Complete Comprehensive Assignment

FINANCIAL RATIOS

Shawn Harden

Southern Wesleyan University

Managerial Finance

Apple Financial Analysis

On this assignment, we cover the financial analysis of Apple incorporated company. The analysis is done by the use of financial ratios. Apple is a company that provides the customer with various products such as mobile phones, tablets, laptops, software and other music digital players. The company is based in the United States but has customer all over the world. The company is among the best in the industry.

Liquidity Ratios	2014	2015
Current Ratio	1.08	1.11
Quick Ratio	0.86	0.98

Liquidity ratios are ratios that are used to determine the ability of a company to pay back its liabilities. The liquidity of the company can be determined by using current ratios and quick ratios. The current ratio is determined by making a comparison of current assets to current liabilities.

This ratio is meant to determine the liquidity and efficiency of the company. The ratios of the company show that the company can comfortably pay its outstanding debt using its current assets. The company therefore has a big margin and can therefore be able to pay the debt and any more debt. The company has a good liquidity due to the fact that their sales have increased which makes the liquid cash increase to and the current assets to also increase (Titman, Keown & Martin, 2015).

Quick ratio determines the liquidity of the company using the most liquid assets that it has. The most liquid assets in this case are cash and cash equivalents. The two ratios above show that the company cannot be able to pay all of its debts using the most liquid assets. The company can therefore not be able to pay of all its debts in case of a situation where it should be paid within a short period of time. The company however has a better quick ratio in comparison to the industry’s average. The quick ratio improved from 2014 to 2015 due to the fact that the company had an increase in its sales thus an increase in accounts receivable and cash.

Asset turnover ratios	2014	2015
Inventory Turnover	53.2	59.6
Collection Period	34.9	26.3

Asset turnover ratio draws a comparison between the company’s revenues and the company’s assets. The asset turnover ratio is used to determine the efficiency of the company in using its assets to generate revenues. Inventory turnover determines the number of times the company consumes all of its inventory and replaces it within an accounting period. The company had high numbers of inventory turnover.

This therefore shows that the company has low costs for storage since they take the company take low levels of inventory at a time. This shows that the company has an efficiency in the way it uses its assets. The company buys low level of inventory so that the company has more cash left to carry out other investments. The level of asset turnover is good if the company does not at any time have zero inventory that can cause the company to cause delays to the customers.

Collection period is used to determine the account receivable turnover. This is the average number of days it takes for the company to receive its account receivable. The company has a collection period of 34 days in 2014 and 26 days in 2015. This therefore shows that the company takes a considerable time for it to receive the debts owed to them. The company however reduced the period of time in 2015 which might show that the company has carried out activities that are meant to improve the time that they take to collect their account receivable (Spronk, Steuer & Zopounidis, 2016).

Profitability Ratios	2014	2015
Return on Equity (ROE)	35%	44%
Return on Assets (ROA)	17%	18%
Net Profit Margin	21.56(	23.08(

The company has a high return on equity of 44%. This therefore shows that the company is making good use of the equity it receives from the shareholders to make profit. The company is also making good use of its assets to make profits. The net profit margin that it has is also very good. The profitability can be attributed on the fact that the company has produced new products that have increased the sales that have consequently improves its profitability.

Conclusion

The company is performing well and has a good financial health. The company is performing well in term of the profitability. All of the profitability ratios shows that the company is making good profits. The company is also making good use of the assets that it has to make profits. The company’s liquidity is also good in that it can comfortably pay of its debts with the asset that it has. The company is therefore in very good financial health.

References

Spronk, J., Steuer, R. E., & Zopounidis, C. (2016). Multicriteria decision aid/analysis in finance. In Multiple Criteria Decision Analysis (pp. 1011-1065). Springer New York.

Titman, S., Keown, A. J., & Martin, J. D. (2015). Financial management: Principles and applications. Pearson.