Sample FE7052 International Corporate Finance Coursework

FE7052 International Corporate Finance Coursework Sample

Assignment Instruction

This coursework constitutes 100% of the assessment for this module. Students are required to write a report (3000 words) by completing the coursework questions. Students are encouraged to access company information (e.g., annual report) to conduct independent research and collect data to answer the questions.

Students are required to complete all the questions listed below in their individual report.

Students are required to construct an analysis of a multinational corporation (MNC) covering a period of a minimum of 3 years and a maximum of 10 years. The analysis should address the following questions:

- Provide a historical overview of the selected company;

- Discuss the contemporary monetary environment of the company’s home country (such as monetary history, exchange rate regime, the role of the central bank in the foreign exchange market, and any relevant exchange rate crises), and its effects on the company’s international trade flows with other economies;

- Examine the capital structure of the chosen company and analyse on its cost of capital within the selected timeframe and discuss the implications for the value of the company;

- Track and report on the chosen company’s share/bond price changes (choose one only). Illustrate the risks and returns of the company in the market within the selected timeframe and provide commentary on the future prospects of the company (Tables/Figures/Graphs are expected to be included)

- Evaluate the company’s net working capital and debate whether the company has managed its working capital efficiently, and whether it has positively affected on the company’s value;

- Debate the factors that need to be considered in the process of multinational capital budgeting and investment decisions. Analyse their impact on the multinational corporation’s value

- Provide any additional economic or political insights that could affect the chosen company’s value and its future.

Structure

- Title Page

- Executive Summary

- Table of Contents

- Introduction

- Methodology

- Analysis & Discussion

- Conclusion

- Limitations & Recommendations

- References

Solution

Introduction

This report offers a complete analysis of Apple Inc., including its historical background, financial structure and response to the global economic and political challenges. The analysis starts from the Apple's inception in 1976 and explores turning points in the company’s growth, its dependence on the U.S. monetary environment, and management of capital structure. In this scope, Apple’s share price movement, net working capital management and multinational capital budgeting are explored using data from 2020 to 2024. The report seeks to help explain factors that influence Apple’s financial decisions and strategies, and how Apple retains its market leadership in the face of a changing global environment.

Historical background

Apple Inc. is a company that commenced business in 1976 founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in a garage in Cupertino, California with the aim of creating personal computers (Ahmed, 2023). Apple I was Apple’s first product, it was a simple but revolutionary machine that led to the Apple II in 1977, Apple’s first major product and which established Apple as a leader in the emerging computer industry the assignment helpline Apple went public in 1980 and generated a lot of capital and used that capital for rapid growth and innovation.

In the 1980s Apple released some very notable products, Macintosh being one of them in 1984 (Little and Greene, 2020). This product solidified Apple as a company known for the innovative design first used in the Macintosh which is one of the first mass market personal computers with a graphical user interface (GUI). However, in 1985 it was an internal power struggle that saw Jobs depart from the company. There were then issues with leadership, wildly inconsistent product launches and declining market share for Apple over the following years. During this period, Apple also released a product, like the Newton PDA, which was a failure for the company, but showed a willingness to try new things in technology, in an effort to catch up with competitors like Microsoft.

Apple’s turning point was 1997 when Jobs returned as CEO and reimagined Apple’s product strategy around a much leaner approach. In his tenure, Apple introduced a string of iconic products in the 2000s: iMac, iPod, iPhone and iPad. When Apple introduced the iPhone in 2007, the tech industry began to revolve around the iPhone and was ushered into the era of Apple consumer electronics. This helps the company build a strong global brand and financial success based on ecosystem integration, high quality design, and user-friendly interfaces.

Currently, Apple remains the industry leader in technology and has expanded to services and wearables, with consistent dedication to innovation, quality and prioritisation of user experience. It is still one of the world’s most valuable companies, a symbol of cutting-edge technology and design excellence.

