Abstract
The paper presents the financial analysis of Apple in comparison with the main competitor Samsung through the calculation of key financial ratios. The study offers an interpretation of the economic dynamics of a business through a range of external factors, including environmental and political ones.
Introduction
Information technology has proven to be the cornerstone of business development in general, so studying the pioneers in this field is an essential source of knowledge for determining future progress trends. Many business processes are becoming automated and closely interacting with cutting-edge developments, from product manufacturing to marketing and supply chain organization (Ritter and Pedersen, 2020). Implementing blockchain techniques, neural networks, robotization, and artificial intelligence occurs in many areas of human activity (Frizzo-Barker et al., 2020, Lee et al., 2019). Accordingly, analyzing companies involved in these developments is a priority task, and their development is also dictated by a critical component of any organization: financial performance.
In addition, information technology has become an integral part of any person’s daily life: for example, the widespread use of smartphones and the Internet. Apple is one of the leaders in this market and has been for a long time. The organization’s activities are represented by a range of product and service developments, without which it is not easy to imagine current progress: computers, processors, security, and much more (Podolny and Hansen, 2020). Apple’s success is driven by various factors, from financial strength, sound management, and market knowledge, to consideration of external factors, including environmental, political, and social. Although technological trends are the strength of this organization, their development mainly depends on various aspects of the business, including accounting.
Comparing the industry’s financial performance with Samsung’s direct competitor is a crucial determinant of understanding industry development patterns, allowing for implementing a predictive function. This study is essential for related business sectors, as it provides an opportunity to build on the pace of Apple’s activity compared to Samsung and determine pointwise moments for equipment upgrades or related services. For me personally, this topic is interesting for several factors. First, in my opinion, the relationship between technological progress and the financial side of the company’s activities is critical in terms of determining the direction and pace of growth. Secondly, financial indicators are complexly correlated with many external determinants, the analysis of which is rarely presented to a fully comprehensive degree in scientific papers or business reports. Therefore, this paper aims to identify the main factors of Apple’s successful operations through the prism of comparison with key competitor Samsung using financial, environmental, social, and political aspects that affect them.
Literature Review
The analysis of financial indicators is always complex and rarely of interest without comparing competitors in the industry or considering external factors. While the detailed reporting provided annually by companies such as Apple and Samsung covers many aspects of a company’s operations, such as liquidity, solvency, efficiency, and profitability, such relationships must be assessed through the lens of the determinants that drive change. First, primary data on revenue, net income, balance sheet, and cash flow can show an organization’s internal structure, alignment with objectives, and overall health relative to previous periods (Baker et al., 2021). Secondly, in its pure form, changes are rarely indicative; they require the calculation of financial ratios, such as the current ratio, net profit margin, and others, to analyze the dynamics in more depth (Bordeianu and Radu, 2020). Further, the obtained ratios are analyzed for similar companies by the scale of activity in this area in order to assess the competitiveness and the general background of the expected growth or stagnation (Kliestik et al., 2020). Finally, several factors are considered that can serve as determinants of dynamics, for example, in particular line items of expenditure, cash flows, or the orientation of debt concerning equity.
To achieve these goals, several methods are distinguished in the scientific community, which are used to evaluate the primary data of companies’ annual reports deeply. The specifics of the technological aspect should be taken into account: breakthroughs in innovative developments play an essential role in the actual growth of revenue, but at the same time, in the short term, they can reflect high costs for the reorganization of production or the supply chain (Osmani et al., 2021). R&D analysis manifests itself through consideration of costs in cash flows for plant, property, and equipment, but more recently focuses on intangible assets (Safitri, Sari, and Gamayuni, 2020). At the same time, the very development of this sector of the company requires an emphasis not only on the appropriate technological equipment but also on the possibilities of its production, including the search and retention of top specialists, work with suppliers of raw materials, namely semiconductors (Lin, Lin and Lu, 2019, Xiong et al., 2021). The latter aspect, in turn, is complexly related to many environmental factors since the production of this source material requires an increase in coal mining, which negatively affects the environment (Frost and Hua, 2019, Sueyoshi and Ryu, 2020). Therefore, R&D is crucial, but the sustainable development framework and ecological responsibility limit it.
