Equity Valuation and Analysis with
eVal
Apple and the iFad
Case Overview
⚫Comprehensive analysis of a growth company
employing conservative accounting
Overview of Business
⚫Apple designs, manufactures and markets personal
computers, mobile communication devices, portable
digital players and a variety of related software and
services
–Integrate its own hardware, operating system and
applications to provide best-of–class products and
services
–Focus on innovative new products through
aggressive investment in R&D
–Lack of Apps for custom operating system
–Run out of ideas for new products
Business Strategy Analysis (3)
⚫Apple
–Integrated consumer products
time−to−time provide future unspecified features and additional software
products free of charge to customers. Accordingly, iPhone handsets and Apple
TV sales are accounted for under subscription accounting in accordance with
GAAP. As such, the revenue and associated cost of sales are deferred at the
time of sale, and are both recognized on a straight−line basis over the
and to restate costs, we add back the net deferred cost
⚫Net deferred revenue = $6,908 (from SoCF)
⚫OR, Net deferred revenue = $4,485+$10,305-$3029-$4,853=$6,908 (from BS)
⚫Net deferred costs = $3,703-$1,931+$1,468-$1,089= $2,151 (from Note 4)
⚫Restated Revenue = $36,537+$6,908 = $43,445
⚫Restated Net Income = $12,741-$3,638 = $9,103
Accounting Analysis (6)
⚫Underlying Economics
–Recognition at time of sale makes more economic
sense. While Apple has indicated that it may
