Financial decision-making in a high-growth company: the case of Apple incorporated

Abstract

Purpose

The purpose of this paper is to develop conceptual knowledge and skills in making financial policy decisions in a rapidly growing and profitable enterprise.

Design/methodology/approach

This teaching case was written by documenting and analyzing published information available to the public about Apple. It presents Apple's situation at the end of April 2012. The company reported net profits of US$11.6 billion and income from sales of US$39.186 billion both for the January-March 2012 quarter. Given this highly successful situation, students should assume the role of the company's chief financial officer, Peter Oppenheimer, and make recommendations to the board of directors about what to do with what appears to be a huge cash surplus that the company has accumulated through the years.

Findings

Students/participants are usually surprised by the fact that accumulating excess cash could become a problem for any company. Through several discussions of the case the authors have found that answers to this central dilemma depend on students/participants’ experiences. Executive education participants try to maintain the cash and find possible investments, while the less experienced (MBA students) worry about the negative effects of the excess liquidity on value creation. While the former group might be influenced by cash constraints situations frequent in Latin America, the latter group approaches the problem from a theoretical perspective.

Research limitations/implications

Since the case was written using public data, therefore it does not take into account the actual opinions and actions of Apple's management team except for those reported by the press.

Practical implications

The case points toward an overall discussion on conceptual topics such as dividend policies, share buybacks, and stock splits. It frames this discussion in terms of a financial strategy matrix developed by Hawawini and Viallet. According to this matrix, the company is creating value with excess liquidity, and this context helps practitioners to determine the optimal solution and provides executives with a clear guideline. The management's problem, in this case, is to find ways to invest surplus liquidity productively, or failing that, to define the best way to return it to shareholders.

Originality/value

This teaching case provides students and practitioners with a practical application of the Hawawini and Viallet framework to the solution of the financial problem faced by successful companies like Apple. Moreover, it shares the teaching experiences of the authors in both MBA and executive education programs.

Citation

Nicolás Marín Ximénez, J. and J. Sanz, L. (2014), "Financial decision-making in a high-growth company: the case of Apple incorporated", Management Decision, Vol. 52 No. 9, pp. 1591-1610. https://doi.org/10.1108/MD-10-2013-0557