Horizontal Analysis

Course Project
Horizontal Analysis
Mauricio Nieto
DeVry University
Finance 382
Instructor: Kimberly Bankston-Bradshaw
3/13/2013
I. General information about the Industry and companies.
For my course project I chose to compare Apple Inc. (ticker symbol, AAPL) and its
competitor Microsoft Corporation (ticker symbol, MSFT) from the Personal Computer Industry
and Technology Sector. The computer industry consists of hardware, software, service and an
endless array of products our group chose to narrow the research to PC’s. The computer industry
is mature and here to stay. In the US, computers are found in most homes with access to the
Internet. Students are taught to use computers in school at a young age and competency is only
going to increase.
Apple Inc. designs, manufactures, and markets personal computers, mobile
communication devices, and portable digital music and video players and sells a variety of
related software, services, peripherals, and network devices. Its best-known hardware products
are the Mac line of computers (Formally Macintosh), the iPod music player, the iPhone, and the
iPad tablet computer. Apple is the world's second-largest information technology company by
revenue after Samsung, and the world's third-largest mobile phone maker after Samsung and
Nokia. According to the Daily Telegraph, Apple is the second-largest publicly traded corporation
in the world by market capitalization, with an estimated value of US$414 billion as of January
2013. As of September 29, 2012, Apple maintains 394 retail stores in fourteen countries and
approximately 75,000 permanent employees worldwide. Its worldwide annual revenue in 2012
totaled $156 billion.
In its fiscal year ending in September 2011, Apple Inc. reported a total of $108 billion in
annual revenues, a significant increase from its 2010 revenues of $65 billion and nearly $82
billion in cash reserves. Apple achieved these results while losing market share in certain product
categories. On March 19, 2012, Apple announced plans for a $2.65 per share dividend beginning
in fourth quarter of 2012, per approval by their board of directors. On August 20, 2012, Apple
closed at a record share price of $665.15. With 936,596,000 outstanding shares (as of June 30,
2012), it had a market capitalization of $622.98 billion. At the time, this was the highest nominal
market capitalization ever reached by a publicly traded company, surpassing a record set by
Microsoft in 1999.
Microsoft Corporation develops, licenses, and supports software products and services;
and designs and sells hardware worldwide. The company’s Windows & Windows Live division
offers PC operating system that primarily includes Windows 7 and 8 operating systems,
Windows live suite of applications and Web services, and PC hardware products. Microsoft is
the world's largest software maker measured by revenues. It is also one of the world's most
valuable companies according to Softwaretop100.org. As of 2013, Microsoft is market dominant
in both the PC operating system and office software including Microsoft Office. The company
also produces a wide range of software for desktops and servers, and is active in areas including
internet search (with Bing), the video game industry with Xbox 360 consoles, and mobile phones
(via the Windows Phone OS).
II. Current Events
Apple is a regular in the major market headlines, as consumer appetite for its products
seems to be nearly insatiable. People around the world will gladly stand in line for hours, even
days, to be among the first to get their hands on the next generation of products. Apple has seen
its share price drop 44% from a high of $705 on September 2012 after announcing that iPhone 5
sales were lackluster and that the company would be scaling back orders. The latest quarter,
however, has seen a slight upward movement attributed to many factors, including an
announcement to increase dividends and stock buyback funds, as well as the news that the
iPhone is still considered the top smartphone in the US. According to market research firm
Kantar, the iPhone commands more than half of the U.S. smartphone market for the first time
ever! The iPhone now boasts 53.3% market share while Android's market share fell to 41.9%.
This is significant because the iPhone remains a strong growth driver for Apple—despite
the regular upgrades, U.S. consumers still can’t get enough of this premium smartphone. Some
analysts forecast that Apple sold nearly 51 million iPhones last quarter, a 43% jump over the
same quarter last year.
In June 2012, Microsoft announced that it would be entering the PC vendor market for
the first time, with the launch of the Microsoft Surface tablet computer. On October 26,
Microsoft launched Windows 8 and Windows Phone 8 operating systems. Standard and Poor's
and Moody's have both given a AAA rating to Microsoft, whose assets were valued at $41 billion
as compared to only $8.5 billion in unsecured debt. On July 20, 2012, Microsoft posted its first
quarterly loss ever, despite earning record revenues for the quarter and fiscal year. On July 31,
2012, Microsoft launched the Outlook.com webmail service to compete with Gmail. On
September 4, Microsoft released Windows Server 2012.
The Windows Division posted revenue of $5.88 billion, a 24% increase from the prior
year period. Adjusting for the net deferral of revenue for the Windows Upgrade Offer and the
recognition of the previously deferred revenue from Windows 8 Pre-sales, Windows Division
non-GAAP revenue increased 11% for the second quarter. Microsoft has sold over 60 million
Windows 8 licenses to date. The European Union has fined Microsoft Corporation 561 million
euros, or $731 million, for showing favoritism to its Internet Explorer program. The software
giant reportedly failed to promote other alternatives for web browsing within Windows 7.
III. Relevant Ratios

The following chart shows my choice of ratios:
Ratio Apple Inc Microsoft

Debt Ratio
Return on Investments
Gross Profit Margin
Debt/Equity Ratio
Current Ratio
Inventory Turnover
Accounts Receivable Turnover
Percentage of Earning Retained
Dividend Payout
Operating Cash Flow Per Share
I chose these ratios because I believe that they are some of the most important ratios to
use when comparing two competing companies. I think that these ratios can be used to compare
companies in any industry. The key is to realize that what is normal for one industry may be
very high or very low for another. This is why it is important that you do not compare
companies from different industries to one another.
IV. Spreadsheets
I have completed the input spreadsheets for both Apple Inc. and Microsoft Corporation.
V. Bibliography
GEO*Trailblazer 1. (2008, January 28). Apple inc - cupertino, ca. Retrieved from
http://www.waymarking.com/waymarks/WM3289
Rushton, K. (01, 2013 25). Exxon overtakes apple as biggest public company. Retrieved from
http://www.telegraph.co.uk/finance/9827795/Exxon-overtakes-Apple-as-biggest-public-
company.html
Apple inc, - annual report. (2012, 10 31). Retrieved from
http://investor.apple.com/secfiling.cfm?filingID=1193125-12-444068
Ycharts.com. (2013, Februar 08). Retrieved from http://ycharts.com/rankings/market_cap
Wikipedia. (2012, March 06). Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Microsoft
Gibson, C. (2013). Financial Reporting and Analysis. (13th ed.).

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Course Project

Instructor: Kimberly Bankston-Bradshaw

I. General information about the Industry and companies.

Apple Inc. designs, manufactures, and markets personal computers, mobile

totaled $156 billion.

valuable companies according to Softwaretop100.org. As of 2013, Microsoft is market dominant

(via the Windows Phone OS).

II. Current Events

same quarter last year.

September 4, Microsoft released Windows Server 2012.

III. Relevant Ratios

Ratio Apple Inc Microsoft

companies from different industries to one another.

Apple inc, - annual report. (2012, 10 31). Retrieved from

Ycharts.com. (2013, Februar 08). Retrieved from http://ycharts.com/rankings/market_cap

Wikipedia. (2012, March 06). Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Microsoft

Gibson, C. (2013). Financial Reporting and Analysis. (13th ed.).

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