

3. The bargaining power of buyers

4. The bargaining power of suppliers

5. The closeness of substitutes to an industrys products

Porter argues that the stronger each of these forces is, the more limited is the ability of established companies to raise prices and earn greater profits (Hill and Jones, 2009: 42-43)

Criticism about Porters five forces model is that buyers, competitors, and suppliers are not always unrelated, and they might collude with each other and turn against the company. Another assumption of Porters model that is challenged is the assumption that uncertainty is low in the market, and companies can easily plan and respond to competitive behaviour (Coyne and Subramaniam, 1996: 14-25)

The accounting techniques that I have used in evaluation of Apples performance are as follows;

ROCE

ROCE stands for return on capital employed. This ratio identifies the profitability and efficiency of companys capital investments. This ratio gives a rate of return that the company has achieved on the capital that it has invested in the company. Capital includes shareholders money as well as the borrowed money (Financial Reporting F7 Study Manual, BPP).

Gross Profit Margin

Gross profit margin is the percentage of money left after deducting cost of sales from revenues of the company. Gross profit is the amount of money that the company is left with to pay its other expenses and retain money for future or pay out as dividend (Financial Management F9 Study Text, BPP).

Net Profit Margin

Net profit is the amount of money a company is left with after meeting all its expenses and tax obligations.

Asset Turnover

The asset turnover ratio identifies the total revenue the company generates for 1 invested in the company assets, in other words this ratio defines how efficiently a company is utilising its resources (investopedia.com).

Current Ratio

Current ratio determines the liquidity of the company. This ratio gives an idea of the companys ability to pay its short term liabilities with its short term assets. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble

getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations (investopedia.com).

Quick Ratio

This ratio is almost same as current ratio except the fact that it does not include inventories in the current assets, presumably for the reason that inventories are the least liquid item in current assets. So it would not be wrong if we say that quick ratio is a rather rigorous form of current ratio.

Earnings per Share

Earnings per share determine the amount of money earned per share by the company in a particular accounting period. If the earnings per share of company is increasing from one period to other period, then it means that the company is making more profits and this will attract further investments in the company and it will also increase the share price of the company (Financial Management F9 Study Text, Kaplan)

Inventory turnover

Inventory turnover defines how many days a company holds the inventory before selling it. This ratio may not always give the true picture because the year-end inventory may be distorted due to seasonal variations, timings of orders or stocking up due to anticipation of increase in demand (Financial Management F9 Study Text, BPP).

Receivable Turnover

Receivable turnover indicates the days that the companys debtors take to pay the company.

Payable Turnover

Payable turnover defines how many days the company takes to pay its creditors.

4. Criticism Of Accounting Techniques

I have used ratio analysis as the main tool for my financial analysis. The criticism of ratio analysis is that it derives its results from accounting information extracted from the financial statements of the company. Because of this reason ratio analysis inherits all the drawbacks that accounting information possesses. For example, accounting data is prone to manipulation. It is also dependent upon the accounting estimates and accounting policies in use by the company. Any change in these estimates or policies can change the result of these ratios drastically. It means a ratio can show a favourable result without any real improvement in the performance. Creative accounting can also distort the result for these analyses.

5. Performance Analysis

5.1) Business Performance Analysis

Apples Strategy

Apple has not mentioned any specific vision statement. I browsed their website and searched a lot for their vision statement but could not find any. In a Fortune Magazine blog, Adam Lashinsky, quotes Tim Cook, Apple's COO (then), speaking to financial analysts on 21 January 2009

"We believe that we are on the face of the earth to make great products and that's not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us."

Apple is also following the strategy of product differentiation. It is the process of distinguishing ones products from its competitors. Apple portrays the uniqueness of its product to its customers and conveys the different characteristics which are unmatched by competitors. Apples every product uses top of art technology and is fastest in speed among its competitors. Apple prides itself on its innovation. Apples unique products and their ability to be there first enable them to follow product differentiation strategy. But as Kotler, Philip and Keller (2009) say successful product differentiation occurs when differentiation is valued by customers, and it is evident from Apples recent sales growth that their products are on consumers top wish lists.

