After rulings in both the technological and financial markets, it seems that the financial position of Apple (AAPL) is deteriorating with decreasing sales of products. Apple, which is holding $514 billion in financial assets, is finally reverting and sharing its once captured stock market with other companies. In just two months, AAPL’s market value declined from $700 to $546.74 which was the largest decline since 2008. However, it is still very difficult to determine whether Apple has entered into recession after enjoying such a financial boom. For most investors, it is an opportune moment to buy Apple shares at such a low price, which is likely to improve in the next financial year. Apple’s financial facts and figures still ensure investors of its strong face value with a high discounted rate of yield very soon.
Apple’s current Financial Position and Market Challenges:
Currently, Apple is facing various business challenges in order to sustain its international financial position. Its current Price-Earning (P/E) has dropped to $12.39 which is the lowest in the last five years; not only that, its stock price also declined to $547.06 after touching $702 within two months.
As far as the business scenario is concerned, the company is facing far more competition than ever before. Apple’s deteriorating revenue is pulling down the financial worth of the company continuously. Apple’s biggest market rival, Samsung, is giving Apple a tough time in international markets as its smartphones have gained a 35 percent market share compared to only 17 percent for Apple. Even though Samsung lost the lawsuit and paid $1 billion dollar penalty, its market share in smartphones and tablets has increased dramatically and changed the whole industry.
There is no doubt that after the launch of the iPhone in 2007, Apple saw a healthy financial period; the company’s revenue increased from $32.48 billion in 2008 to $155.97 billion by the end of October 2012; the high profit margin increased the Earning Per Share (EPS) from 5.48 to 44.64 in the same period. After 2011, Apple began to increase its business; however its rate of return declined.
Although Apple saw persistent growth in the stock market from 2009 to mid-September 2012 reaching its highest level to date, the company could not sustain this position over the long-term.
Even after considering all of the above financial figures, it is still not possible to say with certainty that Apple has lost the market and will never be able to regain its prior position. The current market scenario is not showing the true picture of the financial position of Apple. The recently US election, Hurricane Sandy, and slow economic growth are the main factors behind the loss of financial market share for the company. Its financial position is still strong enough to fight for more than a year. The foremost factor for this is the low asset-to-debt ratio. Apple has only a $16 billion liability on $514 billion market capitalization which can protect it from any sudden bankruptcy.
Impact of Steve Jobs in the Minds of Investors:
There is no doubt that Steve Jobs gave his whole life to make Apple the world’s largest tech company. He started working for Apple at the age of 21 and led the company from $1.86 billion losses to the world’s second most valuable company after Exxon Mobile Corp. The success of Apple was fully associated with Steve Jobs and the financial market saw a great drop in the value of Apple shares when he left the company. Apple was a preferable investment option for all investors as its EPS was 7.06 and the company was enjoying persistent growth in its share value. On the day of his resignation, the AAPL’s market value dropped 7 percent, from $376.18 to $350 on the NASDAQ Stock Market. This fact underlines the trust investors placed in Steve Jobs ability during his time at the head of the company.
Tim Cook and Fluctuating Business & Financial Position:
After Steve, Tim Cook handled the company and retrieved the trust of the investors. Within few days the stock face value reached $700 the highest point ever in the history of the company. However, the high could not be sustained and market value declined to $547 within just two months, from September to October 2012 (its main reasons have been discussed above).
Investors think that Tim lacks creativity and imagination and believe that is why he has not come up with any innovative product since Steve
Jobs resigned. However, it is obvious that each person takes some time to understand and manage things in his or her own way. After the appointment, Tim faced various business challenges which were the real cause of the market crash. The foremost business challenge was the case with Samsung. The verdict against Samsung for copying iPhone technology boosted the stock market value of the company but that financial bubble could not be maintained. After that, the erroneous Apple map and a flawed Siri (iPhone sound recognition application) lost $30 billion of the value of the company in the stock market.
But Tim handled this critical situation effectively and decided to work on joint ventures with other suppliers; this has helped the company to expand to more than $600 billion in assets. With the changing trend of the market, he also launched iPad mini at the end of October in a bid to regain the market by offering a low-budgeted tablet.
Many financial analysts say that the current face/market value of APPL is overpriced. In the last financial year, the book value of AAPL’s share was $82.49 which was 87.35% more than the current price of the assets of Apple as it appeared on the balance sheet. But never forget the fact that many companies have a good financial reputation just because of market speculation.
There is one plus point on its balance sheet, which is that Apple has a very low asset-to-debt ratio. Having only a $16.6 billion liability with zero long-term debt is quite helpful when it comes to meet the current financial challenges, without losing its assets.
It is imperative that the company launches innovative products in order to secure its current market situation. The current economic slowdown is the main factor behind the decline in sales of Apple’s expensive products. However, countries like China and India, two emerging economies, may create demand for these products in the near future and could give the company some added impetus. Apple is facing business competition and challenges to regain its market share, but as the company realizes the current condition of the industry, it has the power to regain the market position it had before. So, it might be an opportune time to buy Apple shares at a lower rate, before it begins to rise again.