Intrinsic value of Apple - AAPL

Previous Close

$217.66

  Intrinsic Value

$334.97

stock screener

  Rating & Target

str. buy

+54%

Previous close

$217.66

 
Intrinsic value

$334.97

 
Up/down potential

+54%

 
Rating

str. buy

We calculate the intrinsic value of AAPL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1,069.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.30
  16.07
  14.96
  13.97
  13.07
  12.26
  11.54
  10.88
  10.29
  9.77
  9.29
  8.86
  8.47
  8.13
  7.81
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.79
  5.72
  5.64
  5.58
Revenue, $m
  268,891
  312,102
  358,802
  408,915
  462,360
  519,060
  578,942
  641,949
  708,036
  777,177
  849,367
  924,620
  1,002,972
  1,084,478
  1,169,217
  1,257,288
  1,348,809
  1,443,917
  1,542,770
  1,645,543
  1,752,427
  1,863,634
  1,979,389
  2,099,937
  2,225,537
  2,356,465
  2,493,016
  2,635,497
  2,784,237
  2,939,580
Variable operating expenses, $m
  194,140
  225,338
  259,055
  295,237
  333,824
  374,761
  417,996
  463,487
  511,202
  561,122
  613,243
  667,576
  724,145
  782,993
  844,175
  907,762
  973,840
  1,042,508
  1,113,880
  1,188,082
  1,265,253
  1,345,544
  1,429,119
  1,516,154
  1,606,837
  1,701,368
  1,799,957
  1,902,829
  2,010,219
  2,122,377
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  194,140
  225,338
  259,055
  295,237
  333,824
  374,761
  417,996
  463,487
  511,202
  561,122
  613,243
  667,576
  724,145
  782,993
  844,175
  907,762
  973,840
  1,042,508
  1,113,880
  1,188,082
  1,265,253
  1,345,544
  1,429,119
  1,516,154
  1,606,837
  1,701,368
  1,799,957
  1,902,829
  2,010,219
  2,122,377
Operating income, $m
  74,752
  86,764
  99,747
  113,678
  128,536
  144,299
  160,946
  178,462
  196,834
  216,055
  236,124
  257,044
  278,826
  301,485
  325,042
  349,526
  374,969
  401,409
  428,890
  457,461
  487,175
  518,090
  550,270
  583,782
  618,699
  655,097
  693,058
  732,668
  774,018
  817,203
EBITDA, $m
  82,388
  95,628
  109,937
  125,292
  141,667
  159,040
  177,388
  196,693
  216,942
  238,127
  260,246
  283,304
  307,310
  332,284
  358,248
  385,233
  413,275
  442,416
  472,705
  504,194
  536,944
  571,017
  606,485
  643,421
  681,904
  722,021
  763,860
  807,516
  853,090
  900,687
Interest expense (income), $m
  2,092
  6,247
  8,499
  10,954
  13,608
  16,456
  19,493
  22,715
  26,118
  29,699
  33,454
  37,384
  41,486
  45,762
  50,215
  54,847
  59,662
  64,667
  69,868
  75,273
  80,891
  86,731
  92,805
  99,125
  105,703
  112,554
  119,691
  127,132
  134,891
  142,988
  151,441
Earnings before tax, $m
  68,505
  78,266
  88,793
  100,070
  112,080
  124,805
  138,231
  152,344
  167,135
  182,601
  198,741
  215,558
  233,064
  251,270
  270,196
  289,864
  310,302
  331,541
  353,617
  376,570
  400,444
  425,285
  451,145
  478,079
  506,146
  535,406
  565,927
  597,777
  631,030
  665,762
Tax expense, $m
  18,496
  21,132
  23,974
  27,019
  30,262
  33,697
  37,322
  41,133
  45,126
  49,302
  53,660
  58,201
  62,927
  67,843
  72,953
  78,263
  83,781
  89,516
  95,477
  101,674
  108,120
  114,827
  121,809
  129,081
  136,659
  144,560
  152,800
  161,400
  170,378
  179,756
Net income, $m
  50,009
  57,134
  64,819
  73,051
  81,819
  91,108
  100,908
  111,211
  122,009
  133,299
  145,081
  157,358
  170,136
  183,427
  197,243
  211,600
  226,520
  242,025
  258,140
  274,896
  292,324
  310,458
  329,336
  348,998
  369,486
  390,847
  413,127
  436,377
  460,652
  486,006

