Analysts: Spencer Elkinton, Jake Gregg and Adam Smith

AAPL

Washburn University Applied Portfolio Management

Apple Inc.

Sector:

HOLD

Information Technology Report Date:

Market Cap (mm) Return on Capital EPS (ttm) Current Price 12‐mo. Target Price

$614,005 139.9% $9.46 $106.72 $130.00

Annual Dividend Dividend Yield Price/Earnings (ttm) Economic Value‐Added (ttm) Free Cash Flow Margin

$2.03 1.9% 11.3 $49,438 17.8%

Business Description Apple Inc. designs, manufactures, and markets mobile communication and  media devices, personal computers, and portable digital music players to  consumers, small and mid‐sized businesses, education, and enterprise and  government customers worldwide. The company also sells related software,  services, accessories, networking solutions, and third‐party digital content and  applications. It offers iPhone, a line of smartphones; iPad, a line of multi‐ purpose tablets; and Mac, a line of desktop and portable personal computers.  The company also provides iLife, a consumer‐oriented digital lifestyle software  application suite; iWork, an integrated productivity suite that helps users  create, present, and publish documents, presentations, and spreadsheets; and  Investment Thesis Apple continues to be a strong stock for the SIF, boasting growing revenue,  large market share and a dedicated consumer base, and high returns on  assets, equity, and invested capital. Apple has steadily increased R&D  investment in order to maintain its competitive advantage. The Information  Technology sector is currently underweighted in the SIF, and we believe  that as macroeconomic recovery slows, this sector will foster strong growth  with lower volatility than the currently overweighted Energy and Utilities  sectors. Apple operates in a highly competitive and rapidly changing sector  while maintaining a low beta, which has led us to the decision to hold with  the potential to increase our position.

2‐Yr Beta (S&P 500 Index) Annualized Alpha Institutional Ownership Short Interest (% of Shares) Days to Cover Short

AAPL

1.19 ‐13.0% 5.8% 0.9% 1.0

ANNUALIZED 3‐YEAR CAGR Total Revenue EBIT NOPAT Earnings Per Share Dividends Per Share

Margins and Yields

14.3% 8.8% 8.3% 13.3% 73.4%

2011

Operating Margin Free Cash Flow Margin Earnings Yield Dividend Yield Per Share Metrics

Free Cash Flow Total Invested Capital Total Assets Economic Value‐Added Market Value‐Added

2012

31.2% N/A 6.9% 0.0% 2011

2012

4.01 0.00 3.96 N/A

Earnings Dividends NOPAT Free Cash Flow

35.3% 20.4% 6.7% 0.4%

6.38 0.38 6.32 4.88

  Economic Value‐Added

2013 28.7% 13.8% 8.3% 2.4% 2013 5.72 1.64 5.59 3.63

9.1% 1.2% 18.2% 8.7% 2.3%

2014

30.5% 17.8% 8.1% 1.7%

2014

2015

6.49 1.82 6.37 10.03

9.28 1.98 9.12 7.21

2011

GOOGL

$500,000

20

$400,000

$30,000

$300,000

$20,000

$200,000

$10,000

$100,000

5

$0

0

Datasource: Capital IQ

ROIC

2013

2014

2015

Net Operating Profit After Tax

2012

Price/Earnings

$40,000

2015

2012

2011

  Market Valued‐Added

2014

^SPX

ROE

EBIT

$50,000

2013

KOSE:A005930

$80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0

25

2012

and the S&P 500 Index

160% 140% 120% 100% 80% 60% 40% 20% 0%

$600,000

2011

Samsung Electronics Co. Ltd.

AAPL

$60,000

$0

Alphabet Inc.

10% 5% 0% ‐5% ‐10% ‐15% ‐20% ‐25% ‐30%

2015

28.7% 33.4% 6.4% 1.8%

Compared With:

50% 40% 30% 20% 10% 0% ‐10% ‐20% ‐30% ‐40%

ROA

2013

2014

2015

Price/Free Cash Flow

15 10

2012

2013

4/18/2016

Apple Inc.

