Question
Running Head: FINANCIAL RATIO ANALYSIS 1
Financial ratio analysis
Barbara Tatum
The University of Arizona Global Campus
BUS 401 Principles of Finance
Instructor: Kristine Beaird
October 25, 2021
FINANCIAL RATIO ANALYSIS 2
Part 1
Over the last three years, the Apple Company has experienced drastic changes in its
profitability. Based on the profitability, the Apple Company experienced a decrease in the ROA
by 0.33% in 2019 from 2018 (Al Kibaida & Nobanee, 2020). However, there was an increase of
RAO from 15.74 to 17.38 from 2019 to 2020. However, based on ROE, there was a continuous
increase from 49.36 in 2018, 56.07 in 2019, and 73.89 in 2020. There was a similar pattern to
ROI, where there was an increase of 0.43 percent in 2019 and an increase of 4.82 percent in
2020. The main changes in the profitability ratio are a result of goodwill impairment.
The liquidity ratio is also an effective tool to monitor the financial strength of the Apple
Company. The current ratio is 2018 was 1.12, in 2019 was 1.54 and in 2020 was 1.36. The
FINANCIAL RATIO ANALYSIS 3
statistics show 2020 was the most unstable Apple’s fiscal year. On the other hand, the quick ratio
was 0.99, 1.38, and 1.22 for 2018, 2019, and 2020 respectively. The trends show the similarity
between the current ratio and quick.
Debt management ratios will enable Apple Company to ascertain its strength in managing
its debts. The long-term debt to equity ratio was 0.87, 1.01, and 1.51 for 2018, 2019, and 2020
respectively. Therefore, there was an increase in the long-term debt to equity ratio from 2018 t0
2019. On the other hand, the total debt to equity ratio increased from 1.07 to 1.19 in 2019. A
similar trend occurred in 2020, where the ratio increased to 1.72. The trend indicated that the
company is likely not to manage its debts in the future.
Apple Company experienced mixed results under asset management rations. The total
assets turnover increased drastically from 0.72, 0.74, and 0.83 from 2018, 2019, and 2020
respectively. On the other hand, receivable turnover indicates that the lowest value occurred in
2019, where there was a drop from 0.77 in 2019 from 2018 and then a rise to 6.61 in 2020.
Inventory turnover increased from 37.17, 40.13 to 41.52 from 2018, 2019, to 2020, respectively.
Additionally, the account payable also increased moderately from 2018 to 2020. Book value be
share was high in 2018 with 5.63 but a slight decrease in 2019 to 5.09 and then drastically
dropped to 3.85 percent.
Part 2
Based on the financial ratio, Apple Company is strong since ROA, ROE, and ROI
increased from 2018 to 2020. Although some ratios dropped in 2019, there was a general
FINANCIAL RATIO ANALYSIS 4
improvement in the Apple Company because of the general improvement of the profitable ratio
from 2018 to 2020.
The table demonstrates strengths and weaknesses based on ratios
Ratio The trend from 2018 to 2020 Weakness or strength
ROA Increased Strength
ROE Increased Strength
Return on investments (ROI) Increased Strength
Quick ratio Increased Strength
Current ratio Increased Strength
Long-term debt to equity Increased weakness
Total debt to equity Increased weakness
Total asset turnover Increased Strength
Received turnover Increased Strength
Inventory turnover increased Strength
Accounts Payable turnover increased Strength
Book value per ratio Decreased weakness
Based on the analysis of the Apple Company ratio, the performance of the company is
strong. Particularly the increase in the entire liquidity ratio is a clear indication the company is
financially stable. However, the company is not strong in managing its debt due to the increase
of its debt ratio. The company needs to increase its investments and settle most of its pending
debt.
FINANCIAL RATIO ANALYSIS 5
Part 3
Part 3 of the assignment will reveal the performance of the Apple Company in relation to
the entire industry. Basing the argument on the 2020 performance is doing much better in some
areas than the entire industry. For instance, based on the RAO, the industry ratio is 3.86 while the
company ratio is 17.38 in 2020, indicating the Apple Company is stronger in the industry.
Additionally, the ROE ratio for the Apple Company is 73.83, while the industry average ROE
ratio has a negative value. The Apple Company gross margin is above fifty percent and therefore
more than the industry margin, 49.44. Additionally, the net profit margin for the industry is 4.95
lower than the 18.36 ratio for the Apple Company. However, the quick ratio and current ratio of
the Apple Company are slightly below the industry ratio.
Based on the long-term debt to equity ratio Apple Company has 1.51, which is less than
the industry ratio of 9.77. Similarly, the debt to equity ratio of the company is 1.72, which is
lower than the industry average of 10.46. Similarly, Apple Company's interest coverage ratio of
50.66 is much higher than the industry average of 21.98. The asset turnover for the company is
0.83 lower than the industry ratio, which means weakness to the company. The company's
inventory turnover is 41.52 above the industry turnover, which indicates a strength to the
company.
Ratio Apple Company to industry
ratio
Weakness or strength
ROA Higher Strength
ROE Higher weakness
FINANCIAL RATIO ANALYSIS 6
Gross margin Higher Strength
Net margin Higher Strength
Quick ratio lower Weakness
Current ratio lower Weakness
Long-term debt to equity lower Strength
Total debt to equity lower Strength
Interest coverage higher Strength
Total asset turnover lower Weakness
Inventory turnover higher Strength
Part 4
Based on the financial ratio, Apple Company has enough liquidity to invest and incur the
cost of the company's daily operation. The debt management ratio indicates that the company can
manage its long and short-term debts compared to the majority of the companies in the industry.
Higher gross margins indicate the company's ability to increase its investments and manage its
debts due to strength in financial performance. Most competitors of the company are doing
poorer than Apple Company in their financial management.
FINANCIAL RATIO ANALYSIS 7
References
Al Kibaida, O., & Nobanee, H. (2020). Financial Statement Analyses of Apple. Available at
SSRN 3647455.