Archive for category Economics
By: Amy Wees
Currently, the American and Mexican governments are attempting to come up with a solid plan for what to do with the hundreds of thousands of illegal Mexican immigrants whom reside in and continue to enter the United States daily. Should the U.S. allow these immigrants to continue to come in droves and work without paying taxes? Should we build a bigger fence to further secure our borders? Might we come up with a plan to allow citizenship for some of these immigrants? What impact will the decision have on the businesses that employ these immigrants? While we are attempting to answer these questions, thousands of Mexicans will cross the vast mountains and desert into the U.S. to look for work, and hundreds will die during their journey. What is the price of their lives? Who is responsible and what can we do to find a positive solution for everyone involved? This is our debate. Mexican President Vicente Fox has expressed strong support of amnesty for illegal aliens while American President George W. Bush is proposing a Mexican guest worker program. There have been strong opinions and inputs expressed by these governments, American business owners and citizens, and Mexicans themselves.
In July, 2001 the Center for Immigration Studies (CIS) compiled a study of the costs and benefits of Mexican immigration in America. Some of the findings were as follows: Large scale immigration is a recent phenomenon as the immigrant population has climbed from 800,000 in 1970 to over 8 million today. Two-thirds of Mexican immigrants do not have a high school diploma and are unskilled, causing a job competition and wage decrease for the nearly 10 million unskilled American natives looking for work. This reduction in wages for the unskilled has had a minimum impact on the price margin of products as unskilled labor accounts for only a tiny fraction of the overall economic output. Mexican immigrants account for 4.2 percent of America’s population and 10.2 percent of persons in poverty. 25 percent of families headed by illegal immigrants use at least one major welfare program while only 15 percent of American households use welfare. However, these immigrants hold down labor costs for businesses that employ unskilled workers but taxpayers must pick up the responsibility of providing services to a larger poor population. All of the above findings led the CIS to recommend that the U.S. create programs to improve the labor skills of legal immigrants and use greater resources to stop illegal immigration by enforcing the ban on hiring illegal aliens. The CIS also disagrees with President Bush about the proposed guest worker programs, stating they are unlikely to solve the problems found in the study because the wages of unskilled American workers would still be adversely affected. Also, the program would allow guest workers to receive welfare on behalf of their U.S. born children creating an even larger government deficit.
President Bush feels differently towards guest worker programs. He said in a recent white house press release that our country is a nation of immigrants and that we wouldn’t be what we are today without the hard work and entrepreneurial spirit of immigrants. A guest worker program would allow willing workers to enter the United States and fill jobs that American citizens are not filling. The new laws the President is pushing call for more rationalization and humanity. The current immigration laws do not follow through with punishment for American companies that look to the illegal labor market for workers, leading those immigrants who are here to work to be afraid and uncertain of their future. Not to mention to have to create false paperwork and social security numbers to work in these jobs. President Bush made a strong point that the system we have now is not working. Laborers want the illegal immigrants to fill jobs American citizens will not, our borders are not secure, immigrants who do cross the borders are unsafe and practices such as this will cost the United States more money in the long run than if we were to offer Mexicans a chance to cross the borders legally to work for a period of time. Of course none of these practices have been proven, but the U.S. government is working on making this a reality.
Mexican President Vicenza Fox has similar ideas to solve America’s immigration ordeal. President Fox is campaigning in the United States to request money and resources to improve the economic development in Mexico so that it can absorb its own workforce. He also recently met with congress to propose a guest worker program and the potential legalization of the several million undocumented Mexicans currently residing in the U.S. He is touring the U.S. to meet with immigrants and business owners to gain support for his cause and make apparent America’s need for Mexican immigrants, legal or illegal. Recently, Fox visited fruit orchards in Washington State where 6 out of 10 workers are immigrants. Dave Carlson, the president of the Washington State Apple Commission stated to Fox “We need some type of guest-worker program; there are not enough people who are willing to do that work to get the job done.” Washington’s Governor also shares this opinion as she arranged for Fox to visit the state in order to discuss expanding trade and improve ties with Mexico. He and President Bush agree that something must be done to reform immigration.