2014

2015

Apple Inc.

Sector

AAPL

Information Technology

Alphabet Inc.

GOOGL

Income Statement Highlights 2011

2012

2013

2014

Sector

Information Technology

Income Statement Highlights 2011

2012

2013

2014

2015

Total Revenue Cost of Goods Sold Gross Profit SG&A Expense R&D Expense Dep. & Amort. Other Oper. Exp. Operating Income Interest Expense Other Non‐Oper. Exp. EBT ex‐Unusuals Total Unusual Exp. Earnings Before Tax Income Tax Expense Net Income

108,249 64,431 43,818 7,599 2,429 0 0 33,790 0 (104) 34,205 0 34,205 8,283 25,922

156,508 87,846 68,662 10,040 3,381 0 0 55,241 0 (566) 55,763 0 55,763 14,030 41,733

170,910 106,606 64,304 10,830 4,475 0 0 48,999 (136) (324) 50,155 0 50,155 13,118 37,037

182,795 112,258 70,537 11,993 6,041 0 0 52,503 (384) (636) 53,278 205 53,483 13,973 39,510

233,715 140,089 93,626 14,329 8,067 0 0 71,230 (733) (812) 72,606 (91) 72,515 19,121 53,394

2015

Total Revenue Cost of Goods Sold Gross Profit SG&A Expense R&D Expense Dep. & Amort. Other Oper. Exp. Operating Income Interest Expense Other Non‐Oper. Exp. EBT ex‐Unusuals Total Unusual Exp. Earnings Before Tax Income Tax Expense Net Income

37,905 13,188 24,717 7,313 5,162 0 0 12,242 (58) (314) 12,682 (356) 12,326 2,589 9,737

46,039 17,176 28,863 8,946 6,083 0 0 13,834 (85) (450) 13,999 470 14,469 2,916 10,737

55,519 21,993 33,526 10,986 7,137 0 0 15,403 (81) (298) 15,790 109 15,899 2,739 12,733

66,001 25,313 40,688 13,982 9,832 0 0 16,874 (101) (272) 17,247 12 17,259 3,639 14,136

74,989 28,164 46,825 15,183 12,282 0 0 19,360 (104) (270) 19,985 (334) 19,651 3,303 16,348

Earnings per Share Dividends per Share Effective Tax Rate Total Common Shares Year‐end Stock Price

$4.01 $0.00 24.22% 6,470 $57.76 996

$6.38 $0.38 25.16% 6,544 $95.30 997

$5.72 $1.64 26.15% 6,477 $68.96 998

$6.49 $1.82 26.13% 6,086 $100.75 999

$9.28 $1.98 26.37% 5,753 $114.71 1000

Earnings per Share Dividends per Share Effective Tax Rate Total Common Shares Year‐end Stock Price

$15.08 $0.00 21.00% 646 $322.95 996

$16.41 $0.00 20.15% 654 $353.69 997

$19.13 $0.00 17.23% 666 $560.36 998

$20.91 $0.00 21.08% 676 $530.66 999

$23.88 $0.00 16.81% 685 $778.01 1000

2011

2012

Balance Sheet Highlights

Assets Cash and Equivalents Short‐Term Investments Total Cash & ST Invest. Total Receivables Inventory Prepaid Expenses Total Current Assets Net PPE Total Assets Liabilities and Equity Accounts Payable Accrued Expenses Short‐Term Debt Total Current Liab. Long‐Term Debt Total Liabilities Preferred Equity Common Stock & APIC Retained Earnings Treasury Stock Total Common Equity Total Equity Total Liab. and Equity