Contemporary Monetary Environment of the Home Country

Apple has a very strong dependence on the US monetary environment especially the Federal Reserve policies as a major determinant of both the cost and operation of Apple’s business across the world. Interest rate as a policy instrument under the Federal Reserve impacts on the capital structure of Apple since the firm balance sheet has tended towards a greater debt-equity ratio in the recent past. Apple has created an environment where all the companies in the Apple environment are able to generate revenues and be profitable. So, when Apple creates wealth, they do not only spend more on research and development to produce even better products that consumers enjoy but also take better care of their employees and suppliers for this every firm wants to be associated with Apple supply chain (Yifu and Wang, 2022). But the rising rates of interests have raised the cost of borrowing hence affecting the ability of Apple to use debt as it has been used in the past. Sustaining the balance on the capital structure will therefore be essential for Apple to continue on its innovation investments and therefore, debt management strategy will be imperative.

The stability of the U.S dollar as well as the moderate movement of currency by the Federal reserve is also propitious to Apple since most of its sales are in foreign countries. Since Apple generates the majority of its revenues in dollars, every time the dollar rises, as it is the case currently, global sales in other currencies are worth less and this puts pressure on the company’s gross margins. In 1994, Apple had a net profit of US $390 million from overseas markets and US $310 million from its local market (Rao, 2021). The Federal Reserve intervenes occasionally in foreign exchange markets for this purpose and aids Apple in part by diminishing some of the fluctuation caused by currency exchange rates; nevertheless, currency exchange rates remain a risk that Apple continuously seeks to hedge.

Inflation is another problem in the present monetary environment prevalent in the United States that is directly and indirectly impacting Apple. The latest inflation fright has raised expenses for inventory, transportation, and manufacturing throughout Apple’s value chain. Despite the fact that in the past Apple has been able to fully or partially transfer some costs to consumers given its popularity and brand awareness, the constantly high inflation rate in the U.S and other countries may constrain this capability without a negative impact on consumer sales. Furthermore, since Inflation should recognise that several founders and some Supreme Court judges regarded the concept of unbacked paper currency unfavourably (Yahya, 2022). To deal with this, Apple regularly reviews its supplier relationships and procurement mixes while at other times may even switch to lower-price countries to counter cost increases.

Monetary policy being tight in a bid to tame inflation has more ramifications to consumer’s buying capacity especially where inflation is high like in US. Monetary policy has not only resulted in increased wealth and greater wealth disparity but has also led to elevated consumer price inflation through the wealth effect on consumption demand (Ferguson and Storm, 2023). However, it is worth remembering that Apple has always been a company that produces high quality goods and has numerous loyal customers, which is why it has survived similar situations before.

Capital Structure in the Cost of Capital

Apple’s approach to capital structure indicates that it maintains a nice blend of debt and equity over the recent period. From the data obtained from 2021 to 2024, there is an evident show that the company has a higher leveraged position, specifically, a higher debt to equity ratio that Apple prefers to use debt to finance the company. The debt equity ratio, which was at its highest at 195.3 percent in 2022, slightly declining at 153.3 percent in 2024. This capital structure may be due to Apple preferred reducing shareholders’ dilution via low-interest debts for the funding of operations, acquisitions and share repurchases as Trade-off Theory dictates. In this theory, the company aims at maximising the advantage of interest tax deductibility while minimising the cost of financial distress that exists in Apple as a result of its efficient cash flows as well as high profitability (Wang, 2023).

The percentage of Debt and Equity again unfolds the financial model of Apple Inc. Debt was the most given attention between 2020 and 2023, with an average of 60 – 66% of capital structure, while equity which was equally important was 33.9% – 39.9% (Apple Inc., 2024). It also in indication to approach of Apple in terms of its use of debt to enhance the Shareholder Value and the firm’s Weighted Average Cost of Capital (WACC). Thus, seeing that Apple’s weighted average cost of capital is at 5.8% and where the after-tax cost of debt stands at 2.98% Apple has optimised on the cost of capital but at the same time creating room for significant investment in its innovation and market development. The fact that the cost of debt is lower than cost of equity confirm that Apple reaps a lot of benefits from debt leveraging. Here
The cost of equity financing is estimated at 10.17%.

The case of Apple shows that the changes in capital structure have also coincided with the changes in this cost over the period (Gugler, Szücs & Wohak, 2023). Thus, as long as debt has remained a large part of the capital structure, Apple’s WACC remains relatively low, indicating sound working of the value of the agency model. This focus on a low WACC is consistent with the Pecking Order Theory which postulates that firms have a strategic preference to reliance on internal funds and debt, and external sources of equity only if internal sources are inadequate. The idea of capital cost with the focus placed on Apple’s financial strategy-based shows that the corporate goal is to reduce capital costs while creating a locked-in insolvency condition. Such wise use of debts, coupled with the strong earnings and cash flow of Apple inflicts the evidence of an appropriate capital structure that envisages continuing growth effectively supporting shareholder value. By carefully managing its capital structure, Apple has ensured its cost of capital for funding its strategic plan in an economic liberal scneario (Rhee, 2023).

