Week 1, DQ 2: Apple’s Cash Flow
Go to . Enter in “AAPL” and click on the “get quote” button, and it will bring up information on Apple. On the left hand side you’ll see a section on Financials. Within that section, click on the cash flow. Review the cash flow statement for Apple. How would you summarize Apple’s cash flow position and what does this statement tell you about where the money is coming from and where it’s going? What would you suggest Apple’s do to improve its cash position and why?
Review the cash flow statement for Apple. How would you summarize Apple’s cash flow position and what does this statement tell you about where the money is coming from and where it’s going?
Looking at Apple’s Cash Flow Statement, it seems very strong. A sign of the current times is demonstrated in the large increase in the Accounts Receivable. Here we see a $2,105,000 K increase, or 70% rise from 2010 to 2012. This is an example of more and more people buying on credit.
A surprising difference for me was the decline in inventory. We see a reduction of $581,000 K over this three year period. Looking at the Balance Sheet to see the big picture, Apple now carries only 75% of the inventory it did in 2010. This difference may be due to the every changing technology environment. As fast as a product is made it is outdated and they do not want to retain outdated inventory on the shelf that they cannot sell. By not purchasing as much inventory, this will also account for the rise in Net Income. I would have expected to see a greater increase in the Research and Development figures on the Income Statement but there wasn’t. There is only an increase of $1,599,000 over the three year period which seems modest to me and must indicate that Apple relies on its suppliers for a lot of product development.
Apple saw a large increase in Capital Expenditures over this period. To understand why, I researched the change and found that Apple may have placed a significant investment in Sharp, which provides display panels for devices like the iPhone and iPad. (Hughes, 2012) It seems that Sharp and other suppliers may have over-stretched themselves in order to support Apple’s technology advancement and are now running into troubles. This may cause Apple to invest more of its own Retained Earnings (increased $64,120,000K or 37% in three years) in order to support its supply chain suppliers or take that role on themselves.
What would you suggest Apple’s do to improve its cash position and why?
Apple may have to actually invest some of their own capital in order to secure their supply chain and increase their long range profits. If suppliers such as Sharp have been footing the bill for much of the research and development and are now struggling, this could prove problematic to Apple. By investing in these suppliers, Apple will be able to secure their supply chain into the future. The alternative will be to develop these technologies themselves which seems to me to be larger undertaking. While this may temporarily cause a reduction in cash flow, the long term advantages seem worthwhile.
References:
Anonymous, (2012) Yahoo Finance, Retrieved from: