AppleAppleSTUDENT MANAGED INVESTMENT FUND

Katherine GonzalezZachary Schwager Carlos Valcarcel

Special Thanks to: John Neumann

AgendaAgenda

I. Company OverviewII. Product line-upIII. Geographical SalesIV. Apple 10 yr Stock chartV. Industry OverviewVI. Current EventsVII. Fundamental AnalysisVIII. DuPont AnalysisIX. Market ShareX. Pro Forma Income StatementXI. Relative ValuationXII. Absolute ValuationXIII. Recommendations

Company OverviewCompany Overview

Apple Inc. was founded by Steve Jobs and Steve Wozniak in 1976.

Apple Computer, Inc., is an American multinational corporation with a focus on designing and manufacturing consumer electronics and closely related software products

As of September 2007, the company operates 194 retail stores in the United States, and more in the United Kingdom, Japan, Canada, and Italy

For a variety of reasons, ranging from its philosophy of comprehensive aesthetic design to their advertising campaigns, Apple has engendered a distinct reputation in the consumer electronics industry and has cultivated a customer base that is unusually devoted to the company and its brand, particularly in the United States.

Product line-upProduct line-up

ComputersCellular phonesMP3 playersSoftwareOnline Music VendorDistributes third party computer

Accessories “Apple TV” an online television adapter

Revenue by ProductRevenue by Product

Geographical SalesGeographical Sales

The Company manages it business on a geographic basis. The operating segments consist of Americas, Europe, Japan, and Retail.

AAPL 10 Year Stock ChartAAPL 10 Year Stock Chart

Industry OverviewIndustry Overview

Apple Inc. competes in the Technology Industry, Their focus is:◦ Computers◦ Cellular Phones◦ Online music◦ Software◦ Computer accessories

The Technology Industry is highly competitive and characterized by rapid technological advances in both hardware and software.

Because Apple participates in several components of the highly dynamic Technology Industry, Apple’s strategy has been to be an Innovator rather than a follower.

Apple’s Greatest competitor is the Microsoft Corporation.

Current EventsCurrent Events

Financial Results◦ Apple reported highest ever 4th quarter revenue and earnings:

Revenue increase over 6.22 billion or 29%, driven by strong Mac and iPods sales Robust growth from iTunes revenue 2007 Fiscal Year EPS: $3.93, up 73%

iPhone◦ Apple sold over 1.1 million iPhones over the last quarter,◦ Began selling iPhones in Europe November 9, 2007◦ Apple plans to sell 10 million iPhones in 2008

Apple will also unveil a new sub-portable MacBook ◦ The ultra-portable laptop is expected to be 50% thinner than the existing MacBook◦ Will contain flash-based memory instead of a disc drive.

New Apple store highlights "geniuses," services◦ Apple stores pulled in $1.25 billion in revenue in the company's last fiscal quarter◦ 42% jump from a year earlier and accounting for a fifth of total revenue.

Income/Cash FlowIncome/Cash FlowSales

Net IncomeCash Flow from Operations

Sales GrowthSales Growth

Net Income GrowthNet Income Growth

Cash Flow from OperationsCash Flow from Operations

Operating PerformanceOperating PerformanceROEROAEBIT

Net Profit MarginAsset Turnover

ROE ROE

ROAROA

EBITEBIT

Net Profit MarginNet Profit Margin

Asset TurnoverAsset Turnover

Short Term LiquidityShort Term LiquidityCurrent Ratio

Quick RatioReceivables Turnover

Current RatioCurrent Ratio

Quick RatioQuick Ratio

Receivables TurnoverReceivables Turnover

Long-term SolvencyLong-term Solvency

DuPont AnalysisDuPont Analysis

Decompose ROE into its components (Asset Turnover, Net Profit Margin, Financial Leverage) in order to analyze what might be trying to change ROE. Net Profit Margin Has significantly been increasing and affecting ROE.

Market ShareMarket ShareA comparison with Apple’s main A comparison with Apple’s main

competitors to establish it’s competitors to establish it’s market-share in the industrymarket-share in the industry

Pro Forma Income StatementPro Forma Income Statement

Industry Revenues ---------------------> 379,580.90  307,620.00  461,917.00

  2006  2007  2008Market Share 5.09%  7.80%  6.50%

           

Desktop 3,319.0 17.18% 4,020.0 16.75% 

Portables 4,056.0 21.00% 6,294.0 26.22% 

Ipod 7,676.0 39.74% 8,305.0 34.60% 

Other Music Related products & Services 1,885.0 9.76% 2,496.0 10.40% 

Iphone & Related products and Serivces -  123.0 0.51% 

Peripherals & other hardware 1,100.0 5.70% 1,260.0 5.25% 

Software, service, and other net sales 1,279.0 6.62% 1,508.0 6.28% 

Total Net Revenue 19,315.0 100.00% 24,006.0 100.00% 30,045.0

Total COGS 13,717.00  15,852.00  21,559.95

GROSS PROFIT 5,598.00  8,154.00  8,485.05 Gross Profit Margin 28.98%  33.97%   

Total COGS as % of Rev 71.02%  66.03%  71.76%

SGA, Operating Expenses 3,145.0  3,745.0  4,482.71

Op Exp as % of Revenue 16.28%  15.60%  14.92%

OPERATING INCOME $2,453.00  $4,409.00  4,002.33

Pro Forma Income Statement cont .Pro Forma Income Statement cont .

Unusual Item         0

OPERATING Inc After Unusual Item $2,453.00  $4,409.00  4,002.33

OTHER INCOME (EXPENSE)          

Interest Income 394.0  647  657.5624

Interest Expense 0.0  0.0  0.0

Net Interest Income (Expense) 394.0  647.0  657.6

Gain on sales of prop/equip 0.0  0.0  0

Other Income (Expense) Net 29.0  48.0  48.0

EBT $2,818.00  $5,008.00  4,611.90

Income Taxes $829.00  $1,512.00  1,385.87

EAT $1,989.00  $3,496.00  3,226.02

NET INCOME $1,989.00  $3,496.00  3,226.02

Diluted Shares 877.5  889.3  905.3

EPS $2.27  $3.93  3.56

Realized Tax Rates: 29.42%  30.19%  30.05%

Relative ValuationRelative Valuation

Relative ValuationRelative Valuation

Relative ValuationRelative Valuation

Absolute ValuationAbsolute ValuationFCFF Model

Absolute Valuation Absolute Valuation - Cost Of Capital - Cost Of Capital

Absolute ValuationAbsolute Valuation

Absolute ValuationAbsolute Valuation

E(FCFF) = FCFF2007 * (1+g)t

Absolute Valuation Absolute Valuation Terminal ValueTerminal Value

E(FCFF)2014 = FCFF20013 * (1+g)

Absolute ValuationAbsolute Valuation

RecommendationRecommendationBuy 100 Shares