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  440,084
  510,806
  587,238
  669,255
  756,727
  849,525
  947,532
  1,050,653
  1,158,815
  1,271,976
  1,390,127
  1,513,290
  1,641,525
  1,774,923
  1,913,613
  2,057,755
  2,207,543
  2,363,204
  2,524,993
  2,693,196
  2,868,130
  3,050,137
  3,239,589
  3,436,885
  3,642,449
  3,856,735
  4,080,222
  4,313,416
  4,556,854
  4,811,096
Adjusted assets (=assets-cash), $m
  440,084
  510,806
  587,238
  669,255
  756,727
  849,525
  947,532
  1,050,653
  1,158,815
  1,271,976
  1,390,127
  1,513,290
  1,641,525
  1,774,923
  1,913,613
  2,057,755
  2,207,543
  2,363,204
  2,524,993
  2,693,196
  2,868,130
  3,050,137
  3,239,589
  3,436,885
  3,642,449
  3,856,735
  4,080,222
  4,313,416
  4,556,854
  4,811,096
Revenue / Adjusted assets
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
Average production assets, $m
  38,183
  44,319
  50,950
  58,066
  65,655
  73,706
  82,210
  91,157
  100,541
  110,359
  120,610
  131,296
  142,422
  153,996
  166,029
  178,535
  191,531
  205,036
  219,073
  233,667
  248,845
  264,636
  281,073
  298,191
  316,026
  334,618
  354,008
  374,241
  395,362
  417,420
Working capital, $m
  -32,805
  -38,076
  -43,774
  -49,888
  -56,408
  -63,325
  -70,631
  -78,318
  -86,380
  -94,816
  -103,623
  -112,804
  -122,363
  -132,306
  -142,645
  -153,389
  -164,555
  -176,158
  -188,218
  -200,756
  -213,796
  -227,363
  -241,485
  -256,192
  -271,515
  -287,489
  -304,148
  -321,531
  -339,677
  -358,629
Total debt, $m
  157,382
  202,856
  252,002
  304,739
  360,984
  420,653
  483,671
  549,978
  619,526
  692,289
  768,260
  847,454
  929,908
  1,015,684
  1,104,861
  1,197,544
  1,293,858
  1,393,948
  1,497,978
  1,606,133
  1,718,615
  1,835,646
  1,957,464
  2,084,325
  2,216,503
  2,354,289
  2,497,991
  2,647,935
  2,804,465
  2,967,943
Total liabilities, $m
  282,974
  328,448
  377,594
  430,331
  486,576
  546,245
  609,263
  675,570
  745,118
  817,881
  893,852
  973,046
  1,055,500
  1,141,276
  1,230,453
  1,323,136
  1,419,450
  1,519,540
  1,623,570
  1,731,725
  1,844,207
  1,961,238
  2,083,056
  2,209,917
  2,342,095
  2,479,881
  2,623,583
  2,773,527
  2,930,057
  3,093,535
Total equity, $m
  157,110
  182,358
  209,644
  238,924
  270,152
  303,280
  338,269
  375,083
  413,697
  454,095
  496,275
  540,245
  586,024
  633,648
  683,160
  734,619
  788,093
  843,664
  901,422
  961,471
  1,023,922
  1,088,899
  1,156,533
  1,226,968
  1,300,354
  1,376,854
  1,456,639
  1,539,890
  1,626,797
  1,717,561
Total liabilities and equity, $m
  440,084
  510,806
  587,238
  669,255
  756,728
  849,525
  947,532
  1,050,653
  1,158,815
  1,271,976
  1,390,127
  1,513,291
  1,641,524
