Capital expenditure refers to the funds that firms use to create efficiency in the operations through the acquisition, maintenance, and management of their long-term assets. The long-term assets of the firm refer to the fixed assets which are also tangible and include items such as plant, property and equipment. The paper therefore focuses on the comparison of Apple Inc. and
Samsung using their financial statements such as the balance sheet and the income statement.
Capital Expenditure by Apple Inc. 2016 - 2018
Capital expenditure = Total fixed assets + Accumulated depreciation. The value fixed assets for 2017 and 2016, = 33,783- 27,010 = 6,773. For the year 2018 and 2017, the value of fixed assets = 41, 304 - 33, 783 = 7,521. For the accumulated depreciation, the company does not present values for three years. Hence the accumulated depreciation is zero. Therefore, capital expenditure for 2016/17 = (6,773- 0) = 6,773. While for 2017/18, the capital expenditure = 7,521- 0 = 7,521. The amount of capital expenditure for Apple Inc. has been fluctuating for three years. For the period between 2017 and 2016, it has 6,773. While for financial period 2017/18, the amount of capital expenditure increased to 7,521.
Apple Inc. incurs a less amount of capital expenditure in 2016 than in 2017 while in 2018, its expenditure increases. The high amounts of capital expenditure in 2017 and 2018 by this firm is due to its engagements into the activities of introducing new plant or machinery into the firm through purchases. Again, the organization maintains a high level of investment on other fixed assets of high value. Hence, Apple Inc. has a substantial commitment to its resources in terms of funds used and also the distribution of its working hours.
Apple Inc. has an irregular capital structure. Its debt and equity changes over three years, having both increase and decrease in levels. For instance, the long-term deficit for this firm in the year 2016, is 75, 427 while in 2017 it increased to 97,207 and lastly fell to 93, 735 in 2018. Thus, from the analysis above, Apple Inc. borrowed more debts to conduct investment in 2017 to help it generate sufficient cash flows for financial leverage. Also, the shareholders' equity within Apple increases from 2016 to 2017 but again drops in 2018. This corresponding increase and decrease in shareholders equity are as the result of the several changes in the debts. It, therefore, implies that the business conducts more investments from the long-term finance borrowed hence the realization of the improved shares to the members.
Capital Expenditure by Microsoft 2016 - 2018
The value of fixed assets for Microsoft in 2016 is 18,356 while in 2017 it has 23,734 and for 2018, it presents 29,460. Thus, calculating the capital expenditure leads to the adjustments in the values plant, property and equipment. For the financial year 2016/17, the changes in the fixed assets are, 23, 734 - 18,356 = 5378, while for the period 2017/18, Microsoft has 29,460-23,734 = 5,906. However, this company does not have any amounts of accumulated depreciation provided in its income statements. Hence, the value of depreciation is zero. Calculating capital expenditure for Microsoft for the period between 2016 to 2017, = 5,378-0= 5,378. For the period 2017/18, it has a capital expenditure of 5,906-0 = 5,906. In the past three years, Microsoft has had increasing capital expenditure.
From the above calculations, Microsoft has an increasing capital expenditure from the year 2016 across to 2017 to 2018. This increment shows that Microsoft has available funds for conducting investments. It requires the business to have sufficient funds to hold long term projects, and the sources might be borrowing from the lenders. Again, the massive increment in the levels of capital expenditure by this organization further shows that it actively engages in the acquisition of new plants, machinery and equipment. There is also active maintenance of fixed assets of the highest value by this business leading to its increased amounts on capital expenditure for the three years.
The need for lots of money to finance long-term investment leads to the presentation of a capital structure with a mixed debt and equity capital by Microsoft. For instance, it presents an increment in the long-term debt from the year 2016 to 2018. The first financial year records, 40, 557, followed by 81,445 and lastly 77,810. Hence, this increasing trends in the long-term debt prove that Microsoft borrows long term loans from the lenders to enable it to conduct its investment. Further, there are more changes in its capital structure, having a constant increment in the values of the shareholder's equity. This improvement is due to the consequent increase in its investment levels backed up by the borrowed long-term funds.
Comparing the Level of Capital Spending Across the Two Firms
The two firms present a similar trend in their capital expenditure since they both realize increasing amounts across the three years. The definite improvement by these firms in their capital spending shows that they have both developed effective measures to generate funds. These funds are from various sources that help them in purchasing more plants, property and machinery. It is also evident that Apple Inc. and Microsoft use both equity and debt finance which they increase the amounts spent yearly. Therefore, the two sources of funds supplement all their investment projects leading to an organized financial structure that makes them suitable to conduct their operations successfully (Fisher & Wassmer, 2015).
There is a difference in the amounts of expenditure the two firms incur in the purchase of new plant, property and machinery. For instance, across the period of three years, Apple Inc. presents more significant expenditures compared to Microsoft. Possible reasons for this disparity in the levels of capital expenditure by the companies is due to the number of resources that Apple has compared to Microsoft. Apple Inc. makes complex capital expenditure decisions that enhance its higher returns on the project than Microsoft.
Capital Expenditure Decision/Making: Some Tools and Trends | INFORMS Journal on Applied Analytics. (2019). Retrieved 13 September 2019, from https://pubsonline.informs.org/doi/abs/10.1287/inte.9.2pt1.63?journalCode=inte
Fisher, R., & Wassmer, R. (2015). An Analysis of State-Local Government Capital Expenditure During the 2000s. Public Budgeting & Finance, 35(1), 3-28. doi: 10.1111/pbaf.12062
Vu, H. (2012). Analysts' Capital Expenditures Forecasts and Career Outcomes. SSRN Electronic Journal. doi: 10.2139/ssrn.2118590
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