Read the following Operating Results MEMO and then answer the following two questions.

Subject: Apple Inc. Executive Summary Operating Results

Objective of the Analysis

The following analysis utilized historical data for the five-year period of 2016-2020 with five years of projections through 2025. The objectives for the analysis were to determine whether the current price of the stock reflects firm performance and to identify strengths and challenges/weaknesses in performance.

Operating Results

Summary: The trend for net income for 2016-2020 has been mixed, with the company earnings of $45.7 billion for 2016 and $57.4 billion for 2020. The high point for earnings was $59.5 billion for 2018. The compound annual growth rate (CAGR) for the period was 5.9%. Net income for 2020 was 3.9% higher than 2019.

Revenues: The trend for revenues has been mixed, with revenues totaling $215.6 billion for 2016 and $274.5 billion for 2020. The high point was $265.6 billion for 2018. The CAGR for the period was 6.2%. Revenue for 2020 was 5.5% higher than the prior year.

Gross Profit and Cost of Goods Sold (COGS): The trend for gross profits has been mixed, with gross profit totaling $84.3 billion for 2016 and $105.0 billion for 2020. The high point was $105.0 billion for 2020. The CAGR for the period was 5.6%. The trend for COGS has also been mixed, ranging from $131.4 billion for 2016 to $169.6 billion for 2020. The CAGR for the period was 6.6%. The trend for COGS as a percent of revenue has been mixed, with the expense during the period ranged from a low of 60.9% in 2016 to a high of 62.2% for 2019. COGS is currently at 61.8%, down from 62.2% for 2019.

Operating Expenses: Operating expenses, which primarily include research and development (R&D) and selling, general and administrative (SGA) expenses, have increased from $24.2 billion during 2016 to $38.7 billion for 2020, a CAGR of 12.4%. The trend as a percent of revenue was mixed, ranging from a low of 11.2% in 2016 to a high of 14.1% for 2020. Operating expenses are currently at 14.1% of revenues, up from 13.2% for the prior year.

Operating Income: Operating income which represents the core earnings of the company, has increased over the five year period from $60.0 billion in 2016 to $66.3 billion for 2020, a CAGR of 2.5%. The firm reported mixed results for operating income. Operating income is currently at 24.1% of revenues, down from 24.6% for the prior year.

Non-Operating Income / (Expense): Non-operating items have been mixed ranging from a low of 0.3% of revenue in 2020 to a high of 1.2% of revenue in 2017 and is currently at 0.3% of revenue. The decrease to 0.3% in 2020 from the high of 1.2% in 2017 was largely due to a decrease in interest income.

Taxes: Taxes decreased from $15.7 billion during 2016 to $9.7 billion for 2020, representing a CAGR for the period of (11.4%). During the period, the trend for taxes has decreased as a % of revenue. Tax expense ranged from 7.3% to 3.5% of revenue. Taxes for 2020 were 3.5% of revenue down from 4.0% for the prior year.

As the Financial Analyst, complete the questions below in this template.

1.Read the memo provided on Apples operating results (Income Statement). As the analyst, list the item you believe has had the most significant change over the five-year time period.

Here is an example response if the analyst was using Apples Balance Sheet: Long term investments decreased significantly in 2019 at (38.3%) compared to the prior years and had a CAGR of (12.3%).

Enter your response here related to the Income Statement:

2. Provide an explanation of why you chose the item in your response listed above and provide possible explanation(s) for the significant change.

Here is an example response if the analyst was using Apples Balance Sheet: Long term investments decreased the most of all asset line items during the time period with a CAGR of (12.3%). This was likely driven by the significant increase in treasury stock (stock repurchases) which had a CAGR of 29.9%.

Enter your response here related to your answer above