INVESTING IN APPLE INCORPORATION
FIN 534-Financial Management
3 March 2015
In my paper, I will provide the rationale for selecting Apple Incorporation for which to invest. I will also determine the profile of the investor for which this company may fit. I will then use five financial ratios to analyze the past three years of the company’s financial data. Based on my review I will determine the risk level of the company indicating key strategies they may use in order to minimize the perceived risk. Finally, I will provide my recommendations of Apple Incorporation as a potential investment opportunity.
Investing in Apple Incorporation
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Apple is in constant upgrades of their software in order to remain relevant in the evolving technology industry. The innovations around updating the Apple pay software, iPhones and iPads is implausible (Linden et al., 2009).
The extent to which the company takes action to reduce business risks is a fundamental consideration in choosing to invest in Apple. Product diversification is one of the pragmatic ways companies take to cushion themselves from severe business risks. The company continues to diversify its range of products (Jacobides et al., 2006).
Investors should only commit their resources to a financially sound firm. The company should not only be profitable but also it should have a strong cash flow position. Apple has continued to record a year-to-year increase in its profits. The company has strong financial stability, focusing on creating and improving shareholders wealth. Though the iPhones sales in units have been on the decline, the revenue derived from the iPhones continues to grow (Linden et al., 2009). The strong financials are a clear indication that Apple will remain at the top in the tech industry.
Marketability of the shares
Another factor that an investor should consider while investing is the extent to which the company’s shares are marketable. Marketability of Shares ensures that investors can buy more shares or dispose of shares, as they desire. Apple’s shares trade in large volumes, with over 54.3 Million shares trade per day, resulting in high demand. The company’s recent stock splits have enhanced the marketability of the shares, increasing the attractiveness to potential investors.
Strength and competence of the management team
The strength, expertise and skills of the management team, form an essential consideration while choosing the company to invest your funds. Apple has a strong management team. Tim Cook, the current CEO, had served for a long time as the company’s chief operating officer. The experience is paramount in effective running of the company. Though the CEO is an expert in operations and not a technical geek, the company retains a tech savvy team at the management level. For instance, Craig Federighi, the software engineering vice president is an expert in spearheading innovations.
Stock buybacks and big dividends
Stock buybacks refer to the decision by a company to acquire back the shares it had sold to the investors. Stock buybacks are necessary since they reduce the number of the company’s shareholders. Buybacks are imperative in lifting the earnings per share. Apple continues to use its financial strength to reward investors by allowing buybacks (Linden et al., 2009). Moreover, the financial strength helps Apple to pay big dividends to its investors. Big dividends act as a primary motivator to the investors.
Financial and non- financial ratios forms a key consideration when making investment decisions. Financial ratios reveal...