Financial Decision-Making in a High-Growth Company: the Case of Apple Incorporated J
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Management Decision Financial decision-making in a high-growth company: the case of Apple incorporated J. Nicolás Marín Ximénez, Luis J. Sanz, Article information: To cite this document: J. Nicolás Marín Ximénez, Luis J. Sanz, (2014) "Financial decision-making in a high-growth company: the case of Apple incorporated", Management Decision, Vol. 52 Issue: 9, pp.1591-1610, https://doi.org/10.1108/ MD-10-2013-0557 Permanent link to this document: https://doi.org/10.1108/MD-10-2013-0557 Downloaded on: 23 August 2017, At: 07:11 (PT) References: this document contains references to 8 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 4076 times since 2014* Users who downloaded this article also downloaded: (2013),"Examining technological innovation of Apple using patent analysis", Industrial Management & Data Systems, Vol. 113 Iss 6 pp. 890-907 <a href="https://doi.org/10.1108/IMDS-01-2013-0032">https:// doi.org/10.1108/IMDS-01-2013-0032</a> (2011),"Crisis management in smart phones: the case of Nokia vs Apple", European Business Review, Vol. 23 Iss 3 pp. 240-255 <a href="https://doi.org/10.1108/09555341111130236">https:// doi.org/10.1108/09555341111130236</a> Access to this document was granted through an Emerald subscription provided by emerald-srm:478448 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Downloaded by PUCRS At 07:11 23 August 2017 (PT) Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download. The current issue and full text archive of this journal is available at www.emeraldinsight.com/0025-1747.htm Financial Financial decision-making in decision-making a high-growth company: the in a high-growth case of Apple incorporated company J. Nicolas Marı´n Xime´nez and Luis J. Sanz 1591 INCAE Business School, Alajuela, Costa Rica Abstract Purpose – The purpose of this paper is to develop conceptual knowledge and skills in making financial policy decisions in a rapidly growing and profitable enterprise. Design/methodology/approach – This teaching case was written by documenting and analyzing published information available to the public about Apple. It presents Apple’s situation at the end of April 2012. The company reported net profits of US$11.6 billion and income from sales of US$39.186 billion both for the January-March 2012 quarter. Given this highly successful situation, students should assume the role of the company’s chief financial officer, Peter Oppenheimer, and make recommendations to the board of directors about what to do with what appears to be a huge cash surplus that the company has accumulated through the years. Findings – Students/participants are usually surprised by the fact that accumulating excess cash could become a problem for any company. Through several discussions of the case the authors have found that answers to this central dilemma depend on students/participants’ experiences. Executive education participants try to maintain the cash and find possible investments, while the less experienced (MBA students) worry about the negative effects of the excess liquidity on value creation. While the former group might be influenced by cash constraints situations frequent in Latin America, the latter group approaches the problem from a theoretical perspective. Research limitations/implications – Since the case was written using public data, therefore it does not take into account the actual opinions and actions of Apple’s management team except for those reported by the press. Practical implications – The case points toward an overall discussion on conceptual topics such as dividend policies, share buybacks, and stock splits. It frames this discussion in terms of a financial strategy matrix developed by Hawawini and Viallet. According to this matrix, the company is creating value with excess liquidity, and this context helps practitioners to determine the optimal solution and Downloaded by PUCRS At 07:11 23 August 2017 (PT) provides executives with a clear guideline. The management’s problem, in this case, is to find ways to invest surplus liquidity productively, or failing that, to define the best way to return it to shareholders. Originality/value – This teaching case provides students and practitioners with a practical application of the Hawawini and Viallet framework to the solution of the financial problem faced by successful companies like Apple. Moreover, it shares the teaching experiences of the authors in both MBA and executive education programs. Keywords Financial management, Case study, Apple, Financial analysis, Executive education, MBA programs Paper type Case study Introduction At the end of April 2012, Apple Incorporated, the manufacturer of the iPhone, iPad, and Mac, reported net profits of $11.6 billion[1] for the January-March 2012 quarter Management Decision The authors would like to thank the more than 100 MBA students and executive education Vol. 52 No. 9, 2014 participants who through their contributions to class discussions have enriched our views on the pp. 1591-1610 r Emerald Group Publishing Limited issues and concepts presented in this teaching case. The authors also would like to express the 0025-1747 appreciation to Mayid Sauma, Connie Jones, and Frank Azevedo for their editorial assistance. DOI 10.1108/MD-10-2013-0557 MD (second-quarter of the fiscal year), with sales income of $39.186 billion for the same 52,9 quarter. These solid numbers were as favorable as the previous year’s, when the company had net profits of $6 billion on sales of $24.7 billion (see Tables I and II). Apple had forecasted profits of $8.50 per share and sales income of $32.5 billion for the quarter and had communicated that to Wall Street investors; but as was customary with Apple forecasts, they were low and quite conservative. The company’s 1592 real results were $12.30 a share, a positive “surprise” that represented a 44.7 percent increase in profits. In terms of products, the company sold 35.1 million units of its interactive telephone (an 88 percent increase), 11.8 million electronic tablets (151 percent increase), and four million computers (7 percent increase). No one knew the causes of the drop in share price, but speculation, besides the fact that Steve Jobs was no longer around, centered on several reasons (see Table III): (1) an end to the subsidies received from operators and contracts with AT&T and Verizon, subsidies that had encouraged iPhone sales; (2) the sharp rebound in Apple stock over the last three months had represented considerable capital gains for investors; and (3) the fact that Apple was not expected to launch any new products in the market during the next few months, except for updates to its Mac laptops. Opening today $584.90 Closing monday $583.98 Maximum in 52 weeks $644.00 Minimum in 52 weeks $310.50 Market capitalization (billions $) $546.10 Average volume in 10 days (millions) 28.6 Table I. Shares in the market (millions) 935 Apple Incorporated share history (April 30, 2012) Source: finance.yahoo.com Downloaded by PUCRS At 07:11 23 August 2017 (PT) Size Data per share Ratios Market $546.10 Earning per share $ 41.02 Gross margin 0.4395 capitalization (billions $) Value of the $517.50 Income per share $ 151.29 Capital yield 0.471 company (billions $) Income from sales $142.40 Cash flow per share $ 43.68 Price/sales 3.8x (billions $) Net income $38.60 Dividends per share $– Price/earnings 14,2x (billions $) No. of employees 60,400 Book value per share $ 109.63 Price/book value 5,3x (MRQ) (MRQ) Table II. Notes: MRQ, Most recent quarter. aAll data correspond to the last 12 months, unless otherwise noted; Apple Incorporated bcompany value ¼ market capitalization þ debt þ minority interest þ preferred stockÀcashÀcash analytical tools equivalents (April 2012) Source: finance.yahoo.com The company’s financial results for the quarter not only helped to stop the drop in its Financial price per share over the previous two weeks on the NASDAQ, but also increased the decision-making share price significantly (see Tables IV and V). In fact, the previous few days had not been easy for Apple. Before announcing the quarter’s positive results, the company had in a high-growth been fighting to keep a $560 per share price, after having reached a peak of $644 on company April 10. With the good news, Apple’s share price had increased more than $50 in just a day (April 20, 2012) to reach $612. Over the next few days, the share price stabilized 1593 between $600 and $610. Despite growth in Apple’s market price, analysts continued to give the company the benefit of the doubt. Most thought that the company’s value was increasing and maintained a forecast of $700 per share over the next 12 months. However, a few analysts admitted that the company’s attractiveness in the short term was limited and warned that its share price could decrease (see Figures 1 and 2 and Table VI).