In addition to this kind of framework, there are still boundaries of corporate social responsibility. It includes following the trends of respect, diversity, and inclusiveness (Latapí Agudelo, Jóhannsdóttir, and Davídsdóttir, 2019). The company must comply with these requirements; otherwise, its reputation will negatively reflect on its financial performance (Ali, Danish, and Asrar-ul-Haq, 2020). Consumer activity has long been governed not only by economic indicators of purchasing power or living standards but also by the appropriate strength and accompaniment of the organization’s brand. Employee satisfaction and engagement, in turn, affect the ability to renew and attract new staff to vacancies and the company’s overall performance (Kurdi, Alshurideh, and Alnaser, 2020). HR methods implemented by Apple and Samsung can be one of the key determinants of the dynamics of financial performance.
Current global trends, including the pandemic crisis and the consequences of macroeconomic indicators such as inflation, taxation of activities, and others, are also significantly correlated with many financial ratios. First, the pandemic has affected many issues related to the sale and safety of goods and services of IT companies, stimulating the transition to contactless interactions, which has required reorganization and costs in the relevant assets and liabilities (Kang, Diao, and Zanini, 2021). Secondly, purchasing power fell during this period, which led to an increase in the number of items held in inventories and reduced turnover rates (Chen et al., 2022). Thirdly, the aggravated geopolitical situation in the east of Europe required an appropriate response in reorganizing supply chains (Lim et al., 2022). It is important to track changes in financial performance in dynamics, reflecting the company’s ability to adapt to new conditions and speak in favor of solvency, not only in mathematical terms.
The behavior of companies in the stock market and interactions with investors can also provide important information about operating performance. The trend of focusing portfolios with both stable dividend income and keeping assets in the IT industry is gaining momentum in the respective circles (Konovalova, Kuzmina, and Zhironkin, 2020). At the same time, the risks of this market are often external in nature: due to the strong relationship with some political, environmental, and social factors, stock prices, as an instrument of capital support, are highly volatile (Bhowmik and Wang, 2020). Consequently, the trend of reorganizing equity in favor of debt capital is gaining popularity, which is dictated by the banking sector’s stability over investment capacity, even though this fact has many controversial issues (Bellon, 2020). More weight in Apple’s assessment is given to US macroeconomic indicators, such as inflation, the critical rate, and the tax structure dynamics, which are no less volatile in the current environment (Angeletos, Huo, and Sastry, 2021). Therefore, concerning the analysis of balance sheets, the decisive role of these factors should be perceived.
Risk management is the discipline that should be included in this analysis due to the growing role of these factors. The complex structure of international business processes, including dependence on the dynamics of currencies or political restrictions due to the coronavirus in the current realities, is an essential determinant of economic changes. Companies are resorting to finding new suppliers and horizontal expansion in the market, especially after leaving some large European ones (Wood et al., 2021). These activities require costs, the payback of which in the long term is also subject to the same risks. Therefore, one can observe a general trend toward a decrease in the liquidity of IT companies as responses and adaptations bring important changes in the internal structure, including business planning. Personnel capable of making predictions under conditions of uncertainty are increasingly valued (Marchau et al., 2019). As a result, negative dynamics in terms of current assets and liabilities can be a clear trend for any business in this industry and should not be taken as a clear signal of a deterioration in the market position: instead, as a scale of adaptation.
Finally, the analysis of financial indicators itself is also complex. First, building key liquidity ratios against competitors, such as the current ratio, will provide a picture of a company’s ability to meet short-term obligations relative to its competitors. Secondly, the debt and equity capital ratio reflects the focus of the organization’s management, which affects the investment attractiveness through the return on shares. Thirdly, the ratio of debt to assets and capital will show the long-term stability of IT giants in the market. Finally, inventory turnover ratios can indicate the pace of business development and the efficiency of vital functional operations. At the same time, key profitability indicators should also be analyzed in relative terms since revenue growth often leads to increased operating and direct costs for producing goods and services, which can signal stagnation but not development. Therefore, this paper implements a comprehensive analysis that requires the processing of both primary data and external factors affecting the activities of Apple and Samsung.