SWOT Analysis

SWOT analysis identifies the strengths, weaknesses, opportunities and threats of an organisation. Apples SWOT analysis will be as follows;

Strengths

Brand value of Apple is a big strength for them. They have set such high standards for their products that every new product is perceived to be of high quality by consumers. According to a survey (Technology brands dominate in corporate reputation stakes, Published in 2011) conducted by TNS in September 2010, Apple is rated as the third most popular brand. Apples products are differentiated and are considered as trendy.

Apple is known for their innovation and creative designing. Their innovative products are the reason that they are able to charge market skimming prices.

Intelligent management of Apple is a big asset for them. Steve Jobs changed the fate of this company radically. Apples management strong decision making, about when to launch and how to launch the product creates immense hype in the market which acts as a strong advertisement for their products.

Customer loyalty is the most valuable strength for Apple. When customers sleep outside of Apple stores just to be the first to buy their products, it is obvious that Apple enjoys very loyal customers.

Apples products are very user-friendly and are easy to use.

Apples after sales services is another reason why people prefer Apples products. If a product has developed some fault then Apples staff will be more than happy to exchange the product. All one has to do is to walk in their Apple store and the product will be replaced there and then.

Weaknesses

Apples weakness is that they have not been able to penetrate into the markets fully. For example there are still many markets in Far East that are still not fully aware of Apples products. According to a recent survey reported by South Asia Mail, Apple accounted for 2.6 percent of Indias smart phone shipments in the quarter ended June 30, 2011 while Apples competitor Samsung accounted for 21 percent. Even in the developed countries where people are aware of Apples products their market share is not very high. In Europe, Apples market share was estimated to be 6.8% in 2010 by a survey conducted by AT Internet (Published in French), which is far less than Microsofts share of 91.9%. Apple charges premium prices for their products, and that drives away the price sensitive customers.

Apples products are not compatible with many other products. For example one cant connect iPhone via Bluetooth to any other mobile phone.

Softwares for Mac and apps for iPhone and iPad are expensive unlike softwares for Windows, which is a very big disadvantage if we consider price sensitive customers.

Opportunities

There are many international markets and countries which Apple still can explore. As mentioned in South Asia Mail report discussed above, there is still a very large market unexplored.

Strategic alliance is always a big opportunity for any company of the size of Apple. Apple can make alliance with any of its competitors or suppliers.

Apple can launch a low priced product for its price sensitive customers which will thus enable them in getting larger market share and still charge premium prices for their differentiated product.

Threats

A low price of competitors such as android phones is a big threat for Apple. And other mobile manufacturers such as Samsung, Blackberry, and Nokia are also affecting Apples market share.

Apple relied very much on Steve Jobs (CEO), and his death has raised great concerns that whether Apple will be able to carry on in the same fashion without him. In a survey magazine Magic Numbers a report was published where it was asked from different people how Apple will do without Steve Jobs, 25% of the people said it will suffer a downfall. There are many substitutes available for Apple products which make their market share highly susceptible to a rapid decline.

Consumer electronics market is highly competitive. Everyday new products are launched and companies come up with innovative products in the market. It is very difficult to stay on top in such a dynamic market.

There is always a threat for Apples competitors combining with each other and offering their products at substantially less price, which might take away Apples market share.

Porters Five Forces Model

No discussion of the competitive environment would be complete without mentioning Michael Porters fiver forces framework. First articulated in 1979 in the award-winning Harvard Business Review article How Competitive Forces Shape Strategy, Porters framework remains a useful tool for getting an analytical grasp on the state of competition and the underlying economics within an industry. This framework also encourages you to look outside the small circle of current competing rivals to other factors (SHRM, 2006).

Threat of New Entrants

The threat of new entrants depends upon several factors. These factors include barriers to entry and existing companies likely response to new entrants.

In Apples case there are many barriers to entry for new entrants. For example, any new entrant would need a large amount of investment, it would have to break the customer loyalty for existing organisations shown by their customers, economies of scale achieved by existing companies will be very difficult to match for any new entrant, most of the companies have strategic alliance with their suppliers for example Foxconn is a big supplier for Apple, such strategic alliance makes possible for these companies to get their materials at a very cheap price, it would not be possible for a new entrant to get such cheap materials. Due to all these factors, it can be reliably said that the threat of new entrants is low for Apple.

