Intrinsic value of Apple - AAPL

Previous Close

$172.67

  Intrinsic Value

$143.02

stock screener

  Rating & Target

hold

-17%

Previous close

$172.67

 
Intrinsic value

$143.02

 
Up/down potential

-17%

 
Rating

hold

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2016), $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 891.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.73
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  215,639
  219,952
  225,011
  230,793
  237,286
  244,479
  252,373
  260,968
  270,271
  280,295
  291,052
  302,560
  314,839
  327,914
  341,809
  356,553
  372,179
  388,719
  406,210
  424,691
  444,205
  464,795
  486,509
  509,397
  533,512
  558,911
  585,653
  613,800
  643,420
  674,581
  707,356
Variable operating expenses, $m
 
  83,571
  85,481
  87,663
  90,114
  92,830
  95,809
  99,054
  102,566
  106,350
  110,410
  114,213
  118,848
  123,784
  129,029
  134,595
  140,493
  146,737
  153,340
  160,316
  167,682
  175,455
  183,652
  192,292
  201,395
  210,983
  221,078
  231,703
  242,884
  254,647
  267,019
Fixed operating expenses, $m
 
  77,388
  79,322
  81,305
  83,338
  85,421
  87,557
  89,746
  91,989
  94,289
  96,646
  99,063
  101,539
  104,078
  106,680
  109,347
  112,080
  114,882
  117,754
  120,698
  123,716
  126,808
  129,979
  133,228
  136,559
  139,973
  143,472
  147,059
  150,735
  154,504
  158,366
Total operating expenses, $m
  155,615
  160,959
  164,803
  168,968
  173,452
  178,251
  183,366
  188,800
  194,555
  200,639
  207,056
  213,276
  220,387
  227,862
  235,709
  243,942
  252,573
  261,619
  271,094
  281,014
  291,398
  302,263
  313,631
  325,520
  337,954
  350,956
  364,550
  378,762
  393,619
  409,151
  425,385
Operating income, $m
  60,024
  58,993
  60,208
  61,825
  63,834
  66,228
  69,006
  72,168
  75,716
  79,656
  83,995
  89,284
  94,452
  100,052
  106,100
  112,612
  119,605
  127,099
  135,116
  143,677
  152,807
  162,531
  172,878
  183,877
  195,558
  207,955
  221,103
  235,038
  249,800
  265,430
  281,971
EBITDA, $m
  70,529
  65,298
  66,645
  68,413
  70,592
  73,175
  76,160
  79,547
  83,338
  87,541
  92,162
  97,211
  102,700
  108,643
  115,055
  121,953
  129,356
  137,284
  145,758
  154,804
  164,445
  174,709
  185,625
  197,223
  209,536
  222,599
  236,447
  251,120
  266,658
  283,104
  300,503
Interest expense (income), $m
  1,316
  2,640
  2,765
  2,915
  3,085
  3,277
  3,489
  3,722
  3,975
  4,250
  4,546
  4,863
  5,203
  5,565
  5,951
  6,361
  6,796
  7,257
  7,745
  8,261
  8,806
  9,382
  9,989
  10,630
  11,305
  12,017
  12,766
  13,555
  14,385
  15,259
  16,179
Earnings before tax, $m
  61,372
  56,353
  57,443
  58,910
  60,748
  62,952
  65,517
  68,446
  71,741
  75,406
  79,449
  84,421
  89,249
  94,487
  100,149
  106,251
  112,809
  119,843
  127,371
  135,416
  144,001
  153,150
  162,889
  173,247
  184,253
  195,939
  208,337
  221,483
  235,415
  250,170
  265,792
Tax expense, $m
  15,685
  15,215
  15,510
  15,906
  16,402
  16,997
  17,690
  18,480
  19,370
  20,360
  21,451
  22,794
  24,097
  25,512
  27,040
  28,688
  30,459
  32,358
  34,390
  36,562
  38,880
  41,350
  43,980
  46,777
  49,748
  52,903
  56,251
  59,801
  63,562
  67,546
  71,764
Net income, $m
  45,687
  41,138
  41,933
  43,004
  44,346
  45,955
  47,828
  49,966
  52,371
  55,046
  57,998
  61,627
  65,152
  68,976
  73,109
  77,563
  82,351
  87,485
  92,981
  98,854
  105,120
  111,799
  118,909
  126,470
  134,505
  143,035
  152,086
  161,683
  171,853
  182,624
  194,028