Case Selection Data and Analysis Methods
Given the above literature review, an analysis of international IT giants such as Apple and Samsung carried out at a deep, complex level can roughly paint a picture of the global development of the technology market in business. These companies were not chosen by chance, they are leaders in their industry, and the overall development and modernization of business processes and the daily life of organizations and human resources depend on their innovative activities. Short-term liquidity tends to fall in the prism of financial performance; therefore, assessing how the adjustment processes will affect Apple and Samsung’s overall stability, integrity, and stability is crucial. Long-term indicators will show the degree of impact of ongoing changes in management and planning, and the cumulative correlation with external factors will determine the future policy focus. Finally, looking at the organization of equity will provide an essential insight into the stock market, which has recently been trending from bullish to bearish (Hanna, Turner, and Walker, 2020). This fact means that with a long-term increase in share prices, they will experience a certain stagnation or fall, which can significantly adjust the company’s financial policy and the emphasis on the investment attractiveness of the business sector as a whole.
The data will be collected from the primary sources of the annual reports of Apple and Samsung. In addition, it will also include news and announcements from organizations on current achievements and plans, sustainability work, social and environmental responsibility, and overall market position. The corresponding ratios of liquidity, solvency, and profitability will be calculated using the formulas of critical financial indicators.
The combination of political factors will be assessed by analyzing the legislative framework and the dynamics of the relevant decisions of the authorities of countries that are important for the activities of Apple and its competitor Samsung. These include the US as a determinant of the tax system and the location of the headquarters; significant semiconductor manufacturers raw materials, such as Taiwan. The evaluation in this area will be based on the leading macroeconomic indicators and currency ratios following the context of the financial activity of Apple and Samsung. Given that the data will be taken from primary sources, the reliability of the references is undeniable.
Environmental factors of the external environment have already a more vague and complex assessment in the correlation analysis with finance. First, geographic dynamics differ from region to region, and global processes are usually already considered in the company’s sustainable development policy (Ahmed et al., 2022). Secondly, the nature of the relationship is highly complex: for example, Apple is not directly dependent on coal suppliers and miners, but this resource is required for the production of semiconductors and harms the environment at various stages of their creation (Wang, 2020). Therefore, in this respect, references to previous studies will be secondary and relatively unreliable in temporal hindsight or forecasting. Each such work has its limitations and can only be considered as a factor to be considered in forming a roadmap for the development of the company and the organization of activities within the environmental responsibility framework.
Social determinants, which in turn are often the result of political decisions and environmental dynamics, more often affect such aspects of an IT company as culture, corporate responsibility, human resource management, and marketing. In this regard, reliance on relevant research will also be recommendatory but not determining activity. In other words, works in this area usually have even more time, geographical and demographic restrictions than similar works in the field of ecology and, accordingly, can only be used to describe individual business tasks of the company. In turn, they form the goals and activities of social responsibility; hence the reflection on finances can be revealed through the related costs or correlations with generalized indicators of success: liquidity, solvency, and profitability.
Finally, the essential factor in the development of the R&D sector will be assessed primarily from the primary sources of news and reports from the companies themselves, as well as through the prism of ongoing survey research in the field of identifying the most promising trends and technologies in the field of IT. Compliance with these trends may factor in the growth of profits or cash flows directed to operating activities in intangible assets or equipment. Comparison with competitors like Samsung will be made in two directions: qualitative and quantitative. The former will be determined by company sources describing the technical characteristics of the innovation and the potential scope and market impact, while the quantitative will be analyzed for related costs in the financial statements and determined by changes in subsequent periods.
Consequently, the financial side of the issue, as well as political factors, will be taken from primary sources, indicating the data’s reliability and reliability. The analysis of indicators will also be unambiguous, and possible questions may arise only at the stage of interpretation and discussion. Implementing external factors is the weakest side of the work since reliance on relevant research carries many limitations and is only an attempt or recommendation to determine the causes of dynamics in finance. These aspects will be considered through the PESTLE model for these two companies, where the corresponding potential impacts on the annual accounts will be indicated in an additional column. After such events, the data obtained will be evaluated with possible further implementation in the practical field for Apple through the prism of competition with Samsung.
