Introduction
The case company analysed in this report is Apple Inc. I will start by identifying the
company profile, which is beneficiary for the remainder of the report. The overall
framework of the report will follow an agency approach. I find this approach very feasible
in a corporate governance context. Per definition corporate governance is the control and
direction of companies by ownership, boards, incentives, company law, and other
mechanisms (Thomsen, 2008). So, if proper control and direction is not applied in the
company it leads to agency problems. I will identify and discuss the different agency
issues (type 1,2 or 3) by evaluating and analyzing Apples capital structure, board structure,
executive compensation scheme, and ownership concentration. My conclusive remarks
will include a very brief summary of the governance issues and recommendation
suggestion for Apple to better align management and shareholder interests.
Apple Inc. *€“ Company profile and financial performance
Apple Inc. (Apple) is a US company that designs and manufactures consumer electronics
and computer software. With its highly innovative and fancy designed products and an
EPS of 10.27 it takes the role as market leader in its industry. Apple has a strong financial
profile. From 2005 to 2009 EBITDA has evolved from USD 1,829,000 (000s) to USD
8,361,000 (000s), an increase of 357 percent over the period. Worth noticing is the positive
financial development from 2008 to 2009 *€“ during the financial crisis. An increase of
23.9 percent in EBITDA, indicates strong
consumer preferences for Apple products even during economic downturns. Relative to
main competitors Apples share price has outperformed significantly over the past 5 years,
with nearly 600 percent return over the period. Research In Motion (RIMM) is performing
second best with a 5-year return of almost 250 percent (See exhibit 1). An overall
assessment of Apples financial health and performance indicates that the company has
very low risk following its almost invisible debt/equity ration and high market
capitalization. It has very high growth rates, partly because the company is a market
leader, and because zero dividends are paid out, making it possible to reinvest most of
retained earnings. Finally, Apple benefits from very high profitability. Its EBIT margin is
double the industry average, its ROE is triple the industry average (See exhibit 2). These
are very attractive conditions for Apple shareholders. Since the firm is mainly equity
financed the associated risk is very low. In a high growth company this condition is very