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  67,155
  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
  321,686
  259,683
  265,656
  272,483
  280,148
  288,642
  297,961
  308,108
  319,092
  330,926
  343,626
  357,213
  371,711
  387,147
  403,552
  420,960
  439,408
  458,936
  479,586
  501,406
  524,445
  548,754
  574,390
  601,413
  629,885
  659,872
  691,444
  724,676
  759,645
  796,435
  835,131
Adjusted assets (=assets-cash), $m
  254,531
  259,683
  265,656
  272,483
  280,148
  288,642
  297,961
  308,108
  319,092
  330,926
  343,626
  357,213
  371,711
  387,147
  403,552
  420,960
  439,408
  458,936
  479,586
  501,406
  524,445
  548,754
  574,390
  601,413
  629,885
  659,872
  691,444
  724,676
  759,645
  796,435
  835,131
Revenue / Adjusted assets
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
Average production assets, $m
  28,290
  28,814
  29,476
  30,234
  31,084
  32,027
  33,061
  34,187
  35,406
  36,719
  38,128
  39,635
  41,244
  42,957
  44,777
  46,708
  48,755
  50,922
  53,213
  55,635
  58,191
  60,888
  63,733
  66,731
  69,890
  73,217
  76,721
  80,408
  84,288
  88,370
  92,664
Working capital, $m
  27,863
  -28,154
  -28,801
  -29,542
  -30,373
  -31,293
  -32,304
  -33,404
  -34,595
  -35,878
  -37,255
  -38,728
  -40,299
  -41,973
  -43,752
  -45,639
  -47,639
  -49,756
  -51,995
  -54,360
  -56,858
  -59,494
  -62,273
  -65,203
  -68,290
  -71,541
  -74,964
  -78,566
  -82,358
  -86,346
  -90,542
Total debt, $m
  87,032
  79,009
  83,273
  88,148
  93,621
  99,685
  106,339
  113,584
  121,427
  129,876
  138,944
  148,645
  158,997
  170,018
  181,731
  194,161
  207,332
  221,275
  236,020
  251,599
  268,048
  285,405
  303,710
  323,004
  343,333
  364,743
  387,286
  411,014
  435,982
  462,250
  489,879
Total liabilities, $m
  193,437
  185,414
  189,678
  194,553
  200,026
  206,090
  212,744
  219,989
  227,832
  236,281
  245,349
  255,050
  265,402
  276,423
  288,136
  300,566
  313,737
  327,680
  342,425
  358,004
  374,453
  391,810
  410,115
  429,409
  449,738
  471,148
  493,691
  517,419
  542,387
  568,655
  596,284
Total equity, $m
  128,249
  74,269
  75,978
  77,930
  80,122
  82,552
  85,217
  88,119
  91,260
  94,645
  98,277
  102,163
  106,309
  110,724
  115,416
  120,395
  125,671
  131,256
  137,162
  143,402
  149,991
  156,944
  164,276
  172,004
  180,147
  188,723
  197,753
  207,257
  217,259
  227,780
  238,848
Total liabilities and equity, $m
  321,686
  259,683
  265,656
  272,483
  280,148
  288,642
  297,961
  308,108
  319,092
  330,926
  343,626
  357,213
  371,711
  387,147
  403,552
  420,961
  439,408
  458,936
  479,587
  501,406
  524,444
  548,754
  574,391
  601,413
  629,885
  659,871
  691,444
  724,676
  759,646
  796,435
  835,132
Debt-to-equity ratio
  0.679
  1.060
  1.100
  1.130
  1.170
  1.210
  1.250
  1.290
  1.330
  1.370
  1.410
  1.450
  1.500
  1.540
  1.570
  1.610
  1.650
  1.690
  1.720
  1.750
  1.790
  1.820
  1.850
  1.880
  1.910
  1.930
  1.960
  1.980
  2.010
  2.030
  2.050
Adjusted equity ratio
  0.272
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286
  0.286