Analysis
From 2017 to 2022, Apple has been steadily increasing its sales revenue, and even in 2020, when the consequences of the pandemic were affected, its growth did not slow down but, on the contrary, increased. At the same time, in percentage terms, the company sold services and products with a significant turnover (Apple, 2019, Apple, 2022). Gross margin and net profit grew naturally and progressively, except between 2018 and 2019, when there was a slight decline, but already in 2021, the growth turned out to be significant (Apple, 2019, Apple, 2022). Samsung is showing similar dynamics, except for a longer revenue recovery in 2020 (Samsung, 2018, Samsung, 2020, Samsung, 2022). However, net profit did not reach the values of 2017 until 2022; therefore, this IT giant is more painfully experiencing the crisis.
According to the profit growth, the costs of goods sold and operating expenses in the column also grew. However, Apple they were covered by a significant increase in revenue, while Samsung could return to its previous values only by 2022. The most indicative in this regard is the net profit ratio, which shows what part of the net profit is from the company’s total revenue. From 2017 to 2022, Apple has indicators from 0.2 to 0.25, while Samsung has from 0.08 to 0.17. This fact suggests that Apple is a more profitable company in its operations, although both brands classify their products as premium, even though price categories consistently rank the product lines and the update time for both is a year. All relevant calculations and source data tables are contained in Appendix A.
Money management is another comparison factor. Apple has a clear tendency, as mentioned in the literature review, to reorganize and reduce equity in favor of borrowed capital, while Samsung is consistent and does not take such steps (Apple, 2019, Apple, 2022, Samsung, 2018, Samsung, 2020, Samsung, 2022). These indicators can be tracked by the shareholder’s equity graphs and their associated EPS. The latter demonstrates the investor attractiveness of the company, taking into account the effectiveness of the number of shares. Here, Apple is taking action to buy back its shares, which is noticeably reflected in the negative balances of retained earnings, significantly reduced capital, and long-term debt obligations are growing (Apple, 2019, Apple, 2022). On the one hand, such activities are hazardous, as they noticeably worsen the solvency of the company, which will be discussed below in a detailed analysis of the relevant financial relations, but at the same time, due to these steps, the organization increases revenue, returning growth rates, leveling the consequences of crises.
Samsung’s EPS is more stable, so investors can consider this company an option for portfolio diversification while maintaining its assets and profitability. For Apple, this indicator dropped noticeably after issuing new shares and repurchasing them into the company (Apple, 2019, Apple, 2022). At the same time, comparing the prices for the shares of these organizations, one can see that, in general, the percentage growth year-on-year for Apple is higher, while Samsung, also being in a bull market, is not so profitable (Samsung, 2018, Samsung, 2020, Samsung, 2022). These facts generally balance the dynamics of changes in finances; however, Apple is fraught with significant risks. However, higher returns on securities have always been accompanied by increased risk among investors (Abbas, Iqbal, and Aziz, 2019). Consequently, there are no apparent deviations from the market traditions, and the differences are manifested in companies’ policies regarding financial accounting.
An organization’s balance sheet is more indicative of long-term stability and liquidity. Here, the IT giants have noticeable differences that favor Samsung. The current ratio shows the ratio of current assets and liabilities, and for Samsung, this indicator does not fall below 2, while Apple, for the first time in a long time, fell below one in 2022 (Apple, 2019, Apple, 2022, Samsung, 2018, Samsung, 2020, Samsung, 2022). This fact indicates the downward dynamics of Apple’s liquidity and the better stability of Samsung. Apple reorganizes its equity capital in favor of borrowing, hence the growth of both long-term liabilities and short-term. Perhaps this step was forced in times of crisis, allowing the company to maintain its development projects and share buybacks; however, liquidity below one always signals problems covering its long-term obligations. At the same time, according to the cash flow statement, Apple does not have ample cash and cash equivalents, and retained earnings have had a negative balance since 2021 (Apple, 2019, Apple, 2022). Taken together, the organization takes many risks in taking these steps, but brand strength and a long history of success continue to push stock prices higher. Apple is likely preparing to release breakthrough innovations that will allow increasing revenue in the same percentage as in the dynamics of 2020-2021, but only time will confirm or refute this hypothesis.
