Project Financing Essay: Apple Incorporation Case Study
Introduction
According to Haslam, Tsitsianis, Andersson, & Yin (2013), the world’s most valuable technology company in terms of stocks and market valuation is Apple Incorporation. Authors assert that the enterprise continues to combine new customer devices and internet platforms as a way of implementing its marketing strategies. The organization’s resurgence has been extraordinary, demonstrating just how crucial it is for a firm to have the capacity to innovate as a way of gaining comparative advantage over the rest of the competitors in the market. The paper looks at the identity of products and services that Apple Incorporation has rolled as a bandwagon demonstrating its potential in the market. By extension, the identification of those products and services is to cover an analysis of the quality of the existing products, the returns coming in as well as the financing of the new products.
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Apple Incorporation intends to roll out a new watch series for its target market dabbed Apple Watch Series 3, in the coming months (Hennessy & Najjar, 2017). Some of the features that will make the watch unique will include a two-day battery life, capacity for water resistance as well as availability of GPS. More significant is the fact that the watch will be subjected to updates so that new features can be added on the series to come in future. The drive behind coming up with the product is to ensure continued improvement and perfection on the products and services that the company offers.
With the advent of the company’s iPhone as the pillar of its prowess, steps have been taken to identify strategic plans that could be used to diversify profit generation. The organization realizes that the smartphone boom may no longer be profitable moving into the future, hence requiring the manufacture of other standalone devices from the company can sell profitably. The primary advantage of the device to be introduced would be in its ability to connect to cellular internet while allowing for the placing of calls. The firm seeks to assure the customers that an operating system can be made functional through software that link fundamental interface.
The world recognizes Apple Incorporation’s superiority when it comes to products able to command price premiums as well as loyalty. The secret of the organization is in two primary areas. The first is in the investments made in research and development (R&D) so that the products are thoughtful and portray a sense of choice in the materials used. The second area pertains to the performance of the organization when it comes to ratio analysis in the previous years. For example, the company’s return on equity increased from 33.3% at the end of December 2016 to 37.7% today (Hennessy et al., 2017). The figures give a justification of the fact that the amount of income the organization has been investing into different products and services have been bearing fruit concerning the amount of returns shareholders are able to get back.
If the shareholders are getting back the money they invested into a business within the shortest time, it means other stakeholders are also likely to have an interest in the organization’s operations in future. Comparing returns on capital earned between 2015 and 2016, one realizes that the company made strides in ensuring that the figure increased from 237.9% to 256.4% respectively. The figures are a measure of the amount of profit the institution generated for every dollar they put into the manufacturing of products and the offering of services. As such, the statistics on cash returns of the company look promising even though in the years beginning 2010, the percentages were much higher.
Financing of the new initiative
With a strong financial position on total assets owned, Apple Incorporation has proven that it is the best within the ranks of the worldwide market. By 2012, the company had a cash in hand of up to $116 billion dollars, demonstrating that it has the capacity of financing any initiative that it strategically identifies to take it to the next level. Moreover, the organization does not borrow to finance its initiatives (Priyadarshan, Mohammed, Cuccinelli, Chittari, Miller, Vadrevu, & Rothman- Shore, 2014). The economies of scale and scope available ensure that investments go into research and development as a way of maintaining lead positions in profit margins. The initiative involving the introduction of watches would be financed based on the retained earnings that the company has been accumulating from the profits generated annually.
Three concerns explain the financing of the new initiative. The first is that the company’s value has remained stable even with micro-economic changes within the United States. The global financial crisis of 2008 that had negative influence on inflation, currency movements as well as interest rates saw Apple only emerge stronger and become a success. The second concern is on the sensitivity of the institution’s operating income, which has been challenged from time to time. The influence of the macro-economic variables cannot be wished away considering the declines witnessed on the return on capital. However, the institution has always strived to ensure its operating income does not decline through various forms of innovation. Thus, while the value is stable to the variables, the operating income is subject to changes.
References
Haslam, C., Tsitsianis, N., Andersson, T., & Yin, Y. P. (2013, December). Apple’s financial success: The precariousness of power exercised in global value chains. In Accounting Forum (Vol. 37, No. 4, pp. 268-279). Elsevier.
Hennessy, J., & Najjar, A. (2017). Apple Computer, Inc.: Think Different, Think Online Music. Kellogg School of Management Cases, 1-24.
Priyadarshan, E., Mohammed, I., Cuccinelli, J., Chittari, R., Miller, A., Vadrevu, J., & Rothman- Shore, J. W. (2014). U.S. Patent No. 8,762,556. Washington, DC: U.S. Patent and Trademark Office.
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