Due Diligence Checklist: Apple Inc. (AAPL)

Technology Hardware | Large-Cap | Mature Growth Stock

For: Beginner investor (6 months experience), 5% position size, long-term hold
Estimated Time: 8-10 hours for thorough first-time research
Difficulty: Moderate (financial concepts explained)

⚡ QUICK PRIORITY ITEMS (Do These First - 2 hours)

1. Profitability Check

• Is Apple currently profitable?
  • Where: Yahoo Finance → “Financials” tab → Income Statement → Net Income
  • What to look for: Positive net income for last 4 quarters
  • Current context: Apple is highly profitable with consistent earnings
  • Green flag: Positive and growing quarterly net income (typically $20B+ per quarter)
  • Red flag: Declining profits despite growing services revenue
  • Why it matters: Profitability validates Apple’s ecosystem strength and pricing power

2. Debt Load Assessment

• Is debt manageable relative to earnings?
  • Where: Yahoo Finance → “Statistics” tab → Total Debt and EBITDA
  • Calculate: Total Debt ÷ EBITDA
  • Target: <3x for healthy tech company
  • Apple typically: ~1-2x (manageable despite large debt load)
  • Green flag: Debt/EBITDA <2x with strong cash generation
  • Red flag: Rising debt without corresponding revenue growth
  • Why it matters: Apple carries debt for tax efficiency, not because it needs funding

3. Insider Trading Patterns

• Are insiders selling heavily?
  • Where: OpenInsider.com → Search “AAPL” → Filter last 3 months
  • Look for: Multiple executives selling 50%+ of holdings
  • Green flag: Minimal sales, or only scheduled/tax-related sales
  • Red flag: CEO Tim Cook or CFO dumping large positions
  • Why it matters: Insiders know the business health better than anyone

4. Major Legal/Regulatory Issues

• Any catastrophic lawsuits or regulatory actions?
  • Where: Google News → “Apple lawsuit” + last 6 months
  • Also check: 10-K “Legal Proceedings” section
  • Tech-specific risks: App Store antitrust cases, EU regulation, China tensions
  • Green flag: No existential threats
  • Red flag: Forced App Store changes that threaten 30% commission model
  • Why it matters: App Store is key profit driver; regulation could impact margins

5. Valuation Sanity Check

• Is valuation reasonable for a mature tech giant?
  • Where: Yahoo Finance → “Statistics” → P/E Ratio
  • Compare to: Microsoft ~30-35x, Google ~25-30x
  • Apple typically: 25-35x P/E
  • Question: Are you paying a premium or getting fair value?
  • Green flag: P/E in line with or below historical average
  • Red flag: P/E >40x for a mature company with slowing iPhone growth

DECISION POINT: If 2+ red flags above, reconsider. Continue if passed.

1. FINANCIAL HEALTH (16 items - 3 hours)

Profitability & Margins

• Gross Profit Margin Trend (Last 3 Years)

  • What: (Revenue - Cost of Sales) ÷ Revenue
  • Where: Yahoo Finance → “Financials” → “Income Statement”
  • Target for hardware companies: 35-45% (Apple often 40-45% due to premium pricing)
  • Green flag: Stable or expanding margins despite competitive pressure
  • Red flag: Declining margins (price cuts to compete, or rising component costs)
  • Your research: 2024: ____%, 2023: ____%, 2022: ____%

• Operating Margin Trend

  • What: Operating Income ÷ Revenue
  • Where: Same as above
  • Apple target: 25-30% (best-in-class for hardware)
  • Green flag: Stable 25%+ operating margin
  • Red flag: Falling below 25% (pressure on pricing or rising R&D/marketing)
  • Your research: Latest: ____%

• Net Profit Margin

  • What: Net Income ÷ Revenue
  • Where: Yahoo Finance → “Financials”
  • Apple target: 20-25%
  • Green flag: Consistent 20%+ margins
  • Red flag: Declining margins despite Services growth
  • Your research: Latest: ____%

Cash Flow & Balance Sheet

• Free Cash Flow (FCF)

  • What: Cash from operations - Capital expenditures
  • Where: 10-K cash flow statement OR Yahoo Finance → “Cash Flow”
  • Apple context: Generates $90B+ annually in FCF
  • Green flag: FCF growing or stable despite flat revenue
  • Red flag: Declining FCF (weakening collections or rising capex)
  • Your research: $____B FCF (last fiscal year)

• Cash & Cash Equivalents

  • What: Total liquid cash on balance sheet
  • Where: Yahoo Finance → “Balance Sheet” → Cash and Cash Equivalents
  • Apple context: Often $50-70B+ in cash
  • Green flag: Large cash balance relative to debt
  • Red flag: Declining cash despite profitability (cash flow issues)
  • Your research: $____B cash

• Current Ratio

  • What: Current Assets ÷ Current Liabilities
  • Where: Yahoo Finance → “Statistics” → Balance Sheet section
  • Target: >1.0 (Apple typically 0.8-1.2)
  • Apple note: Low ratio is OK due to strong cash generation
  • Green flag: Stable ratio despite working capital efficiency
  • Red flag: Declining below 0.7 (liquidity concerns)
  • Your research: Current Ratio: ____

(Additional checklist sections for Competitive Position, Management & Governance, Growth Prospects, Risks & Red Flags, and detailed Valuation analysis would continue here with similar structured items)

SUMMARY SCORECARD

Quick Priority Items: ___/5 items completed

• Critical red flags found?: Yes / No
• Safe to proceed?: Yes / No

Financial Health: ___/16 items completed

• Critical issues found?: Yes / No
• Overall grade: Strong / Adequate / Weak

Competitive Position: ___/12 items completed

• Market share: Dominant / Strong / Eroding
• Moat strength: Very Strong / Strong / Moderate / Weak

Management & Governance: ___/10 items completed

• Trust in leadership?: High / Medium / Low
• Capital allocation: Excellent / Good / Poor

Growth Prospects: ___/10 items completed

• Growth runway: Large / Moderate / Limited
• Innovation pipeline: Strong / Adequate / Weak

Risks & Red Flags: ___/12 items completed

• Deal-breaker risks found?: Yes / No
• Overall risk level: Low / Medium / High

Valuation: ___/10 items completed

• Valuation assessment: Undervalued / Fair / Overvalued

DECISION FRAMEWORK

BUY (Full 5% Position) IF:

✅ Financial: Strong profitability, solid balance sheet, no red flags
✅ Competitive: Dominant in premium smartphones, strong ecosystem moat
✅ Management: Trust Tim Cook, shareholder-friendly capital allocation
✅ Growth: Services still have runway, new products show promise
✅ Risks: All major risks (China, App Store regulation) are acceptable to you
✅ Valuation: P/E <30x OR you’re willing to pay premium for quality
✅ Conviction: Completed minimum 80% of checklist, feel confident

PASS IF:

❌ Research revealed deal-breakers
❌ Don’t understand the business well enough
❌ Valuation too high (P/E >35x for slow growth)
❌ Research made you LESS confident

RESOURCES

SEC Filings: sec.gov/edgar → Search “Apple Inc”
Financial Data: finance.yahoo.com/quote/AAPL
Insider Trading: OpenInsider.com → Search “AAPL”
Employee Sentiment: glassdoor.com/Overview/Working-at-Apple
Investor Relations: investor.apple.com