Liquidity Ratios
Current Ratio
A company's ability to pay back short term debts is measured by the current ratio ( Khan, Alam, & Alam, 2015) . These ratios are vital to an analyst or investor as they indicate how a company can maximally capitalize on the current assets as shown on the balance sheet to clear short term debt and any other payables.
CR = CA/CL
= 131,339,000/116,866,000
= 1.12
This indicates that the company is efficiently using its assets and is in a good position to repay the debt 1.12 times.
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Quick Ratio
Just like the current assets, the quick ratio determines a company’s liquidity position by establishing its ability to clear short term debts.
QR = CA – Inv/CL
= 131,339,000 – 3,956,000/116,866,000
= 1.09
The results indicate that the company is equipped with sufficient assets to be turned into cash instantly to repay the short term loans.
Working capital
These indicators are used to assess the company’s proficiency and status of its’ short term finances.
WC = CA – CL
= 131,339,000 – 116,866,000
= USD$ 14,473,000
The company has sufficient working capital and therefore, it is in a stable position and free from financial woes.
Profitability Ratios
Return on Asset
This is an important indicator used in the assessment of the effectiveness of a company’s management in managing the capital available.
ROA = N. Inc/Assets
= 59,531,000/365,725,000
= 0.16
These figures indicate that Apple Inc. is effective in the conversion of the cash it puts into investment into net income.
Return on Equity
This indicator has the same function as the Return on Assets as it indicates how the company’s assets are utilized in the generation of earnings.
ROE = N. Inc/Shareholder Equity
= 59,531,000/ 107,147,000
= 0.56
The company has a relatively high return on equity which indicates that the management is efficient in utilizing shareholders’ equity in the generation of income.
Profit Market
The Profit Margin is a financial indicator used to assess how much of the sales have been converted into profits.
PM = N. Inc/Rev
= 59,531,000/265,595,000
= 0.22
During the last quarter of 2018, Apple Inc. managed to produce profits equivalent to 22 cents for each dollar made in sales.
Debt
Debt Ratio
This financial indicator evaluates the degree of Apple Inc.’s leverage. This ratio is defined as the percentile of the total debt versus the total assets which is interpreted as the fraction of Apple Inc.’s assets that are funded by borrowed money.
DR = L. T. Debt/Tot. Asset
= 93,735,000/131,339,000
= 0.71
Since the debt ratio is less than one, it indicates that Apple has more assets than liabilities and thus a sizeable section of the company’s assets have been financed by its equity. If the ratio were more than one, then this would have meant that the assets finance part of the debt.
Times Interest Coverage
This indicator can be classified as both a profitability ratio and a debt ratio. It is used in the assessment of the company’s ability to clear interest on its debt.
TIC = EBIT/Int. Exp
= 70,898,000/3,240,000
= 21.88
The ratio indicates that the company is in a good position to receive funding from potential lenders and creditors.
Asset Turnover
This ratio is used to evaluate Apple’s worth in revenues in relation to its assets.
ATR = Rev/Tot. Asset
= 265,595,000/365,725,000
= 0.73
Since the company is a telecommunication company, then it is expected that it has a large asset base a reason for its ratio to be below one. Otherwise, the company is effectively using its assets in producing sales.
Inventory Turnover
Most investors use this ratio to evaluate how well a company from its inventory, generates sales.
IT = Rev/Inv
= 265,595,000/3,956,000
= 67.14
From these ratios, it can be concluded that the company has a high demand for its products since it is selling them very fast.
Fixed Assets Turnover
This financial indicator is used to assess a company’s operating performance.
FAT = Rev/Fix. Asset
= 265,595,000/41,304,000
= 6.4
The management of Apple Inc. is using its fixed assets competently as indicated by the ratios above.
References
Khan, U. A., Alam, M. N., & Alam, S. (2015). A critical analysis of internal and external environment of Apple Inc. International Journal of Economics, Commerce and Management , 3 (6), 955-961.