1. Margins and Profitability

2013

Balance Sheet Highlights 2014

2015

9,815 16,137 25,952 11,717 776 0 44,988 7,777 116,371

10,746 18,383 29,129 18,692 791 0 57,653 15,452 176,064

14,259 26,287 40,590 20,641 1,764 0 73,286 16,597 207,000

13,844 11,233 25,158 27,219 2,111 0 68,531 20,624 231,839

21,120 20,481 41,995 30,343 2,349 0 89,378 22,471 290,479

14,632 4,829 0 27,970 0 39,756 0 13,331 62,841 0 76,615 76,615 116,371

21,175 6,749 0 38,542 0 57,854 0 16,422 101,289 0 118,210 118,210 176,064

22,367 8,427 0 43,658 16,960 83,451 0 19,764 104,256 0 123,549 123,549 207,000

30,196 18,372 6,308 63,448 28,987 120,292 0 23,313 87,152 0 111,547 111,547 231,839

35,490 24,169 8,499 80,610 53,463 171,124 0 27,416 92,284 0 119,355 119,355 290,479

Assets Cash and Equivalents Short‐Term Investments Total Cash & ST Invest. Total Receivables Inventory Prepaid Expenses Total Current Assets Net PPE Total Assets Liabilities and Equity Accounts Payable Accrued Expenses Short‐Term Debt Total Current Liab. Long‐Term Debt Total Liabilities Preferred Equity Common Stock & APIC Retained Earnings Treasury Stock Total Common Equity Total Equity Total Liab. and Equity

AAPL, Page 2 of 22

2011

2012

8,723 34,643 43,366 5,427 35 1,710 52,758 9,603 72,574

13,849 33,310 47,159 7,885 505 2,132 60,454 11,854 93,798

17,628 39,819 57,447 9,290 0 3,253 72,886 16,524 110,920

2013

16,585 46,048 62,633 9,974 0 3,412 78,656 23,883 129,187

2014

15,409 56,517 71,926 13,459 0 3,139 90,114 29,016 147,461

2015

588 3,069 3,225 8,913 2,986 14,429 0 20,264 37,605 0 58,145 58,145 72,574

2,012 5,490 4,222 14,337 2,988 22,083 0 22,835 48,342 0 71,715 71,715 93,798

2,453 6,253 3,374 15,908 1,990 23,611 0 25,922 61,262 0 87,309 87,309 110,920

1,715 7,474 4,777 16,779 2,992 25,327 0 28,767 75,066 0 103,860 103,860 129,187

1,931 8,293 4,428 19,310 1,995 27,130 0 32,982 89,223 0 120,331 120,331 147,461

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Profit Margins Gross Profit Margin Operating Profit Margin Net Profit Margin Free Cash Flow Margin Gross Profit Margin

Apple Inc. 2011

2012

2013

2014

2015

40.5% 31.2% 23.9% N/A

43.9% 35.3% 26.7% 20.4%

37.6% 28.7% 21.7% 13.8%

38.6% 28.7% 21.6% 33.4%

40.1% 30.5% 22.8% 17.8%

GOOGL Profit Margins Gross Profit Margin Operating Profit Margin Net Profit Margin Free Cash Flow Margin

Gross Profit Margin

Operating Profit Margin

AAPL

40% 30% 20% 10% 0% 2011

2012

2013

Operating Profit Margin

2014

AAPL

2012

Net Profit Margin

GOOGL

2013

2014

AAPL

2015

20.0% 15.0% 10.0% 5.0% 0.0% 2012

2013

2014

2015

2014

2015

61.6% 25.6% 21.4% 0.9%

62.4% 25.8% 21.8% ‐1.0%

Operating Profit Margin

2012

2013

Free Cash Flow Margin

2014

AAPL

2015

GOOGL

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% ‐5.0% ‐10.0%

25.0%

2011

2013

60.4% 27.7% 22.9% ‐3.4%

2011

GOOGL

30.0%

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

2012

62.7% 30.0% 23.3% 12.9%

70% 60% 50% 40% 30% 20% 10% 0% 2011

2015

2011

65.2% 32.3% 25.7% N/A

Gross Profit Margin

GOOGL

70% 60% 50% 40% 30% 20% 10% 0%

50%

Alphabet Inc.

