Apple: Time to ‘Think Different TM’ about cash
This case is available at The Case Centre with reference no. 113-043-1.
Apple was founded in 1976 in Cupertino, California by Steve Jobs and Steve Wozniak. In August 2012, its stock price hit $700, making it by far the most valuable company in the world with a market capitalization transcending $650 billion. Strongly intertwined with the life of Jobs, the corporate history of Apple reads like a Greek drama. Its boundless creativity and innovation that pointedly transformed the personal computing industry translated into robust operating performance. 'Cash is king', is an awfully often heard management slogan, but what about keeping a colossal war chest of $121 billion? And how to frame the March 2012 payout pledge of $45 billion?
This case study assesses Apple’s performance using a long-term perspective. It explores Apple’s tax payments and investigates the company’s capital structure, cash position and dividend policy. All these elements have a significant impact on Apple’s value and on methods appropriate to gauge Apple’s valuation level. This case is intended to give MBA and/or Master in Finance students a profound insight into corporate finance in general, and financial statement analysis, capital structure, dividend policy and company valuation in particular.
The case covers:
- basic and advanced short-term and long-term operating performance and financial statement analysis;
- assessing a company’s risk profile;
- judging corporate tax avoidance strategies;
- complexities in enterprise valuation, like how to deal with excess cash, multiple and DCF valuation issues, estimating appropriate betas;
- stock splits and reverse stock splits;
- how much cash should companies hold and how should excess cash be invested;
- a critical discussion of Apple’s dividend policy and capital structure;
- top management compensation packages and employee stock options (ESOPs).
The case study is designed very broadly, and can be used as a relatively advanced case at the end of a course in corporate financial management. Alternatively, it could also be used to train students in some specific areas by focusing on a couple of questions and leaving out the rest: financial statement analysis, company valuation, capital structure and dividend policy. It provides an excellent basis for a rich class discussion on numerous aspects of corporate finance.