The Bargaining Power of Buyers

If we consider the bargaining power of buyers for Apple then an important point to notice is that the numbers of businesses supplying the same kind of product are many and there are many substitutes available for the products which are cheaper in price, and also the switching cost is very low. All these characteristics put the customers in bargaining position. So the shift of power is more towards the buyers in this section of model.

The Bargaining Power of Suppliers

The bargaining power of suppliers is high when the suppliers are small in number and the market or the number of customers is large. Or the suppliers product is an important input to the buyers business. Although suppliers input for Apple is very important, but Apples recent success has placed it at such a strategic position where Apple can exploit its suppliers and drive away their bargaining power through long-term contracts.

The Threat of Substitutes

The threat of substitutes is high if it is apparent to a customer that an alternative offers an attractive price/performance trade off to the industrys offer. The customers switching cost must also be low, not just in terms of costs but also in terms of convenience and assurance (Strategic Management: Principles and Practice By Barry J. Witcher, Vinh Sum Chau).

In Apples case, substitutes are available throughout the market, for example if someone is not able to afford an iPhone, then various smart phones are available for other companies which offer almost same kind of characteristics. The only thing that can stop consumers from turning to substitute products is brand loyalty. But if we assess overall threat of substitutes to Apple, then there is a substitute available for almost every product. Hence it would not be wrong to say that the threat from substitute product is pretty high.

Competitive Rivalry in the Industry

All these characteristics which indicate a very competitive market can be seen in the industry for Apple. There are various top players fighting for the market share, for example Nokia, Samsung, Blackberry in the mobile phone market and Dell, HP, IBM, ACER etc in computers/laptop market. All these companies are very large companies with big resources, and from time to time these companies keep coming with products that can be a substitute to Apples products. So it is very evident that Apple is facing a very high competitive rivalry.

5.2) Financial Performance Analysis

I have conducted my financial analysis with the help of following ratios;

Performance Ratios

Sales Growth

Revenue growth is the most significant driver of shareholder value over the long term. Other factors are important too but there is an extent to which they can add value. For example, management of working capital can be improved to a certain level. But if a company is able to maintain its competitive advantage in a market than it can enjoy growth in sales over extended period of time (Alexander, 2007).

Apples sales were $37.5 billion in 2008 and it reached to $42.9 billion in 2009 with an increase of 14%. Samsungs sales were $103.9 billion in 2008 and increased by 15% and became $119.7 billion in 2009 (See Table 1).

In 2010 Apples sales increased $22.3 billion or 52% as compared to 2009. During this time Samsungs sales increased by 13%. This was a tremendous achievement in growth of sales for Apple compared to the industry level of growth as shown by Samsung that achieved a growth percentage of 13% in 2010 (See Table 1).

There were many reasons that contributed towards the increase in sales for Apple. The factors that had the greatest impact are following:

There was a $6.29 billion increase in sales from iPhone 2009. This reflects a 93% increase compared to year 2008. This growth is the result of greater number of iPhone units sold. There were 20.7 million iPhones sold in 2009, while that number was 11.6 million in 2008, which reflects an increase of 78% (See Appendix 1). There was again a 93% increase in revenues generated from iPhone sales in 2010. It increased from $13.03 billion to $25.17 billion. This growth was due to greater number of units sold for iPhone as there was an increase of 19.3 million units sold or 93% more compared to 2009. This growth reflects strong demand for iPhone 4 which was released in June 2010.

But the popularity of iPhone had an adverse effect on iPod sales in 2009 which decreased to a level of $8.09 billion from $9.15 billion, a 12% decrease in the sales. iPhone cannibalized iPod sales, people who bought iPhone would not want to buy iPod because it has an in-built iPod in it, says Malley (2008). Another significant increase in sales in 2009 came from music related products and services, which

increased from $3.34 billion to $4.03 billion, an increase of 21%. Sales of Music related product and services increased to $4.94 from $4.03 in 2010 which is a 23% increase. This increase reflects the popularity of Apples iTunes store. And also the availability of third party content on iTunes app store for purchase and rent was a significant contributor towards the increase.