  1,774,924
  1,913,613
  2,057,755
  2,207,543
  2,363,204
  2,524,992
  2,693,196
  2,868,129
  3,050,137
  3,239,589
  3,436,885
  3,642,449
  3,856,735
  4,080,222
  4,313,417
  4,556,854
  4,811,096
Debt-to-equity ratio
  1.000
  1.110
  1.200
  1.280
  1.340
  1.390
  1.430
  1.470
  1.500
  1.520
  1.550
  1.570
  1.590
  1.600
  1.620
  1.630
  1.640
  1.650
  1.660
  1.670
  1.680
  1.690
  1.690
  1.700
  1.700
  1.710
  1.710
  1.720
  1.720
  1.730
Adjusted equity ratio
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  50,009
  57,134
  64,819
  73,051
  81,819
  91,108
  100,908
  111,211
  122,009
  133,299
  145,081
  157,358
  170,136
  183,427
  197,243
  211,600
  226,520
  242,025
  258,140
  274,896
  292,324
  310,458
  329,336
  348,998
  369,486
  390,847
  413,127
  436,377
  460,652
  486,006
Depreciation, amort., depletion, $m
  7,637
  8,864
  10,190
  11,613
  13,131
  14,741
  16,442
  18,231
  20,108
  22,072
  24,122
  26,259
  28,484
  30,799
  33,206
  35,707
  38,306
  41,007
  43,815
  46,733
  49,769
  52,927
  56,215
  59,638
  63,205
  66,924
  70,802
  74,848
  79,072
  83,484
Funds from operations, $m
  57,645
  65,998
  75,009
  84,664
  94,950
  105,849
  117,350
  129,442
  142,117
  155,371
  169,203
  183,617
  198,621
  214,226
  230,449
  247,307
  264,826
  283,032
  301,955
  321,630
  342,093
  363,385
  385,551
  408,636
  432,692
  457,770
  483,928
  511,225
  539,724
  569,490
Change in working capital, $m
  -4,838
  -5,272
  -5,697
  -6,114
  -6,520
  -6,917
  -7,306
  -7,687
  -8,063
  -8,435
  -8,807
  -9,181
  -9,559
  -9,944
  -10,338
  -10,745
  -11,166
  -11,603
  -12,060
  -12,538
  -13,040
  -13,567
  -14,122
  -14,707
  -15,323
  -15,973
  -16,659
  -17,383
  -18,146
  -18,952
Cash from operations, $m
  62,483
  71,269
  80,706
  90,778
  101,470
  112,767
  124,656
  137,129
  150,180
  163,806
  178,010
  192,798
  208,180
  224,170
  240,787
  258,052
  275,992
  294,635
  314,015
  334,168
  355,133
  376,952
  399,673
  423,343
  448,015
  473,743
  500,587
  528,608
  557,870
  588,442
Maintenance CAPEX, $m
  -6,510
  -7,637
  -8,864
  -10,190
  -11,613
  -13,131
  -14,741
  -16,442
  -18,231
  -20,108
  -22,072
  -24,122
  -26,259
  -28,484
  -30,799
  -33,206
  -35,707
  -38,306
  -41,007
  -43,815
  -46,733
  -49,769
  -52,927
  -56,215
  -59,638
  -63,205
  -66,924
  -70,802
  -74,848
  -79,072
New CAPEX, $m
  -5,631
  -6,136
  -6,631
  -7,116
  -7,589
  -8,051
  -8,503
  -8,947
  -9,384
  -9,818
  -10,251
  -10,686
  -11,126
  -11,574
  -12,033
  -12,506
  -12,996
  -13,505
  -14,037
  -14,594
  -15,178
  -15,791
  -16,437
  -17,118
  -17,835
  -18,592
  -19,390
  -20,232
  -21,121
  -22,059
Cash from investing activities, $m
