Background of the Company
Apple Inc. is a multinational company that was founded in 1976 by Ronald Wayne, Steve Wozniak and Steve Jobs as a manufacturer of personal computers under the brand name Apple. The brand has over the years developed to become a multinational company with consumers worldwide. The company deals with the design, development and sale of computer software and electronics such as smartphones, Mac personal computers, Ipad tablets and even software such as Mac Os, ioS operating system and safari browser.
Liquidity Ratio: Current Ratio
Current ratio of a company gives an indication of the company’s ability to pay off its current liabilities and other short-term obligations due in less than one year. The ratio is crucial for investors as it gives them insight on the company’s ability to maximize its current assets to satisfy its payables needs including current debt (Ajami & Goddard, 2015) . It is obtained as a ratio of the company’s assets to liabilities. If the current ratio obtained from the comparison between the assets and liabilities is less than one then the indication is that the company has in place enough capital to meet its short-term obligations. If the ratio is greater than 1 then the company is not solvent enough to cater for its short-term obligations.
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Apple Inc.’s current ratio improved from 2018 to 2019. There was however a slight drop from 2019 to 2020. In the year 2019, Apple had current assets valued at $ 162,819 million as compared to $ 143,713 million in 2020 ( NASDAQ, 2021). The company’s current liability in 2019 stood at $ 105,718 million and $ 105,392 million. The current ratio in 2020 was 1.36, a drop from 1.54 in 2019 ( NASDAQ, 2021). The company’s current ratio is greater than 1, an indication of the company not being able to pay its short terms liabilities. In comparison to Cisco Systems Inc whose current ration is 1.72 indicates that Apple is doing better than its competitors. The industry average ratio stands at 1.74 in 2020 indicating that the company is performing better than many others in the information technology industry.
Profitability Ratio Analysis: Net Profit Margin
The profitability ratio gives an indication of the profitability of the company based on net income divided by revenue. The ratio is important to investors and shareholders who are interested in understanding the profitability of the company (Ajami & Goddard, 2015). The ratio also indicates healthy operations and determines whether a company is able to increase shareholder wealth through dividends or not. In 2020, Apple Inc’s net profit margin stood at 20.91% a drop from 21.24% in 2019. The net income for the company during the year was $57,411 million while the net sales stood at $ 274,515 million during the year ( NASDAQ, 2021). Cisco systems Inc net profit margin stood at 22.75% while the industry analysis was 21.19% an indication that Apple is performing relatively better than its competitors and above the industry average. The company’s profitability ratios are healthy when compared to the industry average.
Solvency Ratio Analysis: Debt to Equity Ratio
The debt-to-equity ratio of a company indicates the measure of a company’s leverage. It is obtained as a ratio of the company’s long-term debt to stockholders’ equity (Ajami & Goddard, 2015) . A healthy debt to equity ratio indicates that the company does not have a high percentage of debt as compared to shareholders capita. In 2020, Apple Inc’s debt to equity ratio was 4.35 as compared to 3.96 in the previous year ( NASDAQ, 2021) . A good debt to equity ratio should be less than 1 meaning the company has more debt than its shareholder’s wealth. Comparing this to the industry however, the company is performing better than the industry average.
References
Ajami, R. A., & Goddard, G. J. (2015). International business: A course on the essentials.
NASDAQ. (2021). Apple Inc. ( NASDAQ: AAPL). https://www.stock-analysis-
on.net/NASDAQ/Company/Apple-Inc/Ratios/Long-term-Debt-and-Solvency
