Project Financial

5

Financial Statement Analysis

Keenya Davis

South University

Introduction

Financial information is essential for investors. Investors seek to know the financial status of a company before investing. To obtain the status of the company, investors rely on the financial information of the company or organization. The financial statement that investors consider useful to them before making a decision includes: Income statement, balance sheet and cash flow statement. The elements of the statement show the status of the company, whether it is a going concern or an operation that is likely to cease in the near future. For the assignment of the mission, it will be considered to analyze the financial statement element of Microsoft Inc. and Apple Inc.

Income Statement

The income statement is a financial statement that shows the organization's performance within a given trading period. The company is expected to prepare it at the end of each trading period (Merwe , 2014). The elements that I find very useful for the investor in the income statement include: revenues, gross margin and operating profit. Microsoft inc. revenues increased from 110.360 billion in 2018 to 125.843 billion in 2019, while Apple recorded a decrease in revenues over the similar period of 265.595 billion in 2018 and 260.174 billion in 2019.

A similar trend is the Microsoft gross margin experience of 72.009 billion in 2018 and 82.933 billion in 2019, while Apple recorded 101.839 billion in 2018 and 98.392 billion in 2019. As a result, Microsoft's operating revenues in the similar period are 350.58 billion in 2018 and 42.959 billion, while Apple recorded 59.531 billion in 2018 and 55.256 billion in 2019. This indicates that Microsoft's products perform better in the market than Apple's product. Microsoft's customers are more reliable compared to Apple and are able to maximize their sales. Although Apple may be facing strong competition in the market and is likely to perform weaker in the future if they do not change their strategies.

The Balance Sheet

The balance sheet is a financial statement that shows the properties of the business and the credits on the business. It gives the investment an overview of the liquidity of the business. That is, if the business is insolvent or bankrupt. The state of the business is fundamental for an investor to make the necessary decision to invest in the business ( Moolman, M , & M , 2016). Therefore, I have considered the following balance sheet elements for discussion, the cash and cash equivalents, the long-term loan and total assets. Cash and cash equivalents increased at both Apple and Microsoft inc. Microsoft had 133.766 billion in 2018 and 133.819 billion in 2019 and Apple had 25.913 billion in 2018 and 48.844 billion in 2019. While the final assets in 2019 Microsoft had 286.556 billion and Apple 336.516 billion and the opening balance in 2018 Microsoft 258.848 billion and Apple 365.725 billion.

The long-term responsibility for the two companies 2019 includes, Microsoft 114.806 and Apple 142.310 billion and in 2018 Microsoft 117.642 and Apple 142.649. The cash and cash equivalent shows the availability of the money that the business requires for continuous daily operation. Microsoft has a better cash flow, which indicates that the business is able to satisfy short term capacity, which will lead to efficiency. Efficiency will lead to maximum revenue generation ( Moolman, M , & M , 2016). The company's asset values demonstrate its ability to secure or pay its long-term obligations when they fall due. Apple is more liquid in terms of securing long-term loans. Long-term liabilities threaten non-current assets, as it could be forced to pay the debts. Therefore, Apple is more threatened and may lose its assets due to the high loans due.

Summary of the two Comparisons and Conclusion

The investor can invest with confidence in Microsoft Inc., because the company seems more liquid compared to Apple. It has shown an increase in sales of 14 per cent and Apple has reduced revenue in a similar proportion. This indicates that Apple will have a low return and that cash flow will be reduced. The reduction in cash flow will indicate that Apple will not be able to run its operation effectively. This may result in long-term losses. Microsoft is ideal for investors because it shows that investors will earn dividends in the future when yields continue to grow for the foreseeable future.

References

Moolman, J., M , O., & M , S. (2016). The effect of integrated reporting on integrated thinking between risk, opportunity and strategy and the disclosure of risks and opportunities. Southern African Business Review, 20(1), 600-627.

Merwe , O. (2014). A model to estimate firms accounting-based performance: a data envelopment approach. International Business & Economics Research Journal (IBER), 13(6), 1301-1314.