2011

2012

2013

2014

2015

2012

2013

2014

2015

Analyst Comments: AAPL's margins have been recovering since 2013, though have been in ranging competition with GOOGL. While AAPL's gross profit margin has consistently  been 20‐25% below GOOGL, AAPL's operating margin has risen above GOOGL since 2013 and AAPL's net margin has risen above GOOGL since 2014. Though GOOGL significantly  outperforms AAPL's gross profit margin, AAPL is able to convert revenues to bottom line profits more efficiently than GOOGL. AAPL's growing operating and net profit margins  are a positive sign of revenue‐to‐profit conversion for investors. 

1. Margins and Profitability

AAPL, Page 3 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Profitability Ratios Net Profit Margin × Total Asset Turnover = Return on Assets × Equity Multiplier = Return on Equity

Apple Inc.

Return on Assets

2011

2012

2013

2014

2015

23.9% 0.9 22.3% 1.5 33.8%

26.7% 0.9 23.7% 1.5 35.3%

21.7% 0.8 17.9% 1.7 30.0%

21.6% 0.8 17.0% 2.1 35.4%

22.8% 0.8 18.4% 2.4 44.7%

GOOGL Profitability Ratios Net Profit Margin × Total Asset Turnover = Return on Assets × Equity Multiplier = Return on Equity

Total Asset Turnover

Return on Equity

50%

1.0

40%

0.8

30%

0.6

20%

0.4

10%

0.2

AAPL

2011

2012

2013

Equity Multiplier

2014

AAPL

GOOGL

2012

2013

2014

2015

23.3% 0.5 11.4% 1.3 15.0%

22.9% 0.5 11.5% 1.3 14.6%

21.4% 0.5 10.9% 1.2 13.6%

21.8% 0.5 11.1% 1.2 13.6%

Return on Assets

2012

2013

Return on Assets

2014

AAPL

2011

2015

25.0%

50.0%

2.5

20.0%

40.0%

15.0%

30.0%

10.0%

20.0%

0.5

5.0%

10.0%

0.0

0.0%

1.5 1.0

2011

2012

2013

2014

2015

2012

Return on Equity

GOOGL

3.0 2.0

Return on Equity

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2011

2015

2011

25.7% 0.5 13.4% 1.2 16.7%

GOOGL

0.0

0%

Alphabet Inc.

2013

2014

AAPL

2015

GOOGL

0.0% 2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Analyst Comments: AAPL's profitability ratios have been in general downtrends, though they have been outperforming GOOGL. AAPL's total asset turnover has consistently  outperformed GOOGL by 0.3, while ROA has outperformed GOOGL by  7‐9% and ROE has outperformed GOOGL by 15‐30%. AAPL's ROA has been in consolidation following a  5% drop in 2013, while ROE has risen nearly 15% since 2013. AAPL's outperformance of GOOGL in profitability ratios indicates AAPL's greater return on deployment of  assets and equity than its competitor.

1. Margins and Profitability

AAPL, Page 4 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Multiples and Yields Price/Earnings Price/Book Price/Free Cash Flow Earnings Yield Dividend Yield

Apple Inc. 2011

2012

14.4 3.2 N/A 6.9% 0.0%

Price/Earnings

14.9 3.5 19.5 6.7% 0.4%

2013

12.1 2.2 19.0 8.3% 2.4%

Price/Free Cash Flow

25.0

2014

2015

15.5 2.6 10.0 6.4% 1.8%

12.4 2.3 15.9 8.1% 1.7%

Price to Earnings

GOOGL Multiples and Yields Price/Earnings Price/Book Price/Free Cash Flow Earnings Yield Dividend Yield AAPL

15.0 10.0 5.0 0.0 2012

2013

Earnings Yield

2014

2015

2013

Earnings Yield

2014

2013

Price to Book

2014

AAPL

GOOGL

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

AAPL

Price/Free Cash Flow

2013

Earnings Yield

2014

2015

Dividend Yield

2.0% 1.0% 0.0% 2013

Dividend Yield

2014

AAPL

2015

2012

2013

Price to Free Cash Flow

GOOGL

2014

AAPL

2015

GOOGL

700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0

1.0% 0.5% 0.0% 2015

32.6 3.6 N/A 3.1% 0.0%

3.0%

1.5%

2014

2015

25.4 2.8 629.1 3.9% 0.0%

4.0%

2.0%

2013

2012

GOOGL

2.5%

2012

2014

29.3 3.4 N/A 3.4% 0.0%

5.0%

2012

2015

2013

21.6 2.5 39.1 4.6% 0.0% Price/Earnings

2015

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2012

2012

21.4 2.9 N/A 4.7% 0.0%

700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 2012

Dividend Yield

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

2011

GOOGL

35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

20.0

Alphabet Inc.

