Week 5 Final Assignment MUST BE COMPLETED BY SATURDAY AUG 27th

1

Apple Inc. Financial Performance

University of Arizona Global Campus

Kevin Sessions

BUS 401 Principles of Finance

Aug 17, 2022

Apple’s Financial Performance

It is quite an arduous task to determine a company to invest in from an array of companies selected. Little information that the raw data provides partly contributed to this difficulty. Determining the ratios of an individual firm helps in the best stock investment decision. The critical ratios for this function include liquidity ratios, profitability ratios, debt management ratios, asset management ratios, and per share. These ratios can help us determine whether to invest in Apple’s Inc. stock.

Liquidity Ratio

Companies finance their operations through different channels. One channel is borrowing or liabilities, which can be short-term or long-term debt. Quick and current ratios are some of the best ratios that can determine the liquidity ratio of a company (Myšková & Hájek, 2019). Apple’s quick ratio has been declining in the last three years. The ratio has been declining from 1.00 to 0.82. The current ratio also dropped from 1.54 in 2019 to 1.08 in 2021. Though this ratio is still good, the company is leading to worrying trends in the repayment of short-term loan obligations.

Profitability Ratio

Profitability ratios help potential investors assess the business's ability to generate earnings relative to its revenue, operating cost, balance sheet assets, or shareholders' equity. The most commonly used ratios are return on assets (ROA), return on equity (ROE), gross margin, and net margin. Apple's ROA is 0.16, 0.17, and 0.276 for 2019, 2020, and 2021 fiscal years, respectively. Its ROE was 0.538, 0.752, and 1.441 for the same periods. These are the best ratio value that shows that the firm is generating profits from its operations.

Debt Management Ratios

Debt is one way through which a company finances its operation. For this ratio, the company needs to manage this debt effectively to avoid any issues that affect its financial status. By determining the debt management ratio, an investor can evaluate the company’s likelihood of defaulting on its debt. The debt management ratio includes the debt-to-equity ratio. Apple’s debt-to-equity ratio in the last three fiscal years was 1.19, 1.72, and 1.98. These ratios show that the company is not good at asset management.

Asset Management Ratios

Companies use assets to generate revenues. An investor needs to determine the ability of the company to generate revenue through the determination of asset management ratios. This ratio helps understand the overall efficiency level of a business. The best ratios for determining a company’s asset management are total asset turnover, receivable turnover, inventory turnover, and accounts payable turnover. Apple’s asset turnover for the last fiscal year was 0.76, 0.84, and 1.07, respectively. The ratio analysis shows that the company has improved over the previous three years. This show that the company has improved its asset management over the period.

Part 2: Ratio Interpretations

Most ratios are calculated to show that the company is doing well in the most critical investment aspects that matter to an investor. The company's liquidity ratios have been above 1 in the last three years. This shows that the company is good at repaying short-term debt. The profitability ratios are also above 10%, which shows that the company is in the best position to generate profits from its operations. The company also does pretty well in asset management, as demonstrated by its asset turnover.

Debt management is the only area in which the company is not doing well. The ratio shows that the company is struggling to meet its long-term debt obligation. Also, the trend indicates that the company might struggle with its debt management in the future.

Part 3: Apple’s Comparison with Industry

Comparing the company's performance with the industry, we can observe how the company is performing in the entire industry. Apple is among the leading firms in the computing industry (Al Mheiri, Hosani, & Saif, 2021). This comparison means that the company contributes significantly to determining the industry trends.

For all the rations that we have done, apple is above average in all aspects. It seems to perform well in all the ratios since it is one of the leading firms in the industry.

Part 4: Organization’s Overall Performance

The analysis of the ratios, comparing the company's ratio and those of competitors, and comparing the company's ratio with the industry can help to determine the company's overall performance (Al Mheiri, Hosani, & Saif, 2021). Apple's ratio analysis shows that the company performs better based on the industry's ratio. Also, the ratio analysis shows that the company will perform well in the future if it keeps the same trends as far as the ratio is concerned.

References

Shivaani, M. V. (2022). Comparing Apple to Amazon: Just a Matter of Words in the Machine Learning World. Journal of Emerging Technologies in Accounting, 19(1), 213-224.

Myšková, R., & Hájek, P. (2019). Relationship between corporate social responsibility in corporate annual reports and financial performance of the US companies. Journal of International Studies, volume 12, issue: 1.

Al Mheiri, R., Al Hosani, N., & Saif, E. (2021). Ratio Analysis of Apple. Available at SSRN 3895231.