TO: Christopher Thacker, Managing Partner Towson Cornerstone GroupFROM: Jacob Mitchell, Junior Analyst Towson Cornerstone GroupDATE: September 12, 2016

SUBJECT: Apple is in Great Financial Standing

As requested, I have conducted a comparative financial analysis between Apple and its top competitor. The results show Apple currently in a great financial position. In order to make this conclusion, I first, determined that Microsoft is Apple's top competitor. Then, I took a set of five indices and compared each company to industry standards. I found that Apple is doing notably well in the areas of net income growth and earnings per share.

Five Indices Show Apple AheadApple looks great in comparison when looking at all five indices. Table 1 shows each standard and the companies current condition.

Index Standard Apple MicrosoftNET INCOME Percent Growth 27.94% -(23.17%)EPS Industry Average: $5.71 $8.56 $2.05P/E RATIO Industry Average: 20.36 12.85 28.10QUICK RATIO Greater than 1 1.08 2.31STOCK PRICE Target: AAPL$120

MSFT$61intra $107.706mo $100.631yr $104.31

$57.61$52.63$54.99

NOTE: Data regarding industry standards was obtained from NASDAQ.com, the largest stock exchange association in the world (NASDAQ, 2016a, p1) (NASDAQ, 2016b, p.1).

Apple has high net income growth. Table 1 shows that Apple's net income growth rate us 27.94%, which exceeds the standard (NASDAQ, 2016a, p.1). Apple's net income for Q3 9 months ended is $36.67BIL ("Apple Reports...", 2016). Microsoft is experiencing regression in their net income, with numbers going down 23.17% (NASDAQ, 2016b, p.1). This is the result of the new CEO, Tim Cook, who has boosted revenues 101% since taking over in 2011 (Graham, 2016, para 4).

Apple has high EPS. Table 1 shows that Apples earnings per share is $8.56, which exceeds the standard (NASDAQ, 2016a, p.1). This means that the company is currently very profitable to investors. Apple's EPS is four times higher than Microsoft, who has an EPS of only 2.05 which falls well below industry standards (NASDAQ, 2016b, p.1). This is most likely due to the increase in use of Apple products by mainstream consumers (Rogers, 2016, para 2)

BCE MEMORANDUM

Apple has a good P/E. Apple's price to earnings ratio is 12.85 (NASDAQ, 2016a, p.1). The P/E ratio for Apple is much lower than both Microsoft and the Industry Average. This makes Apple an attractive stock because a lower P/E shows better performance (Frenette, 2016, para 2). In contrast, Microsoft's P/E is more than double than Apple's and is higher than the industry average. This could be due to the fact that Microsoft was more popular in the 90's and Apple is more popular now.

Both companies have good quick ratio. Apples quick ratio is only 1.08, which exceeds that standard of 1 (NASDAQ, 2016a, p.1). It is possible that Apple's quick ratio is low due to the fact that they are releasing a new product this quarter, which require much research and development (Rogers, 2016, para 4). The quick ratios show that both companies are able to liquidate their assets and come away with a profit. This is due to the fact that the ratio is greater than one so both companies are in good standing ("Quick Ratio", 2016).

Both companies fall short with stock price. The stock prices for both companies are coming up short of their targets. Apple is seeing a slow in revenue growth; for example, this past year was the first time in 13 years that total revenue fell below the consensus projection (Rogers, 2016, para 4). This could be due to the fact that they did not release a new iPhone model in the past year, which is their top seller.

Two Very Similar CompaniesThe Microsoft was chosen due to the fact that each company sells products in the technology industry. Comparable products include computers, laptops, operating systems, word processors, various software, "cloud" storage, cell phones, and other electronic devices.

Let's Discuss Apple's Great Financial StandingAfter looking into all five indices and comparing them to Apple's top competitor, it is clear that they are doing very well financially. If you have any questions please do not hesitate to call me at (443) 243-4553 or email me at jmitch22@students.towson.edu. I look forward to hearing back from you and discussing Apple's impressive financial position.

References

Apple Reports Third Quarter Results. (2016, July 26). Retrieved from

http://www.apple.com/newsroom/2016/07/apple-reports-third-

quarter-results.html

Frenette, J. (2016, August 18). Why Apple, Inc. IPhone Growth Will Pick

Up Again? Retrieved September 12, 2016, from

http://amigobulls.com/articles/why-apple-inc-iphone-growth-will-

pick-up-again

Graham, J. (2016, August 24). Tim Cook at 5 years: More Profits, Less

Innovation. USA Today, Tech, p. 1. Retrieved from

http://www.usatoday.com/story/tech/2016/08/24/tim-cook-5-years-

more-profits-less-innovation/89206978/

Kenny, B. (Producer). (2016, September 1). Behind the Apple Tax

Situation, an Unprecedented Financial Policy. HBS cold call.

Podcast retrieved from http://hbswk.hbs.edu/item/behind-the-apple-

tax-situation-an-unprecedented-financial-policy

NASDAQ (2016a, September 9). Retrieved September 12, 2016, from

http://www.nasdaq.com/symbol/aapl/financials?query=income-

statement

NASDAQ (2016b, September 9). Retrieved September 12, 2016, from

http://www.nasdaq.com/symbol/msft/financials

Quick ratio. (n.d.). Retrieved September 12, 2016, from

http://www.investopedia.com/terms/q/quickratio.asp

Rogers, A. (2016, July 14). Your analyst forecast for apple's fiscal 3Q2016.

Retrieved September 12, 2016, from

http://marketrealist.com/2016/07/analysts-expect-apples-fiscal-

3q16-earnings/