What about the American public? Isn’t this a country for the people and by the people? In a May 2006 citizen poll given by the Pew Research Center, it was found that most American’s are divided about whether immigration is good for the country but the significant majority considers it to be a serious problem. It also seems to be the general consensus that these migrant workers are filling jobs Americans don’t want and that illegal immigrants already in the country should have the option to stay. These polls show general information about feelings towards immigration but some American’s feel very strongly against it. A recent article in the Observer states that the benefits for border crossers do not outweigh the costs to the American public. According to the author, there are over 30 percent of Mexican immigrants that are able use welfare benefits and this figure will only get worse as statistics show that even third generation descendents are likely to use welfare. If laws allowing more Mexicans to enter legally are passed, this figure will double and our tax dollars will be devastated.
United States medical costs and state and federally supported programs are also a concern; with more unskilled workers that don’t carry medical benefits we could experience a significant problem with the U.S. medicare and social security programs possibly going under. This is considering that 53 percent of Mexican immigrants do not have medical insurance compared to only 14 percent of natives. Education and crime are an additional concern. Statistics show that third generation Mexican-Americans are three times more likely to drop out of high school and to commit violent crimes. This would drag down our standards as a nation and contributes significantly to our already overcrowded prison populations. The observer claims the solution is to make it harder to come into the United States and that before allowing citizenship, Mexicans should be better screened based on wealth, skills and education. So are we to test these immigrants when we do not require our own naturalized citizens to be tested and held accountable?
After analyzing the positions I must say I think the center for Immigration studies holds the best point. We need to look at the facts, the statistics and behaviors of those entering the United States. I don’t think a guest worker program is the answer. Perhaps humanitarian efforts in Mexico would be a better idea. I agree with President Fox in the idea of improving Mexico’s economy to absorb its own work force. The United States has enough problems with our own poor; we do not need to take in millions more in the same situation. Perhaps we could pay a bit more for a piece of fruit and offer a decent wage to farm workers. I know this will not solve every problem but I’m not sure an increased population of migrant workers won’t either. On the other hand, I have experienced first hand while working in the farming industry that our next generation of workers is not interested in this type of work and it is very hard to fill these positions. Why not offer a screening program that allows immigrants to fill these positions for a specific period if they agree to pay taxes on the income they earn and work legally in the United States for a specific period of time with the agreement to return to Mexico when their contract is up?
In conclusion, border security needs to increase and at the same time a better immigrant screening process should be put into practice; one that allows immigrants to fill open positions in the United States if our own population has been given a chance and has not filled these positions, not a screening process that tests an immigrants aptitude of the United States. This is not what our country was founded upon and it is not fair to scrutinize immigrants when we do not hold our own people accountable for the same basic educational skills. It will be interesting to see what solutions unfold in the upcoming years.
President Bush Proposes New Temporary Worker Program. (2004, January 7). Retrieved June 9, 2006 from http://www.whitehouse.gov/news/releasess/2004/01/print/20040107-3.html Objectivist: Border crossers cost us plenty. (2006, June 7). Retrieved June 8, 2006 from http://www.observertoday.com/articles.asp?articleID=1600 The State of American Public Opinion on Immigration in Spring 2006. (2006, May 17). Retrieved June 7, 2006 from http://pewhispanic.org/factsheets/factsheet.php?FactsheetID=18 Fox defends Mexican immigration in Washington state tour. (2006, May 24). Retrieved June 7, 2006 from http://www.contracostatimes.com/mld/cctimes/news/14654157.htm Immigration from Mexico: Study examines Costs and Benefits for the United States. (2001, July 12). Retrieved June 7, 2006 from http://www.cis.org/articles/2001/mexico/release.html
Running Head: APPLE INC. SEC 10-K ANALYSIS
Apple Incorporated SEC 10-K Analysis
Apple Incorporated SEC 10-K Analysis
This project will cover my financial analysis of Apple Corporation after review and presentation of the firm’s financial documents and records. I will present factual information to the reader and also my analysis and interpretation of the data for use by managers and investors in making more informed decisions about Apple. I chose Apple because they have several marketable products right now to include the iPod and the iPhone. It seems they are constantly moving in the right direction financially and technically and also remain ahead of their competitors in the marketplace.
