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Apple (NASDAQ:AAPL) is set to report earnings after the market closes today, July 20. Here are 10 factors to consider ahead of that release.

1. The stock has performed well over the last year, but there's been a recent pullback: Apple's stock has gained 61.83% over the last year, but recent performance has been sub-par, with the stock underperforming the S&P 500 over the last month.

Apple's performance over the last year (click for expanded images):

Apple's performance over the last month:

2. Profit margins improved during the most recent quarter: Apple's net profit margin improved during the most recent quarter, increasing from 17.84% to 22.77% for the 13 weeks ending 2010-03-27. Gross margin increased from 39.93% to 41.67%, while the company's operating margin improved from 25.57% to 29.48%.

3. Apple's accounts receivables trend raises a flag: It's interesting to note that Apple's account receivable grew by 52.47% during the most recent quarter, which is faster than the rate of revenue growth (48.60%). Is this a sign that Apple's clients are struggling to pay their bills? Accounts receivables as a percentage of revenues increased from 33.42% to 34.29% during the most recent quarter, while accounts receivables as a percentage of current assets increased from 8.97% to 14.32% for the 13 weeks ending 2010-03-27.

4. Apple's valuation is attractive relative to historic levels: The following graph charts Apple's forward P/E ratio over the last 3 years. It shows that Apple's valuation is currently at the bottom end of its 3-year range.

5. Apple's operating costs are declining: Apple's cost of revenue, as a percentage of revenue, decreased from 60.07% to 58.33% during the most recent quarter, while operating expenses, also expressed as a percentage of revenues, declined from 74.43% to 70.52%.

6. Apple has a history of blowing away analyst expectations: The following chart shows the history of Apple's earnings results relative to analyst estimates. Green markers represent better than expected results. As it turns out, Apple has beaten analyst expectations for every quarter over the last 3 years.

7. Apple's short term liquidity improved during the most recent quarter: The company's quick ratio increased from 2.44 to 2.59, while working capital improved from $20.102B to $20.107B, which represents about 9% of its market cap.

8. Apple's cash holdings have been reduced during the most recent quarter: The company's Cash / Share ratio decreased from 28.04 to 25.45, which represents about 10.36% of the current stock price. Cash, as a percentage of Current Assets, changed from 73.89% to 71.61% during the most recent quarter.

9. DuPont Breakdown of Return on Equity (ROE) - During the most recent quarter, ROE increased while leverage was decreased: Apple's Return on Equity increased from 6.66% to 7.81% during the most recent quarter. When we break apart ROE by using the DuPont equation, we get the following:

  • Increasing Net Income / Sales: 22.77% (mrq) vs. 17.83% y/y
  • Increasing Sales / Assets: 23.66% (mrq) vs. 21.01% y/y
  • Decreasing Assets / Equity (i.e. leverage): 1.45 (mrq) vs. 1.78 y/y

10. The smart money seems to be running away from Apple, with insiders and institutions selling the stock over the last 3 months: Insiders, who currently own 0.65% of the company, reduced their holdings by 9.63% over the last 3 months, while institutional investors, who currently own 67.41%, cut their holdings by 5.63%. (Source: Finviz)

Disclosure: No positions

Source: 10 Factors to Consider Ahead of Apple's Earnings