October 2012
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Day October 4, 2012

Using Capital Expenditures to predict Apple's share price

It takes money to make money. That’s a cliché. But it’s also true. The interesting question is how much can be gained from how little.

In previous articles I explained how Apple’s expenditures of capital for equipment used in manufacturing affects their output of products. The relationship between capital in and product out should stand to reason.

The more surprising aspect of that analysis is that we get to know in advance how much Apple spends (since they tell us their budget a year before it’s spent.) and therefore it becomes possible to get a rough idea of how much they will produce. And since demand has generally been higher than supply we can get an estimate of how much Apple will sell.

The only missing piece to this logic chain is to estimate how much will shareholders benefit from the capital expenditure. I’ll try to establish the relationship through a build-out of graphs.

The first graph shows Apple’s share price at weekly resolution.

The time frame stretches back six fiscal years. The time span includes some dramatic periods including the financial crisis and the launch of the iPhone and iPad.

To illustrate the effect of the iPhone and iPad on this share price appreciation, I’ve overlaid a quarterly resolution graph showing revenues over the same time period with each product line shown separately.

 

Note that I’ve indexed the vertical scale to match approximately the highest peaks of both graphs. The two axes scales are shown separately on the left.

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