Who is Apple? (MD&A Review)
Apple designs, manufactures and markets personal computing devices such as laptops and personal computers, digital music players to include digital content and cellular telephones. The company also sells its own line of software and peripherals as well as the Apple operating system. Apple is focused on providing its customers with “enhanced digital lifestyles (Security and Exchange Commission [SEC] 10-K, 2008)” and their consumer base ranges from individual consumers, small businesses, and enterprises to educational and governmental agencies. Apple’s product distribution channels are both direct through its own Apple Stores and web-based stores and indirect through major retailers such as Wal-mart and Best Buy, cellular service carriers, private membership warehouses, and online retailers. The main focus on selling the company’s products is put into its sales force. Apple invests heavily in the training and careful placement of its sales force in all direct and indirect sales locations so that consumers can be educated on the benefits that only Apple products can offer over its competitors being sold at the same location. The company believes that the more consumers are educated about the benefits of their product, the more they will remain ahead of the competition (SEC 10-K, 2008).
Products & Inventory records
Apple Inc. sells a wide variety of technological products to include its line of Mac desktop computers such as the Mac Pro for business professionals, the Mac for the home user, and the Mac Mini to appeal to the consumer wanting the latest technology in a small package. The company also sells a similar line of laptop computers such as the MacBook Pro for advanced users, the MacBook for everyday users, and MacBook Air – the patented ultra slim, ultra light laptop. Accompanying the desktop and laptop computers is the Mac OS X Operating System, a wide variety of proprietary software and also the Xserve, a server equipped with all of the latest capabilities and materials to appeal to large and small business. The popular iPod portable digital music players come in a variety of shapes, sizes and colors also to appeal to every consumer. Along with the iPod is the iTunes online digital music store where consumers can purchase digital music, games, movies, television shows and other content for use with the iPod. The company also recently launched the popular iPhone, a hand held device capable of providing iPod music and applications, internet and e-mail access as well as mobile phone capabilities (SEC 10-K, 2008).
Apple makes inventory purchase decisions through demand forecasts, product lifecycle status, product development plans, current sales levels and component cost trends. The company keeps enough inventory on hand to cover shipments and orders based on these forecasts. These inventory purchases are recorded on the income statement as part of the cost of sales and this cost is recognized in the quarter in which other costs of sales are recorded. Apple’s net income is reduced by write-downs on products in inventory that have become obsolete or in reduced demand. Although the forecast of product sales in the future is favorable, additional write-downs could negatively impact Apple’s income if inventory continues to be recorded in this way and sales do not go as planned (SEC 10-K, 2008).
According to the annual report, Apple faces fierce competition in the computer, digital music and overall technology market because of competitors’ abilities to offer very low prices and their own versions of software, hardware and digital music content that may be less proprietary than Apple’s products. Companies similar to Apple who also sell computer products based on their operating systems have significantly cut prices and lowered their product margins to gain a greater market share. Similarly, the consumer market is changing its focus from software capabilities more to internet access capabilities. For Apple to stay ahead of this market, it must offer low cost alternatives to the small, inexpensive internet access devices being introduced to the market (SEC 10-K, 2008). Yahoo! Finance offers a competitors feature that charts a company’s biggest competitors and their market shares. Apple’s direct competitor comparison according to Yahoo! Finance is below:
As you can see, the company’s direct competitors are mainly sellers of personal computers although Apple also competes in other markets such as digital music and cellular telephone manufacturer markets. According to the above comparison, Apple does not make as much revenue or income as other direct competitors but their higher gross margin says they will have more money left over to spend on marketing, operations and research and development to keep them afloat among tough competition. Their quarterly revenue growth is also the highest, and Price to Earnings Growth (PEG) is very promising over that of competitors. Based off of these numbers, I would say Apple has a better handle on future sales and revenue then that of its competitors.
Popular Media Views and Reports
Recently in the news, Apple reports that it is dealing with direct competitors by significantly cutting prices on their MacBook laptops in reaction to the growing popularity of netbooks – compact notebook computers that mainly offer internet access for a fraction of the cost of today’s computing notebooks with all of the additional software and hardware offered. Although, netbooks were once thought by industry research professionals to fail in sales, these little machines have been best sellers this year. Rumors are circulating in the media that Apple may cut MacBook sales up to $150.00 per unit to counter falling sales last quarter and with such a promising gross margin, the company can definitely afford to take a step in that direction (Elmer-Dewitt, 2009).