  -12,141
  -13,773
  -15,495
  -17,306
  -19,202
  -21,182
  -23,244
  -25,389
  -27,615
  -29,926
  -32,323
  -34,808
  -37,385
  -40,058
  -42,832
  -45,712
  -48,703
  -51,811
  -55,044
  -58,409
  -61,911
  -65,560
  -69,364
  -73,333
  -77,473
  -81,797
  -86,314
  -91,034
  -95,969
  -101,131
Free cash flow, $m
  50,342
  57,497
  65,211
  73,472
  82,268
  91,584
  101,411
  111,740
  122,564
  133,879
  145,687
  157,990
  170,795
  184,112
  197,955
  212,340
  227,289
  242,824
  258,971
  275,759
  293,222
  311,392
  330,308
  350,011
  370,541
  391,946
  414,274
  437,574
  461,901
  487,311
Issuance/(repayment) of debt, $m
  41,702
  45,474
  49,146
  52,737
  56,244
  59,669
  63,019
  66,306
  69,548
  72,763
  75,971
  79,194
  82,455
  85,775
  89,178
  92,683
  96,314
  100,090
  104,030
  108,155
  112,482
  117,031
  121,818
  126,861
  132,178
  137,786
  143,702
  149,944
  156,530
  163,478
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  41,702
  45,474
  49,146
  52,737
  56,244
  59,669
  63,019
  66,306
  69,548
  72,763
  75,971
  79,194
  82,455
  85,775
  89,178
  92,683
  96,314
  100,090
  104,030
  108,155
  112,482
  117,031
  121,818
  126,861
  132,178
  137,786
  143,702
  149,944
  156,530
  163,478
Total cash flow (excl. dividends), $m
  92,044
  102,971
  114,357
  126,210
  138,512
  151,253
  164,430
  178,046
  192,112
  206,642
  221,658
  237,184
  253,249
  269,887
  287,132
  305,024
  323,603
  342,913
  363,001
  383,914
  405,704
  428,423
  452,126
  476,872
  502,719
  529,732
  557,976
  587,518
  618,431
  650,789
Retained Cash Flow (-), $m
  -23,063
  -25,248
  -27,286
  -29,280
  -31,227
  -33,129
  -34,989
  -36,814
  -38,614
  -40,399
  -42,180
  -43,969
  -45,780
  -47,623
  -49,512
  -51,459
  -53,474
  -55,571
  -57,759
  -60,049
  -62,451
  -64,977
  -67,634
  -70,435
  -73,387
  -76,500
  -79,785
  -83,250
  -86,907
  -90,765
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  68,981
  77,723
  87,071
  96,929
  107,284
  118,124
  129,442
  141,232
  153,498
  166,244
  179,478
  193,215
  207,470
  222,264
  237,620
  253,565
  270,128
  287,342
  305,242
  323,866
  343,253
  363,446
  384,492
  406,437
  429,333
  453,232
  478,191
  504,268
  531,524
  560,025
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  66,137
  71,153
  75,775
  79,812
  83,159
  85,728
  87,449
  88,274
  88,177
  87,155
  85,232
  82,452
  78,884
  74,618
  69,761
  64,436
  58,775
  52,917
  46,999
  41,153
  35,504
  30,156
  25,200
  20,701
  16,702
  13,223
  10,263
  7,802
  5,802
  4,217
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company's products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