There was a 3% decrease in Mac sales in 2009 compared to 2008 which decreased from $14.3 billion to $13.8 billion. The break-up of Mac sales shows that there was 9% increase in Mac portables sales which were largely offset by a 23% decrease in desktops sales (See Apendix-1). Mac net sales increased by $3.6 billion or 26% in 2010 compared to 2009, and Mac unit sales increased by 3.3 million or 31% in 2010 compared to 2009. During 2010, net sales and unit sales of the Companys Mac portable systems increased by 18% and 25%, respectively, primarily attributable to strong demand for MacBook Pro, which was updated in April 2010 (Apples Form 10-K Annual Report, Filed Oct 2010, Page 34).

In year 2010 another product was added to portfolio of Apple, iPad. Its sales amounted to $4.9 billion during the five months after the release. Its sales amounted to 8% of total sales of Apple for 2010.

|Table 1 | | |Year | | | |2008 |2009 |2010 | |Apple | | | |Sales | |$ '000 | | | | | | |Increase |in Sales |% | | | | |n/a |14% |52% | |Samsung | | | |Sales | |$ '000 | | |%

| | |Increase | |

|in Sales | | | |n/a |15%

| |37,491,000 | |42,905,000 | |65,225,000

| |103,936,863 | |119,697,664 | |135,771,646

| | |

|13%

*pic+

Gorss Profit Margins

Gross profit margin indicates the percentage of revenue available for a company to meet its other expenses.

Apples gross profit was $13.19 billion in 2008, which reflects a 35% profit margin. In the same year, Samsungs profit margin was 21%.

In year 2009, Apples profit margin was 40% which means a 30% increase in gross profit compared to 2008 (See Table 2). During this year revenue had increased by 14%. As the profit margin did not increase in line with revenue, this draws our attention to cost of sales, which only increase by 5% compared to 2008. This clearly indicates that in year 2009 there was a favourable sales mix of products with higher gross margins and lower product costs.

In year 2010, Apples gross profit increased by 49% to an amount of $25.7 billion. But the gross profit margin declined to 39% while Samsungs profit margin increased by 3% to gross profit level of $45.6 billion. The reason for Apples decline in gross profit margin was the products that have higher cost structures including iPad.

|Table 2 | | | | | | | | |Apple | | |PBIT |Equity | |E |Long-Tern |Borrowing |L |$ '000 | | |Capital |Employed (CE) |PBIT/CE |% | |22,297,000 |31,640,000 |47,791,000 | |Equity | | | |$ '000 | | |Long-Term |Borrowing |Capital |Employed (CE) |PBIT/CE |% | |58,867,104 |11 |ROCE | | | | | |40 |38 |39 |Apple | |Samsung | | |ROCE | | | | | | |Apple | |Samsung | |Apple | |Samsung | | |Apple | |Samsung |

| |

| | |

|Year | | | | | | | | |$ '000 | |

|CE=E+L |$ '000 | |$ '000 |

|2008 | |8,947,000

|22,297,000 |0

| | |

|2009 | |12,066,000 |31,640,000 |0 |2010 | |18,540,000 |47,791,000 |0 |Samsung | | |PBIT

|Year | | | | | | | | |$ '000 | |

|CE=E+L |$ '000 | |$ '000 |

|2008 | |6,210,836

|53,919,412 |4,947,692

|2009 | |10,914,933 |64,136,625 |1,211,939 |2010 | |17,441,341 |78,452,095 |1,072,718

|65,348,564 |79,524,813

|17 |22

| |

(See Note 1)

Return on capital employed was 40% in 2008 for Apple and 11% for Samsung. It decreased in 2009 to a level of 38% for Apple, while it increased to 17% for Samsung (See Table 6). This decrease in ROCE was due to the reason that the nominator which is PBIT increased by 34% only while denominator of the figure which is capital employed increased by 41%.

ROCE for year 2010 witnessed a very slight increase for Apple, while it kept on increasing steadily for Samsung and reached to 22%. Apples PBIT increased to $18.5 billion from $12.06 billion, which is 53% increase as compared to 2009. Capital employed increased by 51% during this year, and the difference in increase of PBIT and Capital employed resulted in a slight increase of ROCE.

Liquidity Ratios

Current Ratio

In year 2008, Apples current ratio was 3.46, which was much higher than Samsungs ratio of 1.39 (See Table 7). Normally a current ratio of 2 is considered to be satisfactory. According to these terms Apples current ratio is pretty satisfactory.