In other news from Forbes.com, Apple is reportedly expanding its market in the gaming industry – the last area of the technology market left for Apple to conquer. The company has hired industry professional leaders such as Richard Teversham from Microsoft’s XBOX team and Bob Drevin, the creator of the Nintendo Game cube’s processor chip. Plans appear to be in the works to corner the handheld gaming market for Apple’s new generation of iPods and iPhones. There was also a large amount of money invested in semi-conductor technology through acquirement of Imaginations Power VR graphics technology and purchase of a processor designer called PA Semi. This new technology is reportedly being used to improve the iPods and iPhones with newly produced silicon as well as faster processors and better cameras and technology (Caulfield, B. 2009). So far, the future is looking bright!
Like most other companies, Apple uses accrual accounting for revenue recognition in accordance with the American Institute of Certified Public Accountants. For this purpose, revenue is recorded when the product is in the buyers possession after shipment has occurred, if shipment requires the company to be liable for the product until it is delivered, or it is recognized when it is purchased online (such as software purchases) or by the retailer. According to the SEC 10-K, revenue is recognized when an arrangement exists, the product is delivered, the sales price is determined and payment is probable. This is where many financial analysts draw the line between cash flows and accrual accounting. Because payment is only probable and has not yet been received, sometimes it is more useful to use the operating cash flow amounts in conjunction with the net income amounts reported in financial documents when determining if investments in a company are sound decisions (Marshall, McManus, & Viele, 2008).
Ratio relationship and analysis of:
- Income Statement (SEC 10-K, 2008)
Income Statement Analysis
Apple uses a multiple-step formatted income statement which shows gross profit as well as operating income. Net income has increased significantly due to market expansion of the iPod and iPhone and increased brand recognition over the past few years. The company has a very efficient gross profit margin in 2008 of 34.3 percent ($11,145,000 Gross Profit / $32,479,000 Total Revenue) and 34 percent in 2007. Investors use this percentage to determine the amount of money a company has left over after subtracting the cost of goods sold. At a steady gross profit margin of 34 percent, investors can be sure that Apple has plenty of money left for profitability as long as overhead costs remain low. Another positive sign is that the gross profit margin is not fluctuating by a large amount over time, which can be a sign of fraud or accounting irregularities (Kennon, 2001).
Another consideration of the income statement is the Cost of Good Sold (COGS) or Cost of revenue percentage. In 2008, Apple’s COGS percentage was 66 percent, relatively high compared to major competitor Microsoft’s COGS percentage of only 19 percent for the same year. It is clear that the cost of Apple’s inventory is high and this could be an area where costs could be cut to increase profitability.
Overall, I would say the income statement for the company shows promise for the future. Overall income has increased over time; gross profit margin has also remained consistent and shows profitability. I do not consider the COGS percentage to be negative as the company prides itself on its higher priced goods and all other percentages prove strong sales volume.
Balance Sheet Analysis
Below is the Balance Sheet captured from the SEC 10-K. The balance sheet shows the liquidity of Apple and the ability of the company to pay debt in the short term or the current ratio. In 2008, Apple’s current ratio was (2.46:1). Another words, for every $1.00 of current liability due in the next year, the company has $2.46 in current assets that will convert to cash during the year to pay the debts. A current ratio of 2.0 or higher is considered healthy for a business.
Another consideration from the balance sheet and income statement is the Return on Assets (ROA) ratio, or the company’s ability to generate profit. In 2008, Apple’s ROA ratio was 12.22 percent ($4,834,000 net income / $39,572,000 total assets). For every $1.00 of assets Apple has, a profit of $.12215 is returned. This is the equivalent of a 12 percent return on investment and is very favorable from an investors or managers perspective (Marshall, McManus, & Viele, 2008).