The dynamics of the calculated debt-to-assets and debt-to-equity ratios are similar. Samsung’s first score is on a downward trend from 0.28 to 0.2 in 2022, while Apple’s is rising from 0.65 to 0.85 over the same period. Accordingly, Samsung’s debt-to-equity remains at around 0.3, while Apple’s is growing and is already over 5. These figures only confirm the hypothesis above; IT giants are generally not inclined to take such risky steps in conditions of increased uncertainty, which this approach by Samsung demonstrates. However, the specificity of the technology sector lies in the fact that any innovative discovery that can fundamentally change the usual processes gives the pioneers significant financial gain. Apple is betting heavily on its operations, and that bet is higher than ever, given political and global challenges. In the event of a recession, protracted crises, or a change in macroeconomic indicators beyond the control of companies for the worse, Apple is in a more disadvantageous position, although so far, in the short term, its policy is bearing corresponding results.
Finally, the inventory and asset turnover rates between the two companies are balanced by some factors. Asset turnover ratio differs slightly from competitors, which can be perceived as a reference ratio for this area. Inventory turnover differs dozens of times, but a corresponding difference in the indices of inventories causes this difference. Samsung also has dozens of times more assets in this column, which indicates poor product sales (Samsung, 2018, Samsung, 2020, Samsung, 2022). Apple is faring much better, albeit with a more extended period overall. Given the premium nature of the lines and the emphasis on brand strength, Apple’s approach seems to be the better one, as depreciation and obsolescence of existing inventory occur rapidly in the technology sector.
Regarding the technological progress of companies, Apple is ahead, judging by recent statements. First, Apple introduces new generation processors that are more productive with less power consumption, leaving behind competitors by tens of percent in the corresponding indicators (Apple, 2023). Second, product line diversification is driven by new developments in the VR headset and touchscreen laptop (Pitchard, 2023). At the same time, Samsung did not provide such announcements, except for the planned release of a line of smartphones (Samsung, 2023). Therefore, the risky moves reflected in Apple’s financials could be justified by a corresponding flow of advanced technology developments.
When analyzing external factors, it is necessary to resort to the PESTLE methodology, which is quite comprehensive. It is enough to focus on global factors to evaluate the industry as a whole by two major players. The political determinants of the performance of US-based IT companies focus on the current tense relationship with China, which is a crucial producer of products (Medeiros, 2019). Samsung has a similar history of strained relations with its neighbors North Korea, but the scale and specifics of such interactions are generally smaller than those of Apple. Economic factors in a global sense are based on macroeconomic indicators: inflation in the United States has reached record levels, purchasing power is due to the aggravated situation in the east of Europe, and the majority of the target audience is falling, which means that Apple and Samsung have an unfavorable background (Lim et al., 2022). Social factors have adopted an imposed brand culture in that the smartphone and its version indicate societal status (Tunjungsari, Syahrivar, and Chairy, 2020). In general, at the moment, there are no such alternatives in technological paraphernalia; therefore, this category is less exposed to risks for these companies.
Technological factors largely depend on the IT giants’ activities; respectively, organizations dictate the market’s determinants. Legal aspects include legal restrictions, which are usually associated with entering new markets or organizing imports in supply chains. Finally, environmental factors are essential for companies at this point. First, the semiconductor industry, where Apple is the consumer leader, faces many natural challenges. Secondly, indirectly, these productions contribute to the increase in coal production, which is an irreplaceable energy resource, and, among other things, pollutes water and air (Lazonic and Hopkins, 2021). In the long term, considering political regulations regarding climate change, these factors will soon require IT giants to either reduce production or high costs in the transition to renewable energy resources.
Discussion
The analysis indicates companies’ different financial positions after the pandemic crisis and in the current conditions of uncertainty due to a number of global challenges. Samsung turned out to be a more stable organization, having survived the spread of the coronavirus more painfully but recovering by 2022. Apple’s main competitor has maintained key financial relationships at levels close to those of 2017 and improved them on some issues, contributing to the company’s solvency and liquidity. Apple, on the other hand, having better efficiency and profitability indicators, has taken a number of risky steps to reorganize capital in favor of debt, thereby reducing the both long-term and short-term ability to cope with obligations. In return, Apple has offered several innovative solutions, including developing next-generation processors that are sure to support revenue growth. At the same time, Apple bought back many of its shares, but the feasibility of this move will be revealed later when more extensive share price dynamics and the company’s overall stability are known.
