The stock selected for the client is the Apple Inc

The stock selected for the client is the Apple Inc. (AAPL) stocks. The organization, which primarily focuses on the designs, manufactures, and marketing of various electronic devices, including smartphones, personal computers, tablets, and wearables, among other devices, is a suitable investment due to multiple reasons. It sells its products globally through its virtual stores, retail stores, third-party wholesalers, and resellers. The decision to invest in the company's stock was first guided by the suitability of its business model (Editorial, 2012). AAPL stocks offer an understandable and fairly simple company business model. The investor can easily understand specific knowledge about the organization, which makes the stock a suitable choice for long-term investment. Secondly, Apple Inc. has created a strong and globally recognizable brand (Editorial, 2012). Such an organization promises better market performance due to multiple recognizable products. Selecting Apple Inc., which is a preeminent and a highly-admired brand, to some extent, assures positive returns compared to an organization that is struggling to develop its brand. The historical analysis of stock performances shows that companies with established brands tend to perform better (Editorial, 2012). While some may argue that good performance in the past does not automatically translate to a good performance in the future, it is still vital to take up stocks with past strong performance. Apple Inc.'s stock meets this criterium. A look into AAPL's past performance shows a positive trend. The long-term performance trend is compelling. The risk of investment is relatively lower when an investment is made on a stock that has made shareholders rich in the past rather than stocks that have destroyed shareholders' value over the long-term. For that reason, investing in AAPL stocks will be a suitable option. 

In addition to the aforementioned reasons, the rule of investing in mid-cap and large-cap organizations was applied in selecting the stock. It is, in most instances, advisable to avoid investing in small-cap organizations (Editorial, 2012). While some of these small-cap organizations might promise good returns, most of these organizations do not have an established brand, and thus, their market performance, when compared to that of large-cap and mid-cap organizations, is relatively lower. Besides, it is also beneficial to invest in an organization that pays a dividend (Editorial, 2012). It is common for organizations to meet the previously mentioned criteria but fail to pay dividends to their shareholders. While some of these stocks can still be highly recommended for investment, payment was dividend was a vital consideration during the selection of the AAPL stock. It is always advisable for an investment portfolio to include multiple organization that pays out dividends. By meeting criteria, including having a suitable business model, having a strong and established brand, exceptional past performances, being a large-cap company, and the payment of dividends, Apple Inc. stock stands out as the most suitable for the investor. 

Denzel, a 38-year-old male, is the investor. Denzel is currently an employee with a stable income. On an annual basis, Denzel accrues $120,000 in earnings and benefits. The investor intends to facilitate his retirement saving by building a portfolio of stocks. As a person who is primarily a risk-taker, the investor targets to take up long-term investments. While the initial investment will focus on one stock, the investor targets to invest in many other stocks in the future. In addition to saving a significant amount for his retirement, Denzel also expects his investment to facilitate the development of a substantial estate before his death. Based on the above description, it is evident that the investor mainly targets to achieve long-term objectives. AAPL stock is particularly the most suitable for the investor since it promises stability and profitability in the long term. Apple Inc. will always be producing new products. That, in addition to the strong brand presence, makes it a suitable stock option for the investor. 

Ratio Analysis 

Ratio analysis primarily entails the development of various ratios from specific elements of the financial statement to aid in the identification of the strengths and weaknesses of an organization. These ratios facilitate the measurement of the relative performance of different financial measures that can be used to judge the financial well-being of the firm (Palepu et al., 2020). The financial health of Apple Inc. will be assessed used various financial ratios, and, through that, it helps guide the investment decision. The primary ratio categories that will apply in the analysis include the liquidity ratios, leverage ratios, repayment capacity ratios, efficiency ratios, and profitability ratios (Palepu et al., 2020). Through the analysis of Apple's past and current financial statements, various ratios will be computed and used to gauge the financial health and performance of the company. 