2012

2013

2014

2015

2012

2013

2014

2015

Analyst Comments:

2. Relative Valuation and Debt

AAPL, Page 5 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Liquidity and Debt Current Ratio Quick Ratio Days Sales Outstanding Inventory Turnover Total Debt to Assets Long‐Term Debt to Equity Times Interest Earned

Apple Inc.

Current Ratio

2011

2012

2013

2014

1.61 1.58 39.51 139.50 0.0% 0.0% N/A

1.50 1.48 43.59 197.86 0.0% 0.0% N/A

1.68 1.64 44.08 96.89 8.2% 13.7% 360.29

1.08 1.05 54.35 86.59 15.2% 26.0% 136.73

Quick Ratio

GOOGL Liquidity and Debt Current Ratio Quick Ratio Days Sales Outstanding Inventory Turnover Total Debt to Assets Long‐Term Debt to Equity Times Interest Earned

2015

1.11 1.08 47.39 99.50 21.3% 44.8% 97.18

Current Ratio

1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0

AAPL

2012

2013

Days Sales Outstanding

2014

2012

2013

Total Debt to Assets

Inventory Turnover

2012

2013

2014

2015

5.92 5.92 52.26 1083.00 8.6% 5.1% 211.07

4.22 4.18 62.51 91.17 7.7% 4.2% 162.75

4.58 4.58 61.08 N/A 4.8% 2.3% 190.16

4.69 4.69 55.16 N/A 6.0% 2.9% 167.07

4.67 4.67 65.51 N/A 4.4% 1.7% 186.15

Current Ratio

Quick Ratio

7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2011

2015

2011

GOOGL

7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2011

Alphabet Inc.

2014

2015

AAPL

GOOGL

2011

2012

2013

Days Sales Outstanding

250.0

25%

1,200.0

200.0

20%

1,000.0

150.0

15%

100.0

10%

50.0

5%

0.0

0%

2014

2015

Inventory Turnover

800.0 600.0

2011

2012

Total Debt to Assets

2013

2014

200.0 0.0 2011

2015

2012

2013

Long-Term Debt to Equity

Long-Term Debt to Equity

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

400.0

2014

2015

AAPL

GOOGL

2012

2013

2014

2015

2012

Total Debt to Assets

2013

2014

2015

Long-Term Debt to Equity

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

0% 2011

2011

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Analyst Comments:

2. Relative Valuation and Debt

AAPL, Page 6 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Total Invested Capital Total Cash and ST Investments + Receivables + Inventory − Accounts Payable − Accrued Expenses = Net Oper. Working Capital + Net Property, Plant & Equip. = Total Invested Capital ÷ Total Weighted Shares = Total Invested Capital/Share

Apple Inc.

Net Property, Plant & Equip.

2011

2012

2013

2014

2015

25,952 11,717 776 14,632 4,829 18,984 7,777 26,761 6,470 $4.14

29,129 18,692 791 21,175 6,749 20,688 15,452 36,140 6,544 $5.52

40,590 20,641 1,764 22,367 8,427 32,201 16,597 48,798 6,477 $7.53

25,158 27,219 2,111 30,196 18,372 5,920 20,624 26,544 6,086 $4.36

41,995 30,343 2,349 35,490 24,169 15,028 22,471 37,499 5,753 $6.52

GOOGL Total Invested Capital Total Cash and ST Investments + Receivables + Inventory − Accounts Payable − Accrued Expenses = Net Oper. Working Capital + Net Property, Plant & Equip. = Total Invested Capital ÷ Total Weighted Shares = Total Invested Capital/Share

