Apple (AAPL) is not only the most valuable company in the world and a world-class hardware manufacturer, the company also is a showcase in corporate capital allocation.
Company Overview
Apple, which was founded in the 1970s, has turned into a hardware giant that offers smartphones, tablets, computers, media devices, etc. On top of that Apple has grown its services segment, which includes iTunes, Apple Pay, the App Store, etc. into a sizeable business that grosses billions a year.
During the third quarter Apple was able to generate sales of $53 billion, a 17% increase year over year. The company earned $2.34 per share during the same quarter, an increase of 40% year over year.
Growth Prospects And Capital Allocation
The iPhone is Apple’s most important product by far, when it comes to revenue generation as well as when it comes to profit generation. The global smartphone market is mostly saturated, but Apple benefits from two trends: Due to bigger sizes and additional features the company is able to demand higher prices per iPhone, which results in higher average selling prices compared to previous years. Rising incomes in many emerging countries also allow Apple to capture market share globally, as more and more consumers are able to acquire Apple’s higher-priced products.
Apple’s services segment continues to grow at a highly compelling rate, during the most recent quarter the segment saw a 31% sales increase, the annual run rate is now close to $40 billion. As the amount of iPhone users around the globe continues to rise, and as Apple is adding new features and services regularly, investors can expect ongoing growth from this segment.
Apple generates massive cash flows: During the last fiscal year its operating cash flows totaled $64 billion. In general, there are five ways of allocating capital that corporations can chose from:
