Liquidity Ratio
Liquidity ratios are significant in the determination of debtors' capacity to service outstanding obligations. Among the liquidity ratios is the current ratio, which assesses an organization’s capacity to service its outstanding liabilities, especially those that are payable within twelve months ( Etzioni, 2018) . Organizations with a higher current ratio are considered to have a better liquidity position, and the ratio can be computed through division of the company's assets with its obligations.
Thus for 2019,
C.R. = 162,819,000÷ 105,718,000 = 1.54
The current ratio is equal to the industry averages an indication that Apple Inc. is utilizing its assets well in generating profitability.
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Asset management
Asset management is considered as the administration of a client’s investment by financial service institutions. Inventory turnover ratio is an asset management ratio that evaluates the number of times within a given period; the inventory is used or sold and is computed by dividing the cost of goods sold by the average inventory ( Lockamy III, 2017 ). But the average inventory is attained by dividing the start and end inventory by two.
Thus,
I.T. = 161,782,000÷ 4,106,000 = 39.40
Compared to the industry average inventory turnover of 20, Apple has lots of sales as its inventory turnover ratio is extremely greater than the industry's averages.
Debt Ratio
The leverage of an organization is evaluated by the use of the debt ratio that is computed by the division of the total assets to the total debt.
Apple’s Debt Ratio for 2019,
D. R = 248,028,000 ÷338,516,000 = 0.73
The industry’s average debt ratio in the technology sector is 0.24 which, when compared to Apple's debt ratio, is much lower. This could not have any significant impact on the company in that ratio that is less than one indicates that the company's debts are not financed by the company’s assets ( Lockamy III, 2017 ). However, the higher value should raise alarms for the management of the debts before they accrue and become more than the assets, which would be a bad indicator to the investors.
Profitability Ratio
Investors and analysts apply the profitability ratios in the assessment and evaluation of the capacity of an organization to be profitable in relation to its shareholder’s equity, assets, income, and operating costs ( Etzioni, 2018) . As a profitability ratio, gross profit margin evaluates through the revelation of the amount remaining after deduction of the cost of goods sold from sales.
G. P. M. = 260,174,000 - 161,782,000/ 260,174,000 = 0.38 or 38%
When compared with the market averages of 37.58%, Apple’s gross profit margin is a clear indication of how well the company is run.
Market value
These ratios are applied in the assessment of a company’s equity held publicly through the evaluation of the current share price. The market value of a company can be assessed using the Book-to-Market ratio that compares an organization's book to market value. Calculation of the Book-to-Market ratio comprises the division of the common shareholder’s equity by the market capitalization ( Etzioni, 2018) . But the market capitalization is the product of total outstanding shares and the price of the share.
Thus for 2019,
B-T-M = 45,174,000 ÷ (338,516,000x 144.53) = 0.0009
The Book-To-Market ratio of the company is much lower than the industry's averages, which are a good indicator as it can be interpreted as the company’s shares being undervalued. However, value managers prefer stocks that have a higher ratio, which is value stock. But in the case of Apple Inc.'s Book-To-Market ratio, investors would be willing to purchase it at a higher price as they consider it undervalued.
References
Etzioni, A. (2018). Apple: Good business, poor citizen? Journal of Business Ethics , 151 (1), 1-11.
Lockamy III, A. (2017, July). An examination of external risk factors in Apple Inc.’s supply chain. In Supply Chain Forum: An International Journal (Vol. 18, No. 3, pp. 177-188). Taylor & Francis.