Liquidity Ratios 

Liquidity ratios measure the ability of an organization to meet its short-term financial obligations. These ratios focus on short-term solvency in the event that an organization is liquidated at book value. The primary liquidity ratios include the current ratio and the quick ratio (Palepu et al., 2020). The current ratio measures the ability of a company to pay back its short-term liabilities. The current ratio can be derived using the model below: 

Current ratio = 

Ideally, the current ratio should be greater than one. A current ratio that is greater than one suggests that the current assets to be liquidated are adequate to cover the current liability that will come within the same period of analysis (Palepu et al., 2020). However, if the current ratio is below one, questions can be raised as to whether the organization is able to meet its short-term obligations. In some instances, a current ratio that is below one does not translate to an organization failing to pay its short-term debt since such a firm may be having access to other resources that can facilitate the payment of maturing obligations (Palepu et al., 2020). Common resources that can be used include long-term assets that could be liquidated, restructured debt, and earnings from operations, among others. Be that as it may, it is always advisable to invest in companies with a current ratio that is greater than one. Below is an analysis of Apple's current ratio for the past three fiscal years ("Yahoo is now a part of Verizon Media", 2020). 

	2019	2018	2017
Current Assets	162,819,000,000	131,339,000,000	128,645,000,000
Current Liabilities	105,341,000,000	116,866,000,000	100,814,000,000
Current Ratio	1.5456	1.1238	1.2761

The current ratio for the three fiscal years between 2017 and 2019 are all above one. Besides, in the past year, the current ratio increased to 1.5456 suggested that the organization's position to settle its short-term obligations has become better. Moreover, the current ratio is also not too high. An extremely high current ratio means that the organization possesses large amounts of current assets that may not be too profitable (Palepu et al., 2020). Apple's current ratio is above one and not too high and thus avoiding the risk of being very liquid at the expense of profitability. 

Aside from the current ratio, the quick ratio can also be used to assess the liquidity of Apple Inc.'s stock. Also known as the acid-test ratio, the quick ratio is more or less similar to the current ratio except that it has inventories subtracted. Inventories have uncertain liquidation values, and they are the least liquid of the current assets (Vasilaki et al., 2019). A financially healthy organization has a quick ratio that is greater than one. The greater the quick ratio, the better the position of the organization to meet its short-term obligations. The three financial years have a quick ratio that is greater than one. Based on the outcome of the current ratio and quick ratio analyses, Apple Inc. has the ability to meet its short-term obligation. 

	2019	2018	2017
Current Assets	162,819,000,000	131,339,000,000	128,645,000,000
Inventories	4,106,000,000	3,956,000,000	4,855,000,000
Current Assets – Inventories	158,713,000,000	127,383,000,000	123,790,000,000
Current Liabilities	105,341,000,000	116,866,000,000	100,814,000,000
Quick Ratio	1.5067	1.0900	1.2279

Leverage Ratios 

Leverage ratios gauge an organization's long-term solvency. They measure the relative funds supplied by equity and debt holders. The higher the amount of debt in relation to equity financing, the more leveraged an organization is, and the greater the risk its investors face (Palepu et al., 2020). Besides, an organization will higher leverage tend to predict higher expected returns. The primary leverage ratios used in the analysis of Apple's financial conditions include the debt-asset ratio and the debt-equity ratio. Debt-asset ratio, which is also known as the debt ratio, compares debt to equity funds used to finance the organization's assets. The debt ratio can be computed using the model below: Debt ratio = 

Ideally, an organization with a low debt-asset ratio is preferred by creditors compared to those with higher debt-asset ratio. A low debt-asset ratio means that more equity fund is available to cater to a company's financial obligation (Palepu et al., 2020). On the other hand, a high total debt ratio means a higher financial risk an organization faces. An organization with a debt ratio that is greater than one has more debt than assets. The technology industry has a characteristic low debt ratio, as is the case with Apple. With a total debt ratio ranging between 0.30 and 0.32 in the past three fiscal years, Apple has a healthy balance of debt and assets, which places the organization at a good position particularly when sourcing for an overdraft. 

	2019	2018	2017
Total