They say a picture is worth one thousand words.
The graph below, courtesy of Stock Rover, may seem like “noise” at first glance. But look closely to find an interesting story about how Apple has evolved over the past ten years to become one of the most efficient, profitable and cash-rich companies in the world.
Sky-high shareholder returns
Let’s start with the orange line, the only one that seems to show a clear trend higher. It depicts Apple’s return on equity. Believe it or not, Apple’s ROE is currently a mind-boggling 73%, which is more than three times better than the average of the FAAMG group ex-Apple.
I explained in a recent post what has caused Apple’s ROE to skyrocket from about 27% a decade ago to today’s stratospheric levels. The success of the iPhone and iPad, launched in 2007 and 2010 respectively, drove operating profits substantially higher. As a result, “return” (the numerator in the ROE equation) climbed consistently between then and now.
But the ROE trick was only possible due to share repurchases. Apple started to buy back its stock aggressively between 2013 and 2014, lowering the denominator in the ROE equation. That was also the time that the company began to accumulate debt and accelerate shareholder distribution – when much of Apple’s liquidity was tied up overseas and cash could not be easily repatriated.
Most “bang for the buck”
Now we shift to the blue line: sales per employee. The ups and downs stand out at first glance. This is the case because Apple’s sales are highly cyclical. Revenues tend to be much higher in the holiday season, and lower in the late summer quarter.
What is not evident in the graph is that Apple has the highest revenues per employee within the FAAMG group (Facebook, Amazon, Apple, Microsoft and Google’s parent Alphabet). In the trailing twelve months, each Apple employee accounted for a whopping $2.0 million in revenues, on average.
The number speaks to the Cupertino company’s efficiency. Relative to high sales volume and its trademark high-ticket tech devices, Apple has few employees – 137,000 to be more precise.
Interestingly, however, the sales-per-employee trend has been declining slightly since 2015. The maturing smartphone business that has led to sales growth plateauing in the past few years could be the culprit here.
A cash machine
Lastly, check out the green line above. Free cash flow yield is a measure of total cash generated from operations minus capital investments, divided by market value of equity.
The current yield of 3% is low compared to “cash cows” in other industries – think of AT&T, for example. Yet, Apple is the best ranked among FAAMG peers in this category.
The company’s cash generated relative to sales is high, at about 25%. This ratio reflects not only very decent margins, but also operational diligence. Think about Apple’s obsession over inventory management, which I have recently discussed. It is the commitment to running a tight ship that has helped the company become the cash machine that it is today.
Explore more data and graphs
All the charts and data used in this article were provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to track custom portfolios and measure their performance relative to a number of benchmarks.
To learn more, check out stockrover.com and get started for as low as $7.99 a month.
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. Thanks for supporting The Apple Maven)