“Problems with EVA and Accounting Rates of Return.” Considering Apple Computers, Inc, what specific problems – in this context – might your company experience?
Fundamentals of Corporate Finance by Brealey
Apple Computers, Inc was founded on April 1, 1976 by Steve Jobs and Steve Wozniak. Their vision was to make computers small enough and user friendly for people to have in their homes and offices. The two Steve’s, as they were known started out by building the Apple I in Job’s garage. The computers were first sold without a monitor, keyboard or casing, which were added on in 1977. In 1983 Steve Wozniak left Apple because he lost interest in the day to day running of the company. He was replaced by John Sculley with whom Jobs ultimately clashed and Steve Jobs left Apple to start another company; NeXT Software (Richardson 2008).
While Apple initially did well after Jobs left until the mid 1990’s when its market share started to slump and the company bought out NeXT Software and brought back Steve Jobs are interim CEO. Jobs made some key changes in the running of Apple and forged an alliance with Microsoft to create a Mac version of its software.
This was a turning point for the company with Jobs revamping the computers and introducing Apples first laptop, the iBook. He also started branching out into mp3 players and media player software; iTunes, also released was the iPhone. While all sectors of the company perform well, it is iTunes which was the most profitable product for the company. That is until first iPhone was released in 1983 and left iTunes revenue in the dust with revenues of 66% of total Apple sales.
Apple has continued to redesign, grow and expand its product line. This includes the Apple watch, the redesigned MacBook and the iPhone 7 as well as overhauling the Apple TV. In the case of the Apple Watch it seems that the company is committed to building functionality on the watch that makes sense, such as battery life and app performance. They might also have the
Watch to operate more independently than the original with improved Wi-Fi capabilities and more Bluetooth support.
It seems that Apple has started to design and sell items that can work independently but also have platforms that are interconnected. The first interconnection is Siri but there will be many more platforms to come for all of the platforms to work properly together (Leswing 2016). This was demonstrated when they removed the earbuds jack from the iPhone 7 and introduced their own product, Earpods. The Earpods are much more profitable for Apple and can be interconnected with the iPhone and iWatch. The one product that they are not redesigning is the iPhone, at this time they are just making marginal changes to the existing product in order to give the iWatch and the Earpods time to catch up and be able to interconnect on the platforms that Apple is trying to establish.
While many in the PC industry have struggled with differentiation and have to depend on software providers to manufacture their hardware, Apple does not. This allows Apple the ability to control the compatibility between the two aspects of a product as well as the compatibility of the products they manufacture to each other.
Apple also eliminated the need to compete in retail stores. While other companies are fighting for shelf space, position, etc, Apple invested in their own retail strategy by opening their own stores. They currently have 491 stores in 17 countries because Apple is aware of the importance of interacting with their customers to fully understand their needs and wants.
Date 1/30/2017 2/1/2017 2/3/2017 2/6/2017 2/8/2017 2/10/2017
Closing Price 121.63 128.75 129.08 130.29 132.04 132.12
(Yahoo 2017)
Apple disclosed their end of year numbers on January 31, 2017 and reported their highest revenue ever. This combined with the news that they would be issuing a dividend of $.057 per share helped bring Apple stock over the $130.00 mark in the stock market. In addition, their shares have been going up in anticipation of the next iPhone. Apple shares have been in an upswing since May 2016 and have shown a 36% increase since then (Reisinger 2017).
Apple is also continuing its buybacks, which will help the company’s debt immensely. This is good news for long term shareholders since Apple continues to remain an undervalued, high quality blue chip dividend growth that can be purchased today. This will in turn help the company’s bottom line.
Investors are still interested in being a part of Apple's continued success, however this is not stock that will go through the roof but it is a dependable stock choice. Its dividend yield is at two percent and they been increasing its payouts. Over the past four years their stock dividend rate increased by over 50%.
Apple is a solid company that has only continued to grow after Steve Jobs' death. With new products being introduced regularly and continued dividend payouts this company is poised to succeed for many years to come. Since the company's financials are very healthy and stock options continue to improve, it would be very wise to invest in Apple Computers, Inc.