How Does Apple Spend Its Money?

by Trefis Team
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Apple’s (NASDAQ: AAPL)  total expenses have trended steadily higher from around $170 billion in 2016 to about $205 billion in 2019 (FY ends September) As a percentage of revenues, expenses have remained roughly flat at about 79%. Below, we take a look at the key drivers of Apple’s expenses and net margins.

View our interactive dashboard analysis on Apple’s Expenses: How Does Apple Spend Its Money?

Total Expenses were $205 Billion, with Operating Expenses of $196 Billion, and $10 Billion in Tax Expenses

Breakdown of Apple’s Total Expenses in 2019 :

Total = $205 Bil

  • Operating Expenses = $196 Bil
  • Provision for income taxes = $10 Bil
  • Non-operating (income)/expense = – $2 Bil

Apple’s Net Income Margins have remained roughly flat at 21.2% between 2016 and 2019

  • While Apple’s Income Margin has remained roughly flat at 21.2% between 2016 and 2019, it increased to around 22.4% in 2018, partly due to the U.S. tax reforms.

Apple’s Total Expenses Have Increased From $170 Billion in 2016 to $205 Billion in 2019

For 2020, we expect total expenses to stand at $218 billion, which comprises of

  1. Operating Expenses: $208 billion
  2. Non-Operating Expense (Income): -$1.9 billion
  3. Income Taxes: $12.2 billion

Below, we take a look at how the company’s key expense components have trended and the key reasons for the change.

1. Operating Expenses: Operating Expenses have increased from $156 billion in 2016 to $196 billion in 2019, driven by (A) $30 Billion Increase In Cost Of Sales (B) $ 6 Billion Increase In R&D Spending, and (C) $ 4 Billion Increase In SG&A Expenses.

(A) Cost of Sales has increased from $131 Bil in 2016 to $162 Bil in 2019, driven by higher costs of memory and other propriety components. As a % of Revenues, Cost of Sales has increased from 61% to 62% over the same period.

(B) R&D Expenses increased from $10 billion in 2016 to about $16.2 billion in 2019 as Apple is likely to be investing in more long-term projects, which may not immediately impact revenues. As a % of Revenue, R&D expenses have grown from 4.7% in 2016 to 6.2% in 2019.

(C) SG&A Expenses have increased from $14.2 billion in 2016 to $18.2 billion in 2019. As a % of Revenues, SG&A has increased from 6.6% in 2016 to 7% in 2019.

2. Non-Operating Income:  Apple’s Non-Operating Income has increased from $1.3 billion in 2016 to $1.8 billion in 2019 driven by higher Interest and Dividend Income from its investments, although it has been partly offset by higher interest expenses relating to more long-term debt.

3. Income Tax Expense: Apple’s Provision for Income Taxes has declined from $15.7 billion in 2016 to about $10.5 billion in 2019, driven by U.S. Federal Income Tax Reforms, with the Effective Tax rate declining from 26% to 16% between 2016 and 2019. However, we expect the tax rate to increase to about 18% from 2020 onward.

 

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