Share Price Movement for Apple and its Market Analysis

Seasonal fluctuations evident from the above graph of Apple Company share price in the last five fiscal years reveal that shares are sensitive to both company performance as well as the overall market status. From the analyses made for the period between 2020 and 2024, Apple’s average recoveries are between 63% and 76.9% in the years that formed the basis of the revenue calculation. This phenomenal growth is consistent with the general market rebound after the first period of COVID-19 pandemic, when many technology stocks, particularly those related to tech-enabled products and work from home solutions, boomed. Using our wide range of products, and growing ecosystem, Apple was targeting large market share, and creating shareholder returns; better than the S&P 100’s 32 percent for that year.

Figure 1Annual performance
Source: Self-Created

In 2021 Apple rose up nearly 30% to trump the S&P 100 average return of 21% Y/Y 2021. This performance clearly pointed to the fact of the company’s strength and its innovation-based growth model which was evident in the consumer demand of the company’s products and or services such as introducing new products into the market or new software versions among others. The market conditions currently are quite good: low interest rates enable buying stocks with the help of borrowed funds, preferences for investments in tech shares. Indeed, the ability to sustain high returns in this environment made investors endorse Apple while confirming its market superiority in the new technologies sector (Uwihirwe and Bazimya, 2022).

But as we move into these years, 2022 could have been Apple’s year of loss since its annual return was at -8.8% and far from its previous results. This decline was aggravated by specific market conditions such as developments like; increasing interest rates, inflation fears, or disruptions of some major supply lines which bogged down the technology industry. While the S&P 100 posted a 29% gain that year, Apple business limitations, elevated manufacturing costs and rather weak consumer electronics sales were in evidence. Nonetheless, from an Apple perspective, the fundamentals of the business remained sound and would simply need to wait for the right environment to turn things around, or right the ship, again (Simic and Jovicic, 2023).

Apple successfully returned 24.5% for the fiscal year ended 2023 and outperforms S&P 100 that had a negative rate of return of 21% mainly because of persistent economic instability and fluctuation in the stock market. This is evident by Apple’s strong financial performance during this period with effective cost control, appropriate product positioning and diversified source of revenue as a way of managing risks that afflicted other businesses and portraying investor confidence. This resilience goes well with Apple’s other characteristics of being a stable investment with low beta of 1.24 than the market.

Evaluation of the Net Working Capital Management for Apple

An analysis of the working capital cycle of Apple Company for the past four years shows a working capital management that is proactive to reduce the holding of non–current assets and at the same time enhancing liquidity. From 2021 to 2024, the current assets have increased from $ 134,836 million to $ 152,987 million in total due to the on-going investment in inventory and receivables (Apple Inc., 2024). However, current liabilities recorded a steeper growth, which stood at $125,481m in 2021 and projected to be $176,392m in 2024; with the growth rate of 22.7% in 2022 and 21.4% in 2024. The increase in liabilities beyond a corresponding increase in assets had a negative effect on the current ratio and volatile net working capital.

Figure 2 Working capital
Source: Self-created

This liquidity trend is reflected in Apple’s current ratio where figures have scaled down from 1.07 in 2021 to a projected; 0.87 in 2024. Last year the ratio reduced to 0.88, which implies that current liabilities were more than the current assets implying that Acme may have a constraint in its short term-liquidity. While it multiplied a little in the year 2023 for some reason, the ratio is back down in the year 2024. This current ratio variability shows that Apple implemented a risky working capital management level, which corresponds with the working capital principle of not locking capital in assets to finance even more profitable or high return activities (Kiymaz Haque and Choudhury, 2024).

In line with this interpretation, the net working capital figure more overshadows this by declining from $9,355 million in 2021 to negative territory by 2024 at -$23,405 million. This shift showed that Apple commonly use current liabilities to fund short-term activities to avoid to taint its cash flow toward longer-term investments with more attractive returns, for instance, on research and developmental costs or expenses on plant and machinery.