The ratio dropped slightly in 2009 to 3.22 for Apple and that for Samsung increased a little and reached 1.55.

In 2010 Apples current ratio dropped to 2.10, which was still satisfactory as compared to 1.48 of Samsung. But due consideration should be given to the fact that current ratio is continuously decreasing for Apple. The reason for a sudden dip in 2010 was there was 115% increase in payables and as a result current liabilities almost doubled from 9.45 billion to 19.15 billion while current assets did not increase with equal percentage and increased only by 31% from $30.4 billion to $40 billion (See Table 7).

|Table 7 |Apple | | |Current |Current |Liabilities |CL |$ '000 | | |8,377,000 |9,453,000 |19,105,000 |Inv |$ '000 | | |Current

| | |Quick |Ratio | | |

|Year | |Assets | | | | |CA | |$ '000 | |

|Inventory |CA/CL | | |509,000 |455,000

|Ratio

|(CA-Inv)/CL | | |3.46 |3.22 |2.10 | |

|2008 | |28,962,000 |2009 | |30,420,000 |2010 | |40,042,000 |Samsung | | |Current

|3.40 |3.17 |2.04

| | |

|1,051,000

|Current |Liabilities |CL |$ '000 | | |Inv

|Current

|Quick |Ratio |

| |

|Year | |Assets | | | | |CA | |$ '000 | |

|Inventory |CA/CL | |

|Ratio

|(CA-Inv)/CL | | |1.39 |1.55 |1.48 |

|$ '000 |

|2008 | |38,461,429 |2009 | |44,941,546 |2010 | |50,838,021

|27,598,175 |28,906,059 |34,297,248

|8,134,196 |8,639,327 |11,734,590

|1.10 |1.26 |1.14

| | |

(See Note 2)

*pic+

Quick Ratio

Quick ratio is almost same as that of current ratio, but it does not include inventory in the current assets. Inventory is considered to be the least liquid item in current assets.

Apple is a strong believer of Just in Time approach, and for that reason Apples quick ratio is almost equal to its current ratio. Apples quick ratio was 3.4 in 2008, a far more satisfactory ratio compared to Samsungs 1.10.

The ratio decreased in 2009 to 3.17 for Apple and for Samsung it reached to 1.26 which was a very slight improvement from previous year.

In 2010 it showed a result of 2.04 for Apple and it decreased again to 1.14 for Samsung. The reason for the decrease in the year of 2010 is that, there was a 130% increase in the value of inventory and also there was an increase of 88% in account payables which resulted in the increase of current liabilities. Reason for such a drastic increase in inventory levels could have been an anticipated large demand of iPhone 4 and iPad which were released in 2010

*pic+

Efficiency Ratios

Inventory Turnover

Apples inventory turnover (in days) is very low. It is evident of their strategy to maintain minimum stocks.

In 2008, Apples inventory turnover was 8 days, which is a month less than Samsungs inventory turnover of 39 days (See Table 8).

In 2009, Apples inventory turnover got even better and decreased to only 6 days because inventory value decreased from $509 million to $455 million. During this year Samsungs inventory Turnover days almost remained same to previous year.

Apples inventory turnover jumped to 10 days in 2010 because there was a large increase in inventory from $455 million to 1.05 billion. The reason for this might have been an anticipated large demand of iPhone 4 and iPad which were released towards the end of year 2010. Samsungs inventory turnover also increased to 48 in 2010.

|Table 8 |Apple | | | | | | | |Net Sales by Product: |Desktops |$5,622,000 |Portables |8,732,000 | |Total Mac net sales |14,354,000 | | |$11,278,000 | | | | | |26% | |18% |$9,535,000 |2010 |$ '000 | | |$6,201,000 | |Change | | | |43% | |2009 | | | | |$4,324,000 | |Apple | |Samsung |

| |

| | | |Change |$ '000 | | |-23% |9% | |-3% | |2008 | |

|$ '000

|$17,479,000

|$13,859,000

| |iPod | |

| |$8,274,000

| |2% | |$4,948,000

| |-12% | |$4,036,000 | |$13,033,000 | |$0 |NM | |$1,475,000 |-13% |9,153,000

|$8,091,000 | | |23% | | |93% | |NM | |23% | |7% | |52% | | |

|Other music related products and services |21% |3,340,000 | | | |

|iPhone and related products and services |93% |6,742,000 | | | |

|$25,179,000 | |$4,958,000 | | |$1,814,000 |

|iPad and related products and services |0 | | |Peripherals and other hardware |1,694,000 | | |Software, service and other sales |2,208,000 | | |Total net sales |$37,491,000 | | | | | |