FINANCIAL RATIOS  of  Apple (AAPL)

Valuation Ratios
P/E Ratio 23.1
Price to Sales 4.9
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 17.5
Price to Free Cash Flow 22
Growth Rates
Sales Growth Rate 6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.6%
Cap. Spend. - 3 Yr. Gr. Rate 5.5%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 72.5%
Total Debt to Equity 86.3%
Interest Coverage 32
Management Effectiveness
Return On Assets 14.3%
Ret/ On Assets - 3 Yr. Avg. 16.7%
Return On Total Capital 20.8%
Ret/ On T. Cap. - 3 Yr. Avg. 25.3%
Return On Equity 36.9%
Return On Equity - 3 Yr. Avg. 40%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 38.5%
Gross Margin - 3 Yr. Avg. 39.2%
EBITDA Margin 33.3%
EBITDA Margin - 3 Yr. Avg. 34.4%
Operating Margin 26.8%
Oper. Margin - 3 Yr. Avg. 28.4%
Pre-Tax Margin 28%
Pre-Tax Margin - 3 Yr. Avg. 29.1%
Net Profit Margin 21.1%
Net Profit Margin - 3 Yr. Avg. 21.7%
Effective Tax Rate 24.6%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 26.4%

AAPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAPL stock intrinsic value calculation we used $229234 million for the last fiscal year's total revenue generated by Apple. The default revenue input number comes from 0001 income statement of Apple. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AAPL stock valuation model: a) initial revenue growth rate of 17.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AAPL is calculated based on our internal credit rating of Apple, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Apple.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AAPL stock the variable cost ratio is equal to 72.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AAPL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Apple.

Corporate tax rate of 27% is the nominal tax rate for Apple. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AAPL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AAPL are equal to 14.2%.

Life of production assets of 3.4 years is the average useful life of capital assets used in Apple operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AAPL is equal to -12.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $134047 million for Apple - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 4915.14 million for Apple is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Apple at the current share price and the inputted number of shares is $1,069.8 billion.

Management's discussion and analysis

The Company designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players, and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, macOS™, watchOS® and tvOS™ operating systems, iCloud®, Apple Pay® and a variety of accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store®, App Store®, Mac App Store, TV App Store, iBooks Store™ and Apple Music® (collectively “Internet Services”). The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-added resellers. In addition, the Company sells a variety of third-party Apple compatible products, including application software and various accessories through its retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.

Fiscal 2016 Highlights

Net sales declined 8% or $18.1 billion during 2016 compared to 2015, primarily driven by a year-over-year decrease in iPhone net sales and the effect of weakness in most foreign currencies relative to the U.S. dollar, partially offset by an increase in Services. In April 2016, the Company announced a significant increase to its capital return program by raising the expected total size of the program from $200 billion to $250 billion through March 2018. This included increasing its share repurchase authorization from $140 billion to $175 billion and raising its quarterly dividend from $0.52 to $0.57 per share beginning in May 2016. During 2016, the Company spent $29.0 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $12.2 billion. Additionally, the Company issued $23.9 billion of U.S. dollar-denominated term debt and A$1.4 billion of Australian dollar-denominated term debt during 2016.

Fiscal 2015 Highlights

Net sales rose 28% or $50.9 billion during 2015 compared to 2014, driven by a year-over-year increase in iPhone net sales. iPhone net sales and unit sales in 2015 increased in all of the Company’s reportable operating segments. The Company also experienced year-over-year net sales increases in Mac, Services and Other Products. Apple Watch, which launched during the third quarter of 2015, accounted for more than 100% of the year-over-year growth in net sales of Other Products. Net sales growth during 2015 was partially offset by the effect of weakness in most foreign currencies relative to the U.S. dollar and lower iPad net sales. Total net sales increased in each of the Company’s reportable operating segments, with particularly strong growth in Greater China where year-over-year net sales increased 84%.
In April 2015, the Company announced a significant increase to its capital return program by raising the expected total size of the program to $200 billion through March 2017. This included increasing its share repurchase authorization to $140 billion and raising its quarterly dividend to $0.52 per share beginning in May 2015. During 2015, the Company spent $36.0 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $11.6 billion. Additionally, the Company issued $14.5 billion of U.S. dollar-denominated, €4.8 billion of euro-denominated, SFr1.3 billion of Swiss franc-denominated, £1.3 billion of British pound-denominated, A$2.3 billion of Australian dollar-denominated and ¥250.0 billion of Japanese yen-denominated term debt during 2015.

[Source: Form 10-K dated 2016-10-26]

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