Total Invested Capital per Share

Total Invested Capital

AAPL

$50,000 $40,000 $30,000 $20,000 $10,000 $0 2011

2012

2013

AAPL NOPAT and Free Cash Flow   Operating Income (EBIT) × (1−Effective Tax Rate) = Net Oper. Profit After Tax − ∆ Total Invested Capital = Free Cash Flow   NOPAT per Share   Free Cash Flow per Share

2014

2012

2013

$20,000 $0 2012

2013

2014

2015

33,790 24.2% 25,607 N/A N/A $3.96 N/A

55,241 25.2% 41,342 9,379 31,963 $6.32 $4.88

48,999 26.2% 36,183 12,658 23,525 $5.59 $3.63

52,503 26.1% 38,786 (22,254) 61,040 $6.37 $10.03

71,230 26.4% 52,448 10,955 41,493 $9.12 $7.21

2015

Total Invested Capital

$40,000

2013

2014

Net Property, Plant & Equip.

2015

71,926 13,459 0 1,931 8,293 75,161 29,016 104,177 685 $152.17

$60,000

2012

Free Cash Flow

2014

62,633 9,974 0 1,715 7,474 63,418 23,883 87,301 676 $129.16

$80,000

2011

Net Operating Profit After Tax

2013

57,447 9,290 0 2,453 6,253 58,031 16,524 74,555 666 $112.00

$100,000

Apple Inc.

$70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0

2012

47,159 7,885 505 2,012 5,490 48,047 11,854 59,901 654 $91.53

$120,000

2011

2015

2011

43,366 5,427 35 588 3,069 45,171 9,603 54,774 646 $84.85

GOOGL

$160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00

$60,000

Alphabet Inc.

NOPAT per Share

2014

2015

GOOGL NOPAT and Free Cash Flow   Operating Income (EBIT) × (1−Effective Tax Rate) = Net Oper. Profit After Tax − ∆ Total Invested Capital = Free Cash Flow   NOPAT per Share   Free Cash Flow per Share AAPL

2011

2012

2013

2014

2015

13,834 20.2% 11,046 5,127 5,919 $16.88 $9.04

15,403 17.2% 12,749 14,654 (1,905) $19.15 ($2.86)

16,874 21.1% 13,316 12,746 570 $19.70 $0.84

19,360 16.8% 16,106 16,876 (770) $23.53 ($1.12)

Net Operating Profit After Tax

GOOGL $15,000

$15.00

$10,000

$10.00

$5,000

$5.00

$0

$0.00

($5,000) 2015

2015

2011

$20.00

2014

2014

12,242 21.0% 9,671 N/A N/A $14.98 N/A

$20,000

2013

2013

Alphabet Inc.

$25.00

2012

2012

2012

2013

2014

Free Cash Flow

2015

Analyst Comments: AAPL has increased NOPAT significantly since 2011 and has consistently recorded 3‐4x as much NOPAT as GOOGL, GOOGL far outperforms AAPL's NOPAT per  share. AAPL has recorded positive free cash flow since 2012, with a low of +$9,379 in 2012. GOOGL conversely has recorded negative free cash flow in 2013 and 2015 as invested  capital has exceeded NOPAT. AAPL has invested less than GOOGL in 2013 and 2015, which is cause for concern as the Technology Hardware, Storage, and Peripherals is a rapidly‐ developing and changing sector. Though AAPL's proportionally and sometimes absolutely lower than GOOGL invested capital is  a negative signal for investors, consistently  positive free cash flow available to investors is  a positive signal.