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  45,687
  41,138
  41,933
  43,004
  44,346
  45,955
  47,828
  49,966
  52,371
  55,046
  57,998
  61,627
  65,152
  68,976
  73,109
  77,563
  82,351
  87,485
  92,981
  98,854
  105,120
  111,799
  118,909
  126,470
  134,505
  143,035
  152,086
  161,683
  171,853
  182,624
  194,028
Depreciation, amort., depletion, $m
  10,505
  6,304
  6,437
  6,588
  6,758
  6,947
  7,154
  7,379
  7,623
  7,885
  8,167
  7,927
  8,249
  8,591
  8,955
  9,342
  9,751
  10,184
  10,643
  11,127
  11,638
  12,178
  12,747
  13,346
  13,978
  14,643
  15,344
  16,082
  16,858
  17,674
  18,533
Funds from operations, $m
  66,308
  47,442
  48,370
  49,593
  51,105
  52,901
  54,981
  57,344
  59,993
  62,931
  66,165
  69,554
  73,401
  77,567
  82,064
  86,905
  92,102
  97,670
  103,624
  109,981
  116,759
  123,977
  131,656
  139,817
  148,483
  157,679
  167,430
  177,764
  188,710
  200,298
  212,561
Change in working capital, $m
  484
  -552
  -648
  -740
  -831
  -921
  -1,010
  -1,100
  -1,191
  -1,283
  -1,377
  -1,473
  -1,572
  -1,674
  -1,779
  -1,887
  -2,000
  -2,117
  -2,239
  -2,366
  -2,498
  -2,636
  -2,779
  -2,930
  -3,087
  -3,251
  -3,423
  -3,603
  -3,791
  -3,989
  -4,195
Cash from operations, $m
  65,824
  47,994
  49,017
  50,333
  51,936
  53,822
  55,992
  58,445
  61,184
  64,214
  67,542
  71,027
  74,972
  79,241
  83,843
  88,792
  94,102
  99,787
  105,862
  112,346
  119,256
  126,612
  134,435
  142,746
  151,570
  160,930
  170,853
  181,367
  192,502
  204,287
  216,756
Maintenance CAPEX, $m
  0
  -5,658
  -5,763
  -5,895
  -6,047
  -6,217
  -6,405
  -6,612
  -6,837
  -7,081
  -7,344
  -7,626
  -7,927
  -8,249
  -8,591
  -8,955
  -9,342
  -9,751
  -10,184
  -10,643
  -11,127
  -11,638
  -12,178
  -12,747
  -13,346
  -13,978
  -14,643
  -15,344
  -16,082
  -16,858
  -17,674
New CAPEX, $m
  -13,548
  -524
  -663
  -758
  -850
  -942
  -1,034
  -1,126
  -1,219
  -1,313
  -1,409
  -1,508
  -1,609
  -1,713
  -1,820
  -1,932
  -2,047
  -2,167
  -2,291
  -2,421
  -2,556
  -2,697
  -2,845
  -2,998
  -3,159
  -3,327
  -3,503
  -3,687
  -3,880
  -4,082
  -4,294
Cash from investing activities, $m
  -45,977
  -6,182
  -6,426
  -6,653
  -6,897
  -7,159
  -7,439
  -7,738
  -8,056
  -8,394
  -8,753
  -9,134
  -9,536
  -9,962
  -10,411
  -10,887
  -11,389
  -11,918
  -12,475
  -13,064
  -13,683
  -14,335
  -15,023
  -15,745
  -16,505
  -17,305
  -18,146
  -19,031
  -19,962
  -20,940
  -21,968
Free cash flow, $m
  19,847
  41,813
  42,592
  43,680
  45,038
  46,663
  48,552
  50,706
  53,128
  55,820
  58,789
  61,894
  65,437
  69,279
  73,431
  77,905
  82,713
  87,869
  93,387
  99,282
  105,573
  112,277
  119,413
  127,001
  135,064
  143,625
  152,707
  162,336
  172,540
  183,347
  194,788
Issuance/(repayment) of debt, $m
  22,057
  3,582
  4,265
  4,875
  5,473
  6,064
  6,654
  7,245
  7,843
  8,449
  9,068
  9,701
  10,351
  11,021
  11,713
  12,429
  13,172
  13,943
  14,745
  15,579
  16,449
  17,357
  18,304
  19,294
  20,329
  21,411
  22,543
  23,728
  24,968
  26,268
  27,629
Issuance/(repurchase) of shares, $m
  -29,227
  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  
  -8,333
  3,582
  4,265
  4,875
  5,473
  6,064
  6,654
  7,245
  7,843
  8,449
  9,068
  9,701
  10,351
  11,021
  11,713
  12,429
  13,172
  13,943
  14,745
  15,579
  16,449
  17,357
  18,304
  19,294
  20,329
  21,411
  22,543
  23,728
  24,968
  26,268
  27,629
Total cash flow (excl. dividends), $m
  11,514
  45,394
  46,856
  48,555
  50,511
  52,727
  55,206
  57,952
  60,971
  64,270
  67,857
  71,595
  75,788
  80,300
  85,145
  90,335
  95,885
  101,812
  108,131
  114,862
  122,023
  129,634
  137,717
  146,295
  155,393
  165,035
  175,249
  186,064
  197,508
  209,615
  222,418
Retained Cash Flow (-), $m
  -8,894
  -1,570
  -1,708
  -1,953
  -2,192
  -2,429
  -2,665
  -2,902
  -3,142
  -3,384
  -3,632
  -3,886
  -4,146
  -4,415
  -4,692
  -4,979
  -5,276
  -5,585
  -5,906
  -6,240
  -6,589
  -6,952
  -7,332
  -7,728
  -8,143
  -8,576
  -9,030
  -9,504
  -10,001
  -10,522
  -11,067
Prev. year cash balance distribution, $m
 
