I hope that you have enjoyed the article, “Why iPhone Cost Savings Matter Less.”

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In the article, I referred to my method of calculating additional profit from increased sales.  I’ll cover that here.

Let me begin by talking about volume.  In press releases from September 2013 and September 2014, Apple reported that it sold nine million iPhone 5S’s in the first three days of sales in 2013 and 10 million iPhone 6 and 6 Plus’ in the first three days of sales in 2014.

So, that’s 1,000,000 more phones sold in the first three days this year thanks, presumably, to the new characteristics of the phone, most notably the larger size.

According to Apple’s latest annual report, it sold 169,219,000 iPhones in the last fiscal year for a total of $101,991,000,000.  Dividing the sales by the number of units, the revenue per phone sold is $603.

Multiplying 1,000,000 more units by the revenue per unit of $603 gives a value of increased revenue of $603,000,000.

In the last fiscal year, Apple posted $53,483,000,000 “income before provision for income taxes” (otherwise known as Earnings Before Taxes or EBT) against revenue of $182,795,000,000.  Dividing EBT by revenue gives you a pre-tax profit margin of 29%.

Multiplying the pre-tax profit margin of 29% by the increased revenue of $603,000,000 gives you an additional $175 million in pre-tax profit.

To return to the article, click here.

If number crunching and financial statement analysis like this baffles you, consider enrolling in the online courses “Finance For Strategic Procurement, Part I” and “Finance For Strategic Procurement, Part II.”