Daniel Hui
Summary:
On Monday October 18, 2010 Apple announced a new-all time sales record of $20 billion on the fourth-quarter results from the popular gadget lineup. The company sold 14.1 million iPhones, 3.9 million Macintosh computers and 250000 Apple TV devices in this quarter. Apple also stated that $2.7 billion of its sales came from iPads. However, investors of Apple were disappointed in the sales of only 4.2 million iPads which many analysts would have predicted more. However, Apple overall have established a profit of $4.3 billion which exceeds the Wall Street forecasts. Apple CEO, Steve Jobs, started to talk about competitions. Apple has outsold Research in Motion’s (RIMM) Blackberry devices in this quarter. He said “We don’t see them passing us near the future.” He also stated that Google’s mobile business is too fragmented to compete. However, the increasing competitions have caused Apple to stop its restrictions on apps for iPhones, iPads and iPod Touch devices. He also announced that Apple have a giant cash stash of $40 billion, but will not buybacks or pay a dividend. He concluded that Apple will keep its money incase of a mistake or an upcoming strategic opportunity.
Connection:
In chapter 2 it mainly analyzes different types of transactions and determines what accounts are affected. Transactions are an exchange of resources with another company or internal activities that affects the ledger. It was announced that Apple established revenue of $20 billion in the fourth quarter period. This transaction would affect the accounts revenue and cash. If this transaction were to be recorded, the revenue account would be credited $20 billion and the corresponding asset account, cash, debit $20 billion. Another connection of this article to chapter 2 is profit margin ratio. Profit margin ratio is a ratio that compares the net income over the revenues during an accounting period. It was reported that Apple acquired a profit of $4.3 billion during this accounting period. A profit margin ratio could be calculated by $4.3billion/$20billion= 21.5%. This indicates apple earned 21.5% of the amount of its revenues. Financial statements would also be another important factor in this article. When Apple obtained the $20 billion revenue, the financial statements would be affected by this transaction. Therefore this would have affect on the financial position and cash flow of Apple. Dividends declared are also related to this article since Apple CEO, Steve Jobs, announced they would not pay dividends. Instead Apple attempts to keep its money for a strategic opportunity.
Reflection:
In my opinion I support the decision of Apple to not pay a dividend or buybacks because there could be great opportunities for investments anytime. It would also be an advantage to have giant cash stash left in the company because if mistakes do occur it can be solved quickly and efficiently with money. Also with sufficient amount of cash in the company it could attract potential investors to invest into Apple. Therefore Apple will have more cash for business activities in the future.Apple is one of the largest and strongest companies in the world. However, Apple gave me a feeling of over confidence as CEO, Steve Job, announced that he doesn’t see BlackBerry devices passing us in the near future. He also began criticizing that Google’s (GOOG, Fortune 500) mobile business is too fragmented to compete. I disagree with what CEO,Steve Jobs, statement because BlackBerry and Google have great potential of growing and would be one of Apple's greatest rival. The increase in competitions caused Apple to stop restrictions on apps for iPhones, iPads, and iPod touch devices. I believe Apple made a correct decision because restrictions on apps are factor that causes many not to use Apple devices. I believe in future Apple will have many rivals for the competition on the sales of gadget devices. Therefore Marketing skills would take the major role in attracting customers to buy their products. Skills such as advertising and commercials will be very important on whether the company can earn a profit or not.
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ReplyDeleteA typical company would attract potential investors by issuing dividends and buy back shares to indicate a healthy financial position. However, this is not the case for Apple Inc. With Apple's dominance in the technology market, Apple doesn't need to attract investors through the issuance of dividends as its shares are already in high demand. I agree with your insight that Apple should reinvest its profit into technological research because Apple's products heavily depend on advanced features and physical design, especially when it comes to competing with giant corporations such as Google and Research in Motion. In addition, investing opportunities can go both ways. For example, iPad had criticism before the official launch, but in the end it ended up in the higher end. Therefore, having extra cash flow in a business is always an advantage.
ReplyDeleteSince I did my blog on the exact same article that you have done, I would like to say that although it is just for Apple to keep the money for accidental precautions, I believe that this is being unjust towards the investors that have placed their money in Apple. I understand that Apple requires extra money just to be safe, but I don't think that it is reasonable to keep the entire $20 billion for the company, instead of sharing parts of it towards the investors. How much that Apple should give to the investors as dividend should be calculated by professionals, which should give a rough estimate on how much Apple should require to keep as a boundary line.
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