| |$2,573,000 |

| |$2,411,000 | |14% |9%

|$65,225,000

|$42,905,000

Source: Page 33, Apples Form 10-K (Annual Report), Filed 27/10/2010

|Unit Sales by Product | | | |Desktops |Portables |2010 | | |4,627,000 |9,035,000 |Change | |45% |25% |2009 | | | |Change | |-14% |20%

|2008

|3,182,000 |7,214,000

|3,712,000 |6,003,000

| |

|Total Mac unit sales | |iPod unit sales | |iPhone units sold | |iPad units sold | | | | |

|13,662,000 | |50,312,000 | | |

|31% | |-7% | |93% | |NM |0 |

|10,396,000 | |54,132,000 | |20,731,000 | |NM | | | |

|7%

|9,715,000

|-1% | |78%

|54,828,000

|39,989,000 | |7,458,000 | | |

|11,627,000

|0

Source: Page33, Apples Form 10-K (Annual Report), Filed 27/10/2010

6. Appendix-2

|CONSOLIDATED BALANCE SHEETS APPLE INC. | |(In millions, except share amounts) | | | | | |

| 27, 2008 |ASSETS:

|September 25, 2010 | | | |$11,261 |14,359 |5,510 |1,051 |1,636 |7,861 | | |41,678 | | |25,391 |4,768 |741 |342 |2,263 | |$75,183 | | | | | | | |

|September 26, 2009 | | |$5,263 |18,201 |3,361 |455 |1,135 |3,140 | |31,555 | |10,528 |2,954 |207 |247 |2,011 | |$47,501 | | | |839 | | |509

|September | | |$11,875 |10,236

|Current assets: |Cash and cash equivalents | |Short-term marketable securities | |Accounts receivable | |Inventories |Deferred tax assets |Vendor non-trade receivables | | |Total current assets | | |Long-term marketable securities | |Property, plant and equipment, net | |Goodwill |Acquired intangible assets, net | |Other assets | |Total assets | | |

|2,422 | |

|1,044 |3,920

|30,006 | |2,379 |2,455 | |285 |

|206

|$36,171 | | |

|LIABILITIES AND SHAREHOLDERS EQUITY: |

|Current liabilities: |Accounts payable | |Accrued expenses | |Deferred revenue |Total current liabilities | |Deferred revenue - non-current | |Other non-current liabilities | |Total liabilities | |Shareholder's Equity | |Retained earnings | |

| |$12,015 |5,723 |2,984 |20,722 |1,139 |5,531 |27,392 | |10,668 |37,169

| |$5,601 |3,852 |2,053 |11,506 |853 |3,502 |15,861 | |8,210 |23,353 |(46)

| |$5,520 |4,224 |1,617 |11,361 |768 |1,745 |13,874 | |7,177 |15,129 |77 |(9) |22,297 |$36,171 | |

|Accumulated other comprehensive (loss)/income | |Total shareholders equity | |Total liabilities and shareholders equity | |47,791

|31,640 |$47,501

|$75,183

|CONSOLIDATED STATEMENTS OF OPERATIONS APPLE INC. |(In millions) | | | |Net sales | |2010 | | |$65,225 | | |2009 | | |2008 | |$37,491 | | |

|$42,905

|Cost of sales | |Gross margin | |Operating expenses: |Research and development |Selling, general and administrative |Total operating expenses | |Operating income | |Other income and expense | | | | | |

|39,541 | |25,684 | |

|25,683 | | |17,222 | | |1,782 |5,517 | |

|24,294

|13,197

| |1,109 |3,761 |4,870 | | |

|1,333 |4,149 |5,482 | |11,740 | |326 |

|7,299 | |

|18,385 | | |155 | |

|8,327

|620

|Income before provision for income taxes | |Provision for income taxes | |Net income | | |$14,013 | | | |4,527 |