3. Value Creation and DCF Model

AAPL, Page 7 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Cost of Capital Equity Capitalization + Total Debt + Preferred Stock = Value of All Securities Effective Tax Rate Risk‐Free Rate Beta (5‐Yr) Market Risk Premium CAPM Cost of Equity

Apple Inc. 2015 Weight % Cost Weighted % $659,975 91.4% 8.435% 7.711% $61,962 8.6% 5.000% 0.316% $0 0.0% 0.000% 0.000% $721,937 100.0% 26.37% Alternative RF Rate: 1.910% 1.910% 1.924% 0.932 Alternative Beta: 0.93221 7.0% 8.435% Weighted Average Cost of Capital: 8.027% 8.027% 8.027% 8.027% 8.027% 8.027% Apple Inc. 2011 2012 2013 2014 2015 95.7% 114.4% 74.1% 146.1% 139.9% 23,459 38,441 32,266 36,655 49,438 297,062 505,412 323,155 501,574 540,620 $3.63 $5.87 $4.98 $6.02 $8.59 $45.92 $77.24 $49.89 $82.42 $93.96

AAPL ROIC, EVA and MVA   Return on Invested Capital   Economic Value‐Added   Market Valued‐Added   EVA per Share   MVA per Share Economic Value-Added

Market Valued-Added 600,000

$12.00

50,000

500,000

$10.00

40,000

400,000

$8.00

30,000

300,000

$6.00

20,000

200,000

$4.00

10,000

100,000

$2.00

0

$0.00

2011

2012

2013

Return on Invested Capital

2014

2015

Return on Equity

AAPL

2012

2013

2014

2015

Alphabet Inc. 2011 2012 17.7% 18.4% 5,182 6,137 150,337 159,749 $8.03 $9.38 $232.88 $244.11

Weighted %

8.146% 0.050% 0.000%

1.924% 0.90485

8.195%

2013 17.1% 6,639 285,715 $9.97 $429.20

Economic Value-Added

GOOGL

2012

2013

Return on Invested Capital

2014

AAPL

2015

2014 15.3% 6,162 254,832 $9.12 $377.01

2015 15.5% 7,568 412,315 $11.05 $602.25

Market Valued-Added 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0

2011

2012

2013

2014

Return on Invested Capital

GOOGL

160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2011

Alphabet Inc. 2015 Weight % Cost $532,646 98.8% 8.244% $6,423 1.2% 5.000% $0 0.0% 0.000% $539,069 100.0% 16.81% Alternative RF Rate: 1.910% 1.910% 0.905 Alternative Beta: 7.0% 8.244% Weighted Average Cost of Capital:

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2011

160% 140% 120% 100% 80% 60% 40% 20% 0%

GOOGL ROIC, EVA and MVA   Return on Invested Capital   Economic Value‐Added   Market Valued‐Added   EVA per Share   MVA per Share

EVA per Share

60,000

0

GOOGL Cost of Capital Equity Capitalization + Total Debt + Preferred Stock = Value of All Securities Effective Tax Rate Risk‐Free Rate Beta (5‐Yr) Market Risk Premium CAPM Cost of Equity

2015

Return on Equity

20% 15% 10% 5% 0% 2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Analyst Comments: ROIC has been risen to outstanding levels, far above the WACC and above competitor GOOGL's WACC. Due to this spread, AAPL is able to generate significant  EVA and far more than its competitors can generate. Though AAPL's ROIC displays more volatility than GOOGL's ROIC, AAPL's ROIC is a substantially higher range. AAPL's high  ROIC, conservative WACC, and growing EVA are a positive sign of value creation for investors.

3. Value Creation and DCF Model

AAPL, Page 8 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL Intrinsic Value Model   PV of Future FCFs + Value of Non‐Oper. Assets = Total Intrinsic Firm Value − Total Debt = Intrinsic Value of Equity ÷ Total Weighted Shares = Per Share Intrinsic Value vs. Year‐End Stock Price  Over (Under) Valuation/Share  % Over (Under) Valued Year-End Stock Price

Apple Inc. 2011 644,221 25,952 670,173 0 670,173 6,470 $103.58 $57.76 ($45.83) ‐44.2%

