FM-CCP7

Running Head: APPLE INC. 2

APPLE INC. 2

Apple Inc.

Financial Management (FIN 3301)

July 27, 2021

Financial analysis is the process of evaluating a business organization's finance-related information to determine the performance and suitability of the organization and involves analyzing whether the company is financially stable, solvent, liquid, or profitable for investment. Purba and Bimantara (2020) explain that financial analysis illustrates the varied characteristics of companies and gives their financial position and health. Financial ratios such as Liquidity, Solvency, and Profitability are evaluated to determine a company's general financial position. According to Tian and Yu (2017), financial ratios are essential tools for financial analysts to ascertain a company's financial position, which can be used to make crucial decisions in business investment. Apple Inc. has a vast record of financial information because it has been in existence for a long time, and therefore, financial ratios for 2018 to 2020 will be used to determine its financial position and health.

Reflection of Apples' Financial Ratios

The liquidity ratios are essential in measuring the company's ability to meet its short-term obligations. According to Yahoo Finance (2020), Apple Inc.'s liquidity ratios depict a current ratio of 1.13 in 2018, 1.54 in 2019, and 1.36 in 2020. The current ratio indicates the ability of the company to meet its short-term obligation of less than one year and is calculated by dividing current assets by current liabilities. From the record above, Apple had improvements in the current ratio from 2018 to 2019 but slightly declined in 2020. The company also registered a quick ratio of 1.10 in 2018, 1.50 in 2019, and 1.33 in 2020. The quick ratio indicates the ability of the company to pay its current liabilities without selling its inventory (Jun 2018). Apple Inc. quick ratio improved from 2018 to 2019 but declined from 2019 to 2020.

Solvency is also referred to as long-term debt ratios and is used to determine the company’s ability to meet long-term obligations. Apple Inc. registered debt to equity ratio of 1.06 in 2018, 1.19 in 2019, and 1.72 in 2020 (Yahoo Finance, 2020). The debt to equity is calculated by dividing total debt by total shareholders’ equity. Apple Inc. depicts a decline of dept to equity from 2018 to 2019 and from 2019 to 2020. On the other hand, the debt to capital ratio for Apple Inc. was 0.47 in 2018, 0.50 in 2019, and 0.60 in 2020. The debt to capital ratio is calculated by dividing total debt by total debt plus shareholders' equity (Jun 2018). The company's debt to capital ratio deteriorated from 2018 to 2019 and from 2019 to 2020.

Profitability ratios determine the ability of the company to generate profitable sales from its assets. Apple recorded returns on equity of 55.56 in 2018, 61.06 in 2019, and 87.87 in 2020. It also recorded returns on assets of 16.28 in 2018, 16.32 in 2019, and 17.73 in 2020 (Yahoo Finance, 2020). Apple Inc. indicates an improvement in returns on equity and returns on assets from 2018 to 2019 and 2019 to 2020.

Apple Inc. Financial Health

Apple Inc. is financially healthy, as depicted from the financial ratios. The ratios indicate that Apple Inc. can meet its short-term obligations since the current ratio is above 1.0. However, a better current ratio would be 1.5. The quick ratio is above 1.0, depicting a healthy liquidity ratio. The profitability ratios also depict that Apple Inc. is in an outstanding position and provides profitable sales through its assets. Additionally, the solvency ratios depict that the company can meet all its long-term obligations. According to Jun (2018), a healthy business organization attracts more investors. Therefore, Apple Inc. is in a good financial position and is headed in the right direction.

Apple Inc., in comparison with Microsoft

Microsoft Corporation recorded a current ratio of 2.53 and a quick ratio of 2.49 in 2020, which is higher than Apple Inc.'s. This indicates that Microsoft is in a better position to meet its short-term obligations than Apple Inc. On the Profitability ratios, Microsoft recorded returns on equity of 37.42 and returns on assets of 14.69, which are lower than Apple Inc.'s, and this indicates that Apple Inc is better in performance since its profitable sales from assets are remarkably higher than in Microsoft. In the solvency ratios, Microsoft depicts 0.53 debt to equity while Apple Inc. depicts 1.72; hence Apple Inc. has a larger ratio than Microsoft.

References

Jun, F. (2018). Study of Relationship Between Liquidity Risk (Quick Ratio) and Internal and External Factors in NIKE Company. Available at SSRN 3301113. https://www.researchgate.net/profile/fang-jun-3/publication/329642793_study_of_relationship_between_liquidity_riskquick_ratio_and_internal_and_external_factors_in_nike_company/links/5c135ab1a6fdcc494ff2d6c0/study-of-relationship-between-liquidity-riskquick-ratio-and-internal-and-external-factors-in-nike-company.pdf

Yahoo Finance. (2021). Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/AAPL/history?period1=1469491200&period2=1627257600&interval=1mo&filter=history&frequency=1mo&includeAdjustedClose=true

Purba, J. H. V., & Bimantara, D. (2020, May). The Influence of Asset Management on Financial Performance, with Panel Data Analysis. In 2nd International Seminar on Business, Economics, Social Science and Technology (ISBEST 2019) (pp. 150-155). Atlantis Press. https://www.atlantis-press.com/article/125940917.pdf

Tian, S., & Yu, Y. (2017). Financial ratios and bankruptcy predictions: An international evidence. International Review of Economics & Finance, 51, 510-526. https://www.sciencedirect.com/science/article/pii/S1059056017305348