|18,540 | |3,831 | |$8,235

|12,066

|8,947

|2,828

|$6,119

7. Appendix-3

|Samsung Electronics Co., Ltd. and its subsidiaries |CONSOLIDATED STATEMENTS OF INCOME for 2009 & 20010 | | | | | | | | | | |2009 |USD | |

| |

|(In thousands of U.S dollars) | |2010 |USD |

| |Revenue | |Cost of sales | |Gross profit |

| |135,771,646

| |119,697,664 | |83,058,093 | |36,639,571 | | | |6,485,830 | | | |20,512,851 | |735,389 | |783,462 | |9,592,817 | | | |1,504,345 | |8,540,923 | |8,933,373 | |10,704,712 | |2,134,557 | | | | | | | | | | | | | |

| |90,145,600

| |45,626,046

|Research and development |Expenses | |Selling, general and |administrative expenses | | | |

|7,989,597 |

|23,042,516 | |1,541,348 | |948,227 | |15,187,054

|Other operating income | |

|Other operating expenses | |Operating profit | | | |

|Share of profit or loss of |associates and joint ventures | |Finance income | |Finance expense | | | |

|1,990,597 | |6,554,683 | |6,760,997 | |16,971,337 | |2,794,039

|Profit before income tax | |Income tax expense |

| |Profit for the year |

| |14,177,298

| |8,570,155 | | |8,404,248 | | | |165,907 | | | |

| | |13,872,188

|Profit attributable to owners |of the parent | |Profit attributable to |non-controlling interest | |

|305,110

|Samsung Electronics Co., Ltd. and its subsidiaries |CONSOLIDATED STATEMENTS OF INCOME for 2008 | | | | | |Sales | |Cost of sales | |Gross profit | | | | | | |

| |

|(In thousands) | |2008 | | |$103,936,863 | |76,917,185 | |27,019,678 | | |

|Selling, general and administrative expenses | |Operating profit | | | | |5,168,692 |

|21,850,986

|Non-operating income |Interest and dividend income |Foreign exchange gains |Gain on foreign currency translation

| |547,934 |6,202,774

| | | | |

|381,031 |897,364 |

|Gain on valuation of equity method investments |Others | | |Non-operating expenses |Interest expense |Foreign exchange losses |Loss on foreign currency translation |Loss on valuation of equity method investments |Others | | | |Net income before income tax |Income tax (Note 27) | |Net income |Attributable to : |Controlling interests |Minority interests | |Profit attributable to owners |of the parent | |Profit attributable to | | | | | |8,807,506 | | |743,060 | | | | |9,275,296 | |574,354 |6,510,403 |1,246,193 | |

| | | | |

|800,291 |179,398

|5,636,482 |589,169 | |$5,047,313 | | |4,735,136 |312,177 | | |13,872,188 | | | | | | | |

|non-controlling interest

|305,110

|Samsung Electronics Co., Ltd. and its subsidiaries |CONSOLIDATED STATEMENTS OF FINANCIAL POSITION for 2009 & 2010 | | | | | | |Assets |Current Assets |Cash and cash equivalents |Short-term financial instruments |Available-for-sale financial assets |Trade and other receivables |Advances |Prepaid expenses |Inventories |Other current assets | |Total current assets | |Non-current assets |Available-for-sale financial assets |Associates and joint ventures |Property, plant and equipment |Intangible assets | | | | | | |

| |

|(In thousands of U.S dollars) | |December |2010 |USD | | | | |December |2009 |USD | | |8,597,260 |10,123,270 |1,017,782 |18,710,013 |1,143,584 |1,932,337 |11,734,590 |655,106 | |53,913,942 | | |2,669,423 |7,318,720 |46,505,043 |2,440,459 | | | | | | |

|8,912,047 |7,576,708 |1,847,765 |17,382,368 | | | |

| | | |

|1,375,820 |1,282,333 |8,639,327 |583,331

|47,599,699

|1,307,523 |6,440,166 |38,247,691 |

| | |

|1,102,826

|Deposits |Long-term prepaid expenses |Deferred income tax assets |Other non-current assets | |Total assets | |Liabilities and Equity |Current liabilities |Trade and other payables |Short-term borrowings |Advance received |Withholdings |Accrued expenses |Income tax payable |Current portion of long-term |borrowings and debentures | |Provisions |Other current liabilities | |Total current liabilities | |Non-current liabilities |Long-term trade and other payables |Debentures |Long-term borrowings |Retirement benefit obligation |Deferred income tax liabilities | | | | |

