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Running Head: FINANCE 1

Etan Gipson

Tiffanie Deloach

Bus/401

June 3, 2024

FINANCE 2

Company Overview

Previously called Apple Computer Inc., Apple Inc. is a worldwide company with

headquarters in the US that provides corporate servers, MAC OS systems, and operating

systems. Cofounders Steve Jobs and Steve Wozaniak established Apple Computers on April 1,

1976, in Cupertino, California. Apple was incorporated as Apple Inc. on April 3, 1977. Apple

Inc. designs, manufactures, and markets digital music players, personal computers, and mobile

devices with communication capabilities (Hoskisson, 2020). The company also provides a wide

range of networking accessories, software, services, and digital content and apps from other

companies.

Income Statement

In reality, during the past three years, Apple has spent $21.1 billion on capital

investments, or the acquisition of manufacturing gear and equipment. According to Steven

Mulunovich, an analyst at UBS Securities, during a January earnings call, Apple "spent almost as

much as Intel does." Although Apple doesn't make big acquisitions, Asymco's Horace Dediu

joked that the company essentially "buys the equivalent of one Yahoo every three years." Apple

today announced revenue increase for the December quarter, driven by record-breaking iPhone

sales and record-breaking service revenue. The company reported $2.18 in quarterly earnings per

diluted share, up 16 percent from the previous year, and $119.6 billion in revenue, up 2% year

over year.

Common Size Income Statements

An iOS app typically has a profit margin of roughly 70%. This indicates that the app

developer makes $70 in profit for every $100 in revenue (Baumol & Blinder, 2021). However, a

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variety of factors, like the app's nature, target market, and monetization approach, might affect an

iOS app's profit margin.

Reselling Apple items typically yields 8% profit margins. Certain products had margins as high

as 40%, while others had margins so low that a sale would result in a loss. Usually, they try to

make up for it by selling accessories and services from third parties, which have margins ranging

from 50% to 70%.

Balance Sheet

This year, Apple is predicted to continue to rule the cash flow charts. Despite having

spent close to $12 billion on capital projects, analysts predict the corporation will lose $107.8

billion in cash this year.

Common Size Balance Sheet

Strong sales of Apple's iPhone devices have historically been the company's main driver

of remarkable growth in revenue, profits, and share price. The company's iPhone business

generated approximately 54.7% of total sales for the fiscal year 2020; approximately 17.7% of

revenue came from the company's Services segment; Mac sales accounted for 9.8% of total

revenue; 9.4% of sales came from the Wearables, Home, and Accessories segment; and 8.1% of

sales came from the iPad.

Cash Flow

Although Apple's worldwide sales for the fiscal year ended in October 2014 were

US$182 billion, the company did not receive all of its revenue in cash. After this kind of revenue

creation, some changes were also done. Every single new investment is derived from the

company's prior sales as well.

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Financial Analysis Conclusion

Apple's talents include opening several retail locations, producing new products, leading

the industry in technological innovation, and having a successful marketing strategy. Because of

its ability to develop original product concepts and its ability to finance everything from software

to hardware, Apple stands at the top of the innovation pyramid. Among the company's failings

are its outrageous pricing for its products, incompatibility with other programs, and entry into

very competitive areas. Pricing is one of the primary reasons why prospective buyers have been

hesitant to buy Apple products.

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Reference

Camm, B. (2011, September 30). Apple competitors need a long-term strategy - analyst.

Retrieved from MacWorld : http://www.macworld.co.uk/news/apple/apple-

competitorsneed-long-term-strategy-analyst-3307405/

Hoskisson, R., Hitt, M., & Ireland, D. (2020). Competing for Advantage. Mason, OH: Cengage

Learning .

Baumol, W. J., & Blinder, A. S. (2021). Microeconomics: Principles and policy. Cengage

Learning.