2012 663,972 29,129 693,101 0 693,101 6,544 $105.92 $95.30 ($10.62) ‐10.0%

Long‐Term Growth Rate: 2.0% 2013 2014 2015 693,747 688,397 702,165 40,546 25,077 41,601 734,293 713,474 743,766 16,960 35,295 61,962 717,333 678,179 681,804 6,477 6,086 5,753 $110.75 $111.44 $118.50 $68.96 $100.75 $114.71 ($41.78) ($10.69) ($3.79) ‐37.7% ‐9.6% ‐3.2%

Per Share Intrinsic Value

$140 $120 $100 $80 $60 $40 $20 $0

GOOGL Intrinsic Value Model   PV of Future FCFs + Value of Non‐Oper. Assets = Total Intrinsic Firm Value − Total Debt = Intrinsic Value of Equity ÷ Total Weighted Shares = Per Share Intrinsic Value vs. Year‐End Stock Price  Over (Under) Valuation/Share  % Over (Under) Valued

MVA per Share

AAPL

2012

2013

$ Over (Under) Valued

2014

2015

0%

($10)

‐10%

($20)

‐20%

($30)

‐30%

($40)

‐40%

($50)

‐50% 2011

2012

2013

2014

2015

Per Share Intrinsic Value

$900 $800 $700 $600 $500 $400 $300 $200 $100 $0 2011

% Over (Under) Valued

$0

Year-End Stock Price

GOOGL

$700 $600 $500 $400 $300 $200 $100 $0 2011

Long‐Term Growth Rate: 2.0% 2013 2014 2015 ‐10,962 ‐12,430 ‐12,679 57,447 62,633 71,926 46,485 50,203 59,247 5,364 7,769 6,423 41,121 42,434 52,824 666 676 685 $61.77 $62.78 $77.16 $560.36 $530.66 $778.01 $498.58 $467.88 $700.85 807.1% 745.3% 908.3%

Alphabet Inc. 2011 2012 ‐5,520 ‐11,892 43,366 47,159 37,846 35,267 6,211 7,210 31,635 28,057 646 654 $49.00 $42.87 $322.95 $353.69 $273.95 $310.82 559.0% 725.0%

2012

2013

2014

Return on Invested Capital

2011

2015

WACC

160% 140% 120% 100% 80% 60% 40% 20% 0%

2012

2013

$ Over (Under) Valued

2014

2015

% Over (Under) Valued

$800 $700 $600 $500 $400 $300 $200 $100 $0 2011

2012

2013

2014

2015

1000% 800% 600% 400% 200% 0% 2011

2012

2013

2014

2015

Analyst Comments: AAPL is consistently mildly undervalued, while GOOGL is severly overvalued. AAPL's undervalutation is in a manageable range for investors to take advantage  of the undervaluation the market is likely to realize. While AAPL's stock prices have risen steadily, GOOGL's price have risen rapidly, which is a concern when coupled with  GOOGL's low intrinsic valuation. AAPL's Piotroski scores significantly outperform GOOGL, reaching an impressive score of 9/10 in 2015 while GOOGL peaked at 8 in 2013 and 2014  then fell to the moderately‐high 7/10 in 2015. Both companies are considered "in the safe zone" with their Altman scores, though GOOGL strongly outperforms AAPL. Per the  intrinsic value model and the Piotroski score,  AAPL has historically been the better investment of the two companies.

3. Value Creation and DCF Model

AAPL, Page 9 of 22

Copyright Robert A. Weigand, Ph.D., 2016

AAPL

Apple Inc.

Piotroski Financial Fitness Scorecard Positive Net Income Positive Free Cash Flow Growing ROA (% change NI > % change TA) Earnings Quality (Operating Income > Net Income) Total Assets Growing Faster Than Total Liabilities Increasing Liquidity (Current Ratio) % Change Shares Outstanding  % change assets) Total Liabilities to Operating Cash Flow (EBIT)  % change TA) Earnings Quality (Operating Income > Net Income) Total Assets Growing Faster Than Total Liabilities Increasing Liquidity (Current Ratio) % Change Shares Outstanding (Diluted)  % change assets) Total Liabilities to Operating Cash Flow (EBIT)  2.9, Grey Zone = 1.23