Apple strategy is in accord with the concept known as the Aggressive Working Capital Management Theory where companies work towards optimising return by minimising working capital needs while holding lower liquidity buffers. This approach however is relatively risky, hence complements Apple’s strong cash flow profile and high profitability, which affords the company sufficient flotation to mitigate for liquidity risks (JOY, 2021).

Key Contemplations in Multinational Capital Budgeting

In multinational capital budgeting, several factors of core importance to sustaining and growing corporate value confront Apple. The first area is exchanging rate risk, which poses a major threat to its international business because changes in the rates can hugely impact the earnings. To reverse this, Apple has over the years engage in hedging to counter this risk as it seeks to balance its cash flows across its operations in different countries while also seeking to shield its earnings from volatility from the foreign exchange market.

Apple's main strength resides in the manufacture of remarkable goods that appeal to consumers (Cai and Chen, 2024). The capital allocation decisions in Apple are affected by the various tax systems since some countries impose better tax treatments. For example, the tax differential has been used by the Apple to maximise after-tax returns, increasing the general returns on global investment. Corporate tax planning is still paramount for Apple to decrease on its tax liability around the globe as it complies with the dynamic changes in taxation laws especially in the regions that are changing their tax laws concerning international income.

Other sources of risk for Apple include market fluctuations and uncertain regulatory environment which are always considered when preparing budget. In order to invest initially, Monetary independence is impacted by a myriad of factors, including monetary policy, inflation rates, and financial laws (Ali et al., 2023). Challenges including restrictions to data privacy, technology exports, and environmental measures in places like the EU not only add a cost hurdle to Apple’s operations but also restrict its operations flexibility.

Additional Economic or Political Insights

Apple currently exists in a broad external environment with strong economic and political forces that play a crucial role in determining the strategic directions and organisational outcomes of the firm. Of course, one of the most pressing concerns is the trade conflict that is still happening between the USA and China today. Since apple relied heavily on manufacturers in China, tariffs and restrictions make production expensive and thereby may cause a rise in the company’s selling price to customers. In the context of the new great power rivalry, the US-China trade war, the COVID-19 pandemic, labor and transport costs, and sustainability pressure, the restoration of manufacturing capabilities has begun to receive more public attention, with the news media focusing more attention on stories of American companies bringing production back in-house.

Home (Zeng and Zhang, 2024). It also has competition between the U.S and China in the geopolitical front as a challenge. For instance, the U.S has gradually restricted the sale of high-tech components like semiconductor chips to China. Thus, these restrictions may limit its production or force it put into other suppliers, eventually, lead to the fact that it will become more expensive for Apple to produce something with high-technology components such as iPhones and MacBooks to mention but a few.

Legal forces in the operation of Apple business in the European Union include data privacy regulation, antitrust, and environmentalism. GDPR for example imposes strict data protection laws on Apple, hence the need to spend a lot of money in data protection and making sure all its services align with what is offered in Europe. Legal requirements that are environmental also force Apple to embrace sustainable management of its supply chain and products.

Conclusion

The analysis demonstrates Apple Inc’s strategic resiliency to innovative, while securing financial stability amidst the ever-varying market and geopolitical conditions. The key findings reveal how Apple has used debt leverage, responded to monetary policies and hedged against currency risks to continue its growth and market position. Despite the pressures of inflation, interest rate increases and regulatory constraints, Apple's capital structure and market driven strategies allow Apple to continue to create shareholder value and maintain competitive advantage. Finally, overall Apple’s ability to adapt to new markets, its continuing focus on high quality, and high-quality oriented products reaffirm Apple as the industry leader in a fast-changing global environment.

Limitations and recommendations

Limitations of this report include reliance on secondary sources of data, which may not adequately capture real time shifts or specific Apple strategies, and fixed period analysis which may not adequately capture long term trends. In addition, finer segment based financial data could further enhance the accuracy of profitability assessment of Apple’s product lines. Based on Apple’s ongoing AI and environmental sustainability expansion work, future research should also consider how this will shape Apple’s financial and operational strategies. Continuous investment in sustainable practices as well as improving the global supply chain resilience and close monitoring of regulatory changes in the U.S., the EU and China are recommended actions. 

References