- Balance Sheet and Stockholders Equity (SEC 10-K, 2008)
Lastly, we can look at how much Apple Inc. invested in the company. Apple has no long term investments which is favorable as they are not paying accrued interest on these investments and $12,615,000 in short term investments. Another favorable ratio is the Return on Equity (ROE), which reveals how much profit a company has generated from the money shareholders have invested (Investopedia, 2009). In 2008, Apple had a ROE ratio of 23 percent ($4,834,000 net income / $21,030,000 shareholder’s equity). This is a very favorable profit returned on monies invested by stockholders. In comparison that same year, competitor Microsoft had a ROE of 49 percent ($17,681,000 net income / 36,286,000 shareholder equity). Again, although Microsoft has a higher ROE, Apple remains a sound investment decision based on other factors in competitor data such as market share and gross margin. It is however important for investors and management to compare the profitability of a company of interest to other companies in the same industry for sound decision making purposes (Investopedia, 2009).
- Cash flows (SEC 10-K, 2008).
The cash flow statement shows how much actual cash a company has generated, whereas the income statement shows accrual accounting of revenues and expenses. It is important for investors and managers to pay attention to the cash flow statement because it shows the ability of a company to actually pay for its operations and growth. The ability to produce cash shows how well a company will fare if the business gets into financial trouble (McClure, 2009). Cash flows from financing activities have significantly increased over the past few years while overall change in cash and cash equivalents decreased by $437,000 in 2008. The balance of the two numbers shows that although the change in cash flow has decreased, the company has increased its financing activities and is improving revenue from that aspect. As an investor, this would be promising and should not cause alarm because of other totals on the cash flow statement such as the cash flow from operating activities increasing significantly over the past few years. The cash flow statement proves that Apple Inc. is more than capable of paying down debt should the future present challenges. The statement also shows that Apple is moving its cash flow from operating activities to investment activities for further cash flow in the future.
Based on the analysis of Apple Inc.’s financial statements, and SEC 10-K I would say that the company has a firm handle on the market and is ahead of its competitors in forward thinking about future operations and investments. The financial analysis shows a strong financial standing as well as a definite ability to handle adverse financial situations should they occur. Management would be smart in looking to Apple to stay ahead of competition in the technological market as well as to offer Apple’s products and sales force in their retail facilities. Investors can be fairly certain that Apple is a sound investment option as a company with a plan for maintaining its stronghold in the current market as well as in possible future markets. Apple is expanding its operations and product line at a safe rate while also anticipating changes for current products as they become obsolete or do not meet today’s consumer requirements in technology. Finally, from an accounting perspective, the numbers on the financial statements show sound accounting practices over time and the statements and company objectives on the SEC form 10-K seem to line up with the company’s overall financial reporting.
Caulfield, B. (2009). Apple’s Interest in Gaming isn’t Casual. Forbes.com. Retrieved April 20, 2009 from http://www.forbes.com/2009/05/01/apple-gaming-iphone-technology-enteprise-tech-apple.html?partner=yahootix
Direct Competitors Comparison. (2009). Direct Competitors data from Hoovers Inc. Retrieved from http://finance.yahoo.com/q/co?s=AAPL
Elmer-Dewitt, P. (2009). Would you pay $849 for a new MacBook? Fortune. Retrieved April 20, 2009, from http://apple20.blogs.fortune.cnn.com/2009/05/03/would-you-pay-849-for-a-new-macbook/?source=yahoo_quote
Investopedia. (2009). Return on Equity. Forbes Digital. Retrieved April 24, 2009 from http://www.investopedia.com/terms/r/returnonequity.asp
Kennon, J. (2001). Calculating Gross Profit Margin. About.com. Retrieved April 28, 2009 from http://beginnersinvest.about.com/cs/investinglessons/l/blgrossmargin.htm
Marshall, D. H., McManus, W. W., & Viele D. F. (2008). Accounting: What the Numbers Mean, 8e. New York: McGraw-Hill/Irwin.
McClure, B. (2009). Fundamental Analysis: The Cash Flows Statement. Investopedia. Retrieved April 24, 2009 from http://www.investopedia.com/university/fundamentalanalysis/fundanalysis8.asp
Security and Exchange Commission. (2008). Annual Report for Apple Inc (SEC Form 10-K). Washington, DC. Retrieved April 24, 2009 from http://yahoo.brand.edgar-online.com/DisplayFiling.aspx?dcn=0001193125-08-224958