Financial Analysis Homework

Running Head: FINANCIAL OVERVIEW 1

FINANCIAL OVERVIEW 4

Financial Overview

James Smith

MBA 6016: Finance and Value Creation

Michael Blagg

Capella University

30 January 2015

The company that I chose for my financial overview project is Apple Inc. In order to evaluate the Apple company financial ratios, consideration for each type of the ratios need be evaluated individually compared to the industry average ratios. Therefore the analysis will be in terms of the type of the ratios which are liquidity ratios, asset management ratios, debt management ratios, profitability ratios and market value ratios.

Ratio Analysis

Current Ratio and quick ratio indicates whether the company would be able to meet its current liabilities. Comparing the company liquidity ratios with that of the industry shows that the company has more ability to pay off its debt compared to the industrial average. The performance of the company with respect to the average liquidity ratios in the industry enable the company to embrace their good performance and incase of failures correct measures would be undertaken in order to avoid the company having more current liabilities compared to their current assets.

The asset management ratios shows hoe the company assets are managed and utilized for the better function of the company operations. All the ratios which include inventory turnover, asset turnover, days sales outstanding and the fixed asset turnover reveal the company ability to utilize their assets to be high due to high turnover ratios even when compared to those of the industry, it is only the fixed asset turnover that is lower. Thus the amount of sales revenue gained from utilization of each dollar of total assets is high hence great performance.

Turning to debt management ratios which indicates the level of debt the company owes to outsiders, shows that the company has very huge debts compared to the total assets of the company and even the total equity. The industry average ratios are also high but the company should take precaution measures to settle those debts in order to decrease the liabilities and improve the company operations as a going concern.

Profitability ratios on the other hand shows high return on the shareholder’s investment which means that owners expect high returns which they do receive and thus shareholder’s willingness to invest more into the company is possible. High returns on the company investment are beyond those of the industry thus the company performance is better compared to its major competitors. Evaluating the industry profitability ratios encourage on the management to increase on their operations and lower their costs so that profits would increase.

Market value ratios indicate the investors return based on the price of the trading stocks in the market. The industry ratios are higher than those of Apple Inc. and therefore the company stock performance is not doing well enough in the stock market. The comparison enables the company to know how it is performing with regard to the overall average industry.

Cash flows

From the analysis of cash flows of the Apple Company, the net operating cash flows of the company has been increasing from one period to another which a good indicator that the company is performing well. However, it is evident that the investing cash flows of Apple Inc. are consistently decreasing over the years and therefore the company need to invest more of its cash in acquiring more fixed assets in order to improve its activities further. Company spending on financing activities is comparatively very high and thus the general effect is that net cash flows of the company has been decreasing yearly with the year ended 2014 having recorded a negative value for the net cash flows. This clearly does indicate how the company is doing in terms of the available cash for carrying on the daily operations of the company. Therefore great care should be taken to ensure the cash flows are increased in the coming financial year.

Financial health of the company

Financial statements do provides financial information to the shareholders of the company, these financial statements includes income statements, cash flow statements and balance sheets. From the financial statements various ratios obtained help in evaluation of the company performance and from the Apple Inc. ratios analysis it is evident that the financial health of the company is strong and its performance is better compared to its major competitors in the same industry.

References Brigham, E. F. (2004). Fundamentals of financial management. Mason, Ohio: Thomson/South-Western. Madura, J. (2003). International financial management. Mason, Ohio: Thomson/South-Western. http://www.marketwatch.com/investing/stock/aapl/financials