Running head: SECTION 2-FINAL RATIO ANALYSIS 1

Section 2-Final Ratio Analysis

Etan Gipson

UAGC

BUS/401

Dr. Tiffanie Deloach

May 10, 2024

SECTION 2-FINAL RATIO ANALYSIS 2

Section 2-Final Ratio Analysis

Part 1: Summary of Trends

For the company in the scenario, it involves three profitability ratios. First, its Return on

assets (ROA) for the past three years has shown a consistent upward trend that indicates

improved efficiency in the use of the company's assets to generate profit. Three years ago, the

company had an ROA of 12%, which increased to 15% the following year, and currently, it is

18%. The improvement indicates the company's better capability to convert its assets into

earnings. Return on equity (ROE) for the company has improved significantly, which reflects

better returns generated on shareholders' equity. As the ROE was 20% three years ago, it

increased to 25% the next year and reached 30% in the most recent year. Such an upward trend

indicates that the company provides better returns to its shareholders. The company's Return on

investment (ROI) has demonstrated a positive trend that indicates effective management in

generating returns from investments. There was an increase from 18% to 22% and then to 25%

over the past three years, which indicates the company's better proficiency in its usage of its

investments to generate profits.

The quick ratio has shown stability in terms of liquidity ratios. Three years ago, the

company was at 1.2; last year, it was 1.4, and now it stands at 1.5. A positive trend suggests

enhanced liquidity and better management of short-term liabilities. The current ratio increased

from 1.5 to 1.8 and then to 2.0 over three years, indicating the company's financial stability and

liquidity improvement. The long-term debt-to-equity ratio has decreased from 0.8 to 0.6 over the

past three years. The reduction shows that the company has gradually reduced its reliance on

long-term debt, which has reduced its financial risk. The total debt-to-equity ratio has declined

from 1.2 to 0.9, which indicates an overall decrease in the company's debt levels relative to its

SECTION 2-FINAL RATIO ANALYSIS 3

equity. The interest coverage ratio has improved from 4.0 to 6.0 over the past three years which

shows that the company is now more capable to meet its interest obligations.

The total asset turnover ratio has remained relatively stable due to increase from 0.8 to

0.9 which shows slight improvement. Assets are efficiently used to generate sales. The

receivables turnover ratio has improved from 10 to 12, which demonstrates that the company has

collected its receivables more efficiently. The inventory turnover ratio has increased from 5 to 6,

which suggests that the company has managed its inventory more effectively and can convert it

into sales more quickly. The accounts payable turnover ratio has remained stable at around 8,

which shows that the company has maintained a consistent pace to pay off its suppliers. The

book value per share has consistently increased from $25 to $30 to $35 over the past three years,

indicating the company's growth value on a per-share basis.

Part 2: Trend Interpretation

The company has experienced consistent improvement in several areas over the past three

years. Table 1 below shows trends that suggest areas for improvement in the company's

inventory management and payment cycles.

Table 1

Ratio Trend Strength/Weakness

ROA improvement strength

ROE improvement strength

ROI improvement strength

“quick ratio” improvement strength

“current ratio” improvement strength

“long-term debt to equity” improvement strength

SECTION 2-FINAL RATIO ANALYSIS 4

“total debt to equity” improvement strength

“interest coverage ratio” improvement strength

“total asset turnover improvement strength

receivables turnover” improvement strength

“inventory turnover” slight improvement neutral

“accounts payable turnover” stable neutral

“book value per share” improvement strength

Part 3: Ratio Performance

The table below compares the company's performance to industry averages.

Table 2

Ratio The company Industry Average Higher/Lower

ROA 18% 10% Higher

ROE 30% 20% Higher

“gross margin” 40% 35% Higher

“net margin” 15% 10% Higher

“quick ratio” 1.5 1.2 Higher

“current ratio” 2.0 1.5 Higher

“long-term debt to equity” 0.6 0.8 Lower

“total debt to equity” 0.9 1.2 Lower

“interest coverage ratio” 6.0 4.0 Higher

“asset turnover” 0.9 0.7 Higher

“inventory turnover” 6 5 Higher

SECTION 2-FINAL RATIO ANALYSIS 5

Part 4: Overall Performance

Based on the ratios, the company’s shows better than average financial performance

compared to the industry (Hussein et al., 2023). The profitability ratios and liquidity ratios are

the best indicators since they directly reflect the company's capability to improve profits and a

capability to meet short-term obligations.

SECTION 2-FINAL RATIO ANALYSIS 6

References

Hussein, M. Q. S., Saeed, N. A., & Ahmad, G. S. (2023). Financial ratios analysis and

companies’ liquidity evaluation. Journal of Global Economics and Business, 4(14), 60–

75. https://doi.org/10.58934/jgeb.v4i14.173