|575,698

|511,149 |3,112,277

| |2,142,952 | | |

|986,925 |388,431 | |117,910,918 | | | | |14,092,370 |7,401,634 |775,823 |924,186 |6,236,217 |1,801,257 | |986,859 | |2,562,050 |292,675 | |35,073,071 | | | |941,839 |515,706 |557,012 |524,918 |1,451,108 | | | | | |

|923,348 |223,012

|98,498,366 | | |

|11,890,970 |6,831,159 |1,126,801 | | | | | |205,749 |

|741,872 |5,220,255 |987,289

|2,814,878 |213,887

| |

|30,032,860

| |984,267 | | | | |

|196,842

|1,015,097 |659,643 |1,097,519

|Provisions |Other non-current liabilities | |Total liabilities |

|259,334 |135,835 | |39,458,823

|214,631

| |

|160,882 | |34,361,741 |

|Samsung Electronics Co., Ltd. and Subsidiaries |Consolidated Balance Sheets |December 31, 2008 | | | |Assets |Current assets |Cash and cash equivalents |Short-term financial instruments |Short-term available-for-sale securities |Trade accounts and notes receivable |Other accounts and notes receivable |Short-term financing receivables |Prepaid expenses and other current assets |Deferred income tax assets |Inventories | |Total current assets | | | | | | | |

|(In Thousands) |2008 | | | |

| |$7,553,246 |3,077,410 |841,531 |10,320,462 |1,335,286 |5,369,762 |3,499,630 |1,829,536 | | | | | | | |

|8,134,196 | |41,961,059 |

|Property, plant and equipment, net of |accumulated depreciation |Long-term available-for-sale |

|36,415,005 | |

|2,243,584

|Securities |Long-term held-to-maturity |Securities |Equity-method investments |Deferred income tax assets

| | |286,598

| | | |3,733,386 |324,839 |674,592 | | |3,174,629 |1,418,227 | | | | | |

|Intangible assets, net of accumulated |Amortization |Long-term financing receivables |Long-term deposits and other assets | |Total assets | |Liabilities and Equity |Current liabilities |Trade accounts and notes payable |Short-term borrowings |Current maturities of long-term debts |Other accounts and notes payable |Accrued expenses |Income taxes payable |Other current liabilities |Total current liabilities |Long-term debts |Foreign currency notes |and bonds |Long-term accrued expenses |Accrued severance benefits |Deferred income tax liabilities |Other long-term liabilities | | | | |

|$90,231,919 | | |

|$4,787,607 |7,734,901 |1,939,486 |4,382,662 |6,775,662 |578,880 |1,398,977 |27,598,175 |4,947,692 |334,784 | |152,334 |728,563 |1,273,596 |1,277,363 | | | | | | | | | | |

| |

| |Total liabilities |

| |36,312,507 |

| | | | |$102,371 |666,707 |5,645,982 | |(7,635,077) |268,313 | |3,263,133 | | | | | | | | | | | | |

|Commitments and contingencies |Equity |Capital stock |Preferred stock |Common stock |Capital surplus |Capital adjustments |Treasury stock |Others

|Accumulated other comprehensive income |Retained earnings |Total Shareholders equity |Minority interests |Total equity | |Total liabilities & equity | |47,488,921

|49,800,350 |4,119,062 |53,919,412 | |$90,231,919 |

8. Appendix-4

|Ratio | |

| |

|Formula | | | |Gross Profit/Sales |Net Profit/Sales

|Gross Profit Margin |Net Proft Margin

| |

|Asset Turnover |ROCE |Current Ratio |Quick Ratio |Inventory Turnover |Receivables Turnover |Payables Turnover |Earnings Per Share |

|Sales/Total Assets

| | | | | | |

|PBIT/Capital Employed | | |Current Assets/Current Liabilities

|Current Assets less Inventory/Current Liabilities | | | | |(Inventory/Cost of Sales)x365 |(Receivables/Sales)x365 |(Payables/Cost of Sales)x365 |Net Profit/Number of Shares

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