Financial Condition Analysis of Apple Inc., Thesis of Financial Accounting

Download Financial Condition Analysis of Apple Inc. and more Thesis Financial Accounting in PDF only on Docsity! Assessment 1: Financial Condition Analysis Executive Summary Apple Inc. is a multinational tech-giant that develops, design and sells consumer electronics. The company is ranked among the leading technological companies globally. Currently, the company is estimated to be worth 2 trillion dollars. It has more than 4000 retail shops in the developed markets for example inEurope, Asia and America (Rosanna, 2020). The company is famous for producing high quality hardware products like smartphones, smartwatches, televisions, personal computers and the music players. Besides, they also offer computer software, mobile softwareand online music stores. Due to the high quality of products they offer, the company charges its clients premium prices on all the products sold. This has helped the company to enjoy the economies of scale. Basing on the industry average ratios, Apple Inc. is said to be more profitable when compared to other companies in the industry. The company has managed to outperform approximately 95 percent of the companies in the industries. This is an indication that it is likely to become the leading tech giant in the few years to come. Company Background. Apple Inc. Total debt to equity ratiois calculated by dividing the company’s total liabilities by the shareholder equity. This type of ratio helps in evaluating the financial leverage of a company. A good debt to equity ratio is around 1 to 1.5. The ideal debt to equity ratio varies depending with the industry. Apple Inc. has a good total debt to equity ratio of 1.5. Trend Analysis. Trend analysis ratio is the comparison of the success values of each year for any firms over several years. There are different categories of ratio analysis. The profitability ratios communicate how well a company can generate profits from its operations. A higher profitability ratio is preferred in a company. These ratios provide more information when compared to the other players in the industry. The profitability ratio is calculated as operating income divided by the revenue. The operating profit margin of Apple Inc. deteriorated between the years 2018 to the year 2019. Apple’s gross profit margin ratio deteriorated from the year 2018 to the year 2019. However, it improved from 2019 to 2020 (Gvili, 2020). The efficiency ratios help in evaluating how efficiently a company can use its assets and liabilities to maximize its profits. The efficiency ratio which is below 50 percent is considered to be optimal. When the efficiency ratio increases, it implies that the bank expenses are increasing or alternatively, the revenues are decreasing. Apple Inc. had an efficiency ratio of 30 percent in the year 2018. In the year 2019, this ratio increased to 40 percent before lowering to 29 percent in the year 2020. This is an indication that the revenues of Apple Inc. are increasing as of the year 2020 (NASDAQ, 2020). The coverage ratios measure the ability of a company to make interest payments and other obligations related to debts. The interest coverage ratio of at least 2 is considered to be minimum acceptable amount for a company that has solid, consistent revenues. Apple Inc. had interest coverage ratio of 3 in the year 2018. In the year 2019, the interest coverage ratio reduce to 2.6 and lastly in the year 2020, it increased to 2.9 (NASDAQ, 2020). This implies that the company has had a good interest coverage ratio over the years. Industry Average Analysis. The industry ratios are the aggregate measures of industry performance. This tool facilitates the understanding of an organization towards its position to compare to other companies with the same industrial sector. It helps to evaluate the threats and opportunities within the same industrial sector. It is critical to compare the performance of Apple with the rest of the industry since it helps to provide the position of the company within the industry. Some of the major competitors of Apple Inc. include HP Inc., Lenovo Group Limited and 3D Systems Corporation. The industry average is currently at 17.43 percent. Apple Inc. is said to outperform approximately 95 percent of its peers in the market. The profit margin of Apple Inc. of 20.19 percent is among the best returns in the industry. According to the NASDAQ report, price/earnings ratio of Apple is 37.77. This implies that the current valuation is very expensive for AAPL. This ratio is compared to the average industry ratio of 24.13. With the price book ratio of about 30.53, Apple Inc. is valued expensively. This is compared to the average price book of 4.22 (NASDAQ, 2020). Approximately 95 percent of the companies listed are valued cheaper. Conclusion Owing to the industry average ratios, Apple Inc. is valued higher than the rest of the companies in the industry. Apple is said to be valued than 95 percent of the key players in the market. The financial ratios of Apple Inc. have also proved that the company is a highly profitable venture. The company has the ability of settling its debts using the resources it has. Besides, the company is generating a lot of revenue on a yearly basis. This revenue can enable the company to comfortably operate in the industry. Recommendations. In my own opinion, I believe that Apple Inc. is the best match for the buyout offer. The company has been profitable in the last three years. Owing to the financial ratios, we have determined that Apple Inc. has many assets when compared to the liabilities. It has the ability of settlings its debts using the current assets. Besides, the company is generating revenues faster than it is spending on the liabilities This gives the indication that this is a stable company. In this case, I would advise Maria Gomez, the founder and president of PacificCoastTechnologyto consider selling the business to Apple Inc. References Apple Inc. (NASDAQ:AAPL). January 4, 2020. Analysis of Profitability Ratios, Retrieved from; https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Profitability#:~:text=A %20profitability%20ratio%20calculated%20as,and%20from%202019%20to %202020.&text=Apple%20Inc.'s%20net%20profit,and%20from%202019%20to %202020. Rossano, P. (2020). Apple Inc. in 2012. Harvard Business School. Gvili, Y. (2020). Security analysis of the covid-19 contact tracing specifications by apple inc. and google inc. IACR Cryptol. ePrint Arch., 2020, 428.