Thanks to the iPhone, Apple’s (AAPL) cash flow has recently been spectacular. Why? Because Apple spreads iPhone and Apple TV revenue over eight quarters via “subscription accounting” so it can offer free software updates to its customers. This means the amount of cash it’s bringing in isn’t fully reflected in its income statement.
In last week’s earnings release, Apple included non-GAAP (“Generally Accepted Accounting Principles”) financial tabs for the first time, which show much revenue and earnings the company would have posted if it had recognised iPhone revenue the same way it recognises iPod and Mac sales. The obvious result: The “adjusted earnings” were a lot bigger than the GAAP numbers and showed how significant Apple’s iPhone sales (including 2 million units of channel fill) were to its fiscal fourth quarter.
Apple shareholder Andy Zaky, who keeps an Apple financial analysis blog, did Apple the favour of calculating and posting non-GAAP numbers for Apple’s entire fiscal 2008. The takeaway: Revenues would be 15% higher and earnings 28% higher. We can’t vouch for his numbers, but the chart looks neat. (Republished below.)
Andy also argues that Wall Street analysts analysts are too lazy or incompetent to notice Apple’s cash flow when making estimates or valuing the company, which is silly. (Analysts may not be much good at predicting stock price movements, but they know how to read a cash flow statement. Some of them, anyway.)
But Apple’s extraordinary cash flow is a big reason that we’ve been screaming for weeks about how cheap its stock is at $90 a share.