  55,550
  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
 
  99,374
  45,148
  46,602
  48,319
  50,298
  52,541
  55,050
  57,829
  60,885
  64,225
  67,710
  71,642
  75,886
  80,453
  85,356
  90,609
  96,227
  102,225
  108,621
  115,434
  122,681
  130,385
  138,567
  147,250
  156,459
  166,220
  176,559
  187,507
  199,093
  211,350
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
 
  95,277
  41,332
  40,556
  39,786
  38,987
  38,131
  37,191
  36,145
  34,975
  33,670
  32,154
  30,572
  28,853
  27,009
  25,059
  23,026
  20,937
  18,826
  16,725
  14,668
  12,689
  10,819
  9,082
  7,500
  6,086
  4,849
  3,789
  2,901
  2,173
  1,591
Current shareholders' claim on cash, %
  100
  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 20.2
Price to Sales 4.3
Price to Book 7.2
Price to Tangible Book
Price to Cash Flow 14
Price to Free Cash Flow 17.6
Growth Rates
Sales Growth Rate -7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.9%
Cap. Spend. - 3 Yr. Gr. Rate 8.3%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 58.8%
Total Debt to Equity 67.9%
Interest Coverage 48
Management Effectiveness
Return On Assets 15.2%
Ret/ On Assets - 3 Yr. Avg. 18%
Return On Total Capital 22.9%
Ret/ On T. Cap. - 3 Yr. Avg. 27.6%
Return On Equity 36.9%
Return On Equity - 3 Yr. Avg. 38.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 39.1%
Gross Margin - 3 Yr. Avg. 39.2%
EBITDA Margin 33.9%
EBITDA Margin - 3 Yr. Avg. 34.6%
Operating Margin 27.8%
Oper. Margin - 3 Yr. Avg. 29%
Pre-Tax Margin 28.5%
Pre-Tax Margin - 3 Yr. Avg. 29.6%
Net Profit Margin 21.2%
Net Profit Margin - 3 Yr. Avg. 21.9%
Effective Tax Rate 25.6%
Eff/ Tax Rate - 3 Yr. Avg. 26%
Payout Ratio 26.6%

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 $215639 million for the last fiscal year's total revenue generated by Apple. The default revenue input number comes from 2016 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 2% 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 38%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $75500 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 3.5% 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 13.1%.

Life of production assets of 3.2 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 -12.8%. 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 - $128249 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 5165.25 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 $891.9 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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Financial statements of AAPL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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