The analyzed external factors show that the IT industry as a whole is entirely dependent on political, environmental, and economic determinants, which currently provide an unfavorable background for their activities. Environmental determinants are the most worrisome in the long term, as they require answers in the here and now. Many of these measures should affect IT companies in the context of reducing production due to such a decrease on the part of semiconductor suppliers or increasing the cost of environmental responsibility for sustainable development. Apple is in a riskier position in this respect due to being the world’s largest consumer of semiconductors (Apple, 2021, Lazonick and Hopkins, 2021). Given its cautious and stable policy, Samsung can more easily survive any crisis deviations in this system because they did not rely on developments at the cost of liquidity and equity.
Rising inflation in the US and supply constraints in relatively large markets in Eastern Europe affect both competitors almost equally. Apple is more dependent on US macroeconomic indicators, as it has to pay taxes on its worldwide earnings, while Samsung has a six-and-a-half percentage point higher income tax rate in South Korea (Park and Maher, 2020). Therefore, Samsung’s business planning is more straightforward than Apple’s in this environment of challenge and uncertainty.
Summarizing the interpretation of the analysis, it can be concluded that both companies are currently in a rather harsh external environment; however, given the specifics of the strength of these brands and the prevalence of demand for technology, their situation can hardly be called deplorable. Profits of both corporations are growing in the short term, and share prices – so far too. There are few internal prerequisites for maintaining such dynamics, but Apple has most of them due to new innovative developments. Business process optimization is becoming an essential issue on the agenda of companies in many areas, given the external political, economic, and environmental background; therefore, the demand for innovations from the pioneers will be supported further, especially if it promises a gain in costs and productivity. Technological progress is unlikely to stop; the company still has ample opportunity to grow despite Apple’s declining liquidity momentum.
It is worth noting many limitations of this analysis, which may reduce the potential accuracy of the conclusions. Firstly, many internal business processes of companies are hidden due to trade secrets. Secondly, they may include developing innovative products that can revolutionize many industries, which has happened repeatedly on the global agenda over the past century. Finally, the set of external factors presented in this paper is limited due to the overall complexity of their influence. Reliable accuracy of the determinants of financial activity cannot be determined even with the help of comprehensive methods, such as PESTLE, since any movement in reporting is dictated by a combination of internal and external factors that are largely inaccessible to ordinary researchers. In this paper, an attempt was made to assess the state of Apple using the analysis of a direct competitor and the external environment, and the results of the study are limited to the considered aspects – they provide a detailed analysis of financial statements and describe changes in them by searching for a qualitative correlation with global trends.
Conclusions and Implications
Apple’s organizational policy has already made a choice other than stability and keeping financial performance at the same level as Samsung. These risky moves are already paying off in technological progress: the company has reached new heights in the performance of next-generation processors that can solve problems in many business areas faster and more economically. Given the current trend of global challenges due to the pandemic and the economic crisis, many companies will target these developments to optimize. Therefore, according to the analysis carried out, it can be argued that Apple made the right decision, despite the deterioration in solvency and liquidity. However, the risks are more significant for specific categories of factors than in economic terms.
Environmental issues already attract attention on a transnational scale, so the world’s largest companies should similarly respond to these questions. In any case, Apple will sooner or later have to take steps that go against the classic business goals of maximizing profits and remaining competitive. The semiconductor industry is facing several challenges that, under the worst-case scenario, could significantly slow the production of Apple products, affecting the company’s reputation. Given the reduced liquidity and the build-up of long-term debt, the organization will face many financial problems that cannot be resolved in the short term. By comparison, with its thrifty policies, Samsung could weather this crisis much easier due to its capital savings and higher asset-to-liability ratios.
Accordingly, in my opinion, Apple should increase investment in the environmental issues of the planet, namely: the transition to renewable energy sources not only within the company but also among indirectly dependent structures, such as semiconductor production, reduce harmful emissions into the atmosphere and the oceans so as not to provoke irreversible processes of extinction of critical flora and fauna; Finally, focus on the safety of the environment for employees and consumers due to the impact of the pandemic. Such practical solutions will come at a cost, but in the long run, they will avoid massive recessions due to unforeseen circumstances. In many respects, this approach is dictated by the increased financial risks of Apple due to the chosen asset and capital management policy, especially against the backdrop of the more cautious Samsung.
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Appendix A
Table A1: Apple Financial Ratios
Table A2: Samsung Financial Ratios