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Apple: How These 3 Financial Trends Tell A Compelling Story

Look more closely at Apple’s financial statements and one can spot interesting trends that tell a compelling story about this impressive tech behemoth. Here are three that are worth exploring.
  • One can learn quite a bit about a company by looking at its financial statements and spotting a few key trends.
  • In Apple’s case, I zoom in on three that I find particularly interesting: gross margin, cash position, and inventory levels.
  • What do these three trends tell Apple  (AAPL) - Get Free Report investors about the Cupertino company?
Figure 1: Apple: How These 3 Financial Trends Tell A Compelling Story

Figure 1: Apple: How These 3 Financial Trends Tell A Compelling Story

(Read more from the Apple Maven: Apple Stock: Santa Claus Disappointed, But What’s Next?)

#1. Apple’s Gross Margins

When it comes to the tech space, growth tends to be the catchy word to which investors hang on. And to be fair, Apple has grown its revenues by a respectable annualized rate of 15% over the past three years.

But what I think differentiates Apple is its gross margin. Yes, 43.3% in fiscal 2022 was a pretty rich number, in isolation. But more importantly, the figure has climbed consistently since at least 2019, as the chart below shows.

Figure 2: Apple's gross margin since 2019.

Figure 2: Apple's gross margin since 2019.

Companies can grow revenues fairly easily relative to how much more complicated it is to improve profitability. In the case of Apple, there isn’t one single driver than explains a jump from 37.8% in fiscal 2019 to 43.3% last year.

The following few reasons help to understand what may be happening:

  • Apple has become much more dependent on its services segment. This business has margins that are about twice as high as those seen on the product side.
  • Demand for Apple products has been strong, which has helped to give the company pricing power. The 2017 iPhone X was the first to be priced at $1,000 – an outrage to many, at the time. Today, the iPhone 14 Pro Max goes for as much as $1,600.
  • Apple has introduced ARM architecture and the M-series chip to its line of Mac and iPad. It is possible that the shift has helped to improve margins.

#2. Apple’s Net Cash

The next graph shows a trend that could be perceived as negative. Apple’s cash equivalent position, net of debt outstanding, has declined from a mind-boggling $206 billion in fiscal 2019 to $169 billion last year.

Figure 3: Apple's net cash position since 2019.

Figure 3: Apple's net cash position since 2019.

But the chart above reflects something positive that has been happening in Cupertino: Apple has been quite successful at (1) investing back in the business via capital expenditures, R&D, and M&A; (2) paying a dividend; and (3) returning loads of cash back to investors via buybacks.

In 2022, Apple spent nearly $90 billion buying its own stock, 34% more than the 2019 sum – and the company’s cash pile remains neck-high. This was only possible due to a heavy inflow of cash from operations, which reached $122 billion last year.

#3. Apple’s Inventory

This final graph impresses less for the trend itself (although it has been favorable lately) and more for the absolute numbers that it displays. Relative to Apple’s cost of goods and services, the company had minimal quantities of inventory on hand: only 2.2% of COGS in fiscal 2022.

The ratio is minuscule. Microsoft, for example, another tech giant that is known for the quality of its management practices, held inventory in 2022 that was equivalent to 6% of COGS.

Figure 4: Apple's inventory relative to COGS since 2019.

Figure 4: Apple's inventory relative to COGS since 2019.

Why are low levels of inventory good? CEO Tim Cook himself once said the following:

Inventory is fundamentally evil. You kind of want to manage it like you're in the dairy business. If it gets past its freshness date, you have a problem.

By being lean, Apple can “shift gears” much more easily when it comes to production and marketing. A certain product is not doing well with consumers? Well, at least Apple is not storing massive quantities of the item in a warehouse.

Apple is able to operate this efficiently because it relies heavily on its network of suppliers – a strength that has acted as somewhat of a weakness during times of COVID-19 restrictions and plant shutdowns.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)