Task Background:
Welcome to your individual reflective task 3. In this task, we will look at the estimation of growth rates from a qualitative aspect.
In Reflective Task 2, you took the first step in looking at how DDM can be applied to real-life company analysis. You are asked to discuss and look at the growth rate estimation from the EPS and sustainable growth rate perspective. In this task, we will take the growth rate estimation one step further by incorporating more information into our consideration.
If you consider this carefully, the growth rate in the DDM is an indication of future growth potential, not a reflection of past growth rates. So, how reliable do you think the growth rate calculated from historical information is? If you examine the growth rate calculated in Task 2 for Apple Inc., What would the growth rate look like in the next year to the next 10 and 20 years? The answer to this question could vary among individuals. However, one conclusion we can draw with certainty is that the historical growth rate will not be 100% accurate for future predictions. This is especially true as your company may encounter a different set of opportunities in the future.
Why do we still conduct historical growth rate analysis if they are not highly accurate? The short answer is that we have to start somewhere. Every industry naturally exhibits very different growth rates. And we cannot simply guess a company's growth rate without any benchmarks or points of reference. The company's historical information serves as such a reference point. From this starting point, you need to gather more information to produce a more accurate forecast of the company's growth rate. So what do we do?
When forecasting future growth rates, qualitative information also plays a crucial role in the analysis, as it sheds different views from existing market participators/analysts and helps you understand the market trend. Remember that share prices are affected by demand and supply. The market is dynamic and changing all the time. For example, new industry regulations or products you or your competitor are to introduce to the market could affect how the market perceives the company’s growth potential. This means that you don't stop at looking at numerical data, you also need to incorporate qualitative factors such as the company's strategic initiatives that might affect its operations, regulatory changes, market positioning, company management, and the list goes on... How would these factors change the company's potential to generate profit in the future? It’s usually not an easy story to tell, especially when you’re dealing with a mix of information and discussing a future filled with uncertainties. Therefore, the estimation of the growth rate requires a lot of judgment, logic, and justification.
Task Description:
In this reflective task, we will explore incorporating qualitative information into our analysis.
Think about the following questions to help you organise your discussion. Your discussion only needs to be qualitative, and you do not need to provide any calculations for this task. Your discussion should be a maximum of 400-word discussion. (You do not write up to 400 words if you can use fewer words to articulate your opinion).
What industry does APPLE operate in? (0.1/1 mark)
Estimate the industry's growth potential that APPLE coincide in. Analyse current trends and growth opportunities within this industry, as well as Apple’s competitive position relative to its peers. (0.4/1 mark)
Estimate Apple’s growth potential for the short-term (1-3 years) and long-term (3 years and beyond), supporting your forecasts with evidence from research and market data. (0.5/1 mark)
You can use key dot points for discussion. You are not expected to write an essay on this. The key for this practice is for you to lay out your key argument and for your marker to provide feedback and assess whether you are on the right track with your analysis.
Task Resources:
A starting point to get a hold of Apple’s operations is through its annual report. Go back to Apple’s website and look at the recent quarterly report to get a sense of its operations in different segments, products, challenges, and its operation plan.
https://investor.apple.com/investor-relations/default.aspxLinks to an external site.
Press Release in the first three quarters 2024 (and you can go further back to prior years):
https://www.apple.com/newsroom/2024/08/apple-reports-third-quarter-results/Links to an external site.
https://www.apple.com/newsroom/2024/05/apple-reports-second-quarter-results/Links to an external site.
https://www.apple.com/newsroom/2024/02/apple-reports-first-quarter-results/Links to an external site.
Form 10-Q (quarterly report) - look at item 2 and item 3
https://s2.q4cdn.com/470004039/files/doc_earnings/2024/q3/filing/_10-Q-Q3-2024-As-Filed.pdfLinks to an external site.
https://s2.q4cdn.com/470004039/files/doc_earnings/2023/q3/filing/_10-Q-Q3-2023-As-Filed.pdfLinks to an external site.
https://s2.q4cdn.com/470004039/files/doc_financials/2022/q3/_10-Q-Q3-2022-(As-Filed).pdfLinks to an external site.
You can also expand your search to online news articles.
Marking Rubric:
In this task, you will be marked based on your
ability to provide justifications to support your opinion on forecasting the industry and Apple’s growth rate with reliable evidence.
ability to synthesise information from multiple sources to support the analysis.