Introduction and conclusion--company is apple inc.

7

Apple Inc. Ratio Analysis

Amanda Farah

BUS 401

Part 1

Profitability Ratios

Looking at the financials for Apple Inc. for the last three years the company is doing better than it was three years ago. The company’s ROA increased from 15.74% in 2019 to 17.38% in 2020 and later increased to 28.13% in 2021 and this shows that the company has been putting its company assets into proper use. The ROE also increased over the years and this shows that the company has made use of its equity well to generate revenues. Apple Inc. also had an increase in its Return On Investment (ROI) and this shows how the business has generated earnings from its investments.

Liquidity ratios

The company’s liquidity position is not good and this is because the company’s current ratio is below two which means that the company’s current assets are less than twice the amount of current liabilities. The desired level is 2 because at 2 it means that the company will be able to meet its short-term obligations with ease. The quick ratio is also less than two, but since it is more than one it means that the business can pay off its obligations without using its long-term assets.

Debt management ratios

Looking at the total debt to equity ratio we can see that the ratio has been increasing from 2019 where it was at 1.01 to 2020 when it was 1.51 and later increased to 1.73 in 2021. This is a bad sign as it shows that the company has been taking in more debt and that will compromise its financial leverage (Dance &Imade, 2019). The company’s debt equity ratio increased as well and this shows that the company finances its activities with more debt than equity and that is putting the business at risk.

Asset management ratios

Looking at the asset management ratios of the business over the three years the business has been effective in using its assets to generate revenues. The company has been having a very high inventory turnover of more than 40 and this shows how the business has effectively used its inventory towards generating revenue(Subalakshmi et al., 2018). The receivables turnover and the accounts payable turnover have also been positive over the three years. The total asset turnover is 1 and this is not a good rate since it shows that the business is not putting its assets into maximum use.

Per share: book value per share

The book value per share has reduced over the years and this shows that the worth of the shares of the company have reduced. This is not a good thing for the business as it shows that the investors will have less confidence in the company. The company needs to work towards increasing the value of the book value to attract more investors.

Part 2

Ratio	Strength/ Weakness
ROA	Strength
ROE	Strength
ROI	Strength
Quick Ratio	Weakness
Current Ratio	Weakness
long-term debt to equity	Weakness
Total debt to equity	Weakness
Interest coverage ratio	Weakness
Total asset turnover	Strength
Receivables turnover	Strength
Inventory turnover	Strength
Accounts receivable turnover	Strength
Accounts payable turnover	Strength
Book value per share	Strength

Looking at the profitability of the company it can be considered as a strength and this is because the ROA, ROE and the ROI have been improving over the years. The liquidity of the company can be considered as a weakness and this is because the liquidity ratios; both the quick ratio and current ratio have been declining over the three years (Lee & Lee, 2018). The debt management ratios of the business have been reducing over the years as well and this means that the company is taking in more debt compared to equity and that puts the business at risk. The book value per share has been increasing.

Overall, looking at debt management and liquidity ratios; they have all been decreasing. The company’s weakness is that both the liquidity and the debt management has been weakening. A major strength of the business is that its turnover has been improving and this shows that the business has been effective in converting its assets to revenue (Dance &Imade, 2018). Overall, ratio performance of the business can be described as neural as it is doing well in some areas and underperforming in some areas.

Part 3

Looking at the profitability of the business, it performs higher compared to the industry averages. The ROA. ROE and the gross margin of Apple Inc. are way above the industry averages. The net profit is also above the industry average. The net profit margin of the company is at 25.88% while the industry average is at 5.95%. Looking at the current ratio the company is slightly below the industry average. The company has a current ratio of 1.07 while the industry average is 1.78. The quick ratio of the business is also below the industry average since it is at 0.91 while the industry average is at 1.18. Looking at the debt management ratios, the company performs worse than the industry. It has higher total debt to equity ratio and debt to equity ratio compared to the industry(Haralayya, 2021). The total asset turnover and the inventory turnover are higher compared to the industry level and this is a good indication.

Ratio	Higher/Lower
ROA	Higher
ROE	Higher
ROI	Higher
Quick Ratio	Lower
Current Ratio	Lower
long-term debt to equity	Higher
Total debt to equity	Higher
Total asset turnover	Higher
Receivables turnover	Higher
Inventory turnover	Higher
Accounts receivable turnover	Higher
Accounts payable turnover	Higher
Book value per share	Higher

Part 4

The ratios can be categorized as better than the industry. The profitability ratios are the most important ratios and this is because they show whether a business makes profits after settling its expenses. The company has a high net profit margin and gross profit margin compared to the industry average and this is a good rate for the business. The net profit margin is important since it shows the money that the business is left with to use in expanding the business and making its investments (Lee & Lee, 2018). This is because the net profit margin excludes all the expenses of the business.

References

Dance, M., &Imade, S. (2019). Financial ratio analysis in predicting financial conditions

distress in Indonesia Stock Exchange. Russian Journal of Agricultural and Socio-Economic Sciences, 86(2).

Haralayya, B. (2021). Ratio Analysis at NSSK, Bidar. Iconic Research And Engineering

Journals, 4(12), 170-182.

Lee, B. H., & Lee, S. H. (2018). A study on financial ratio and prediction of financial distress

in financial markets. The Journal of Distribution Science, 16(11), 21-27.

Subalakshmi, S., Grahalakshmi, S., & Manikandan, M. (2018). Financial Ratio Analysis of

SBI [2009-2016]. ICTACT Journal on Management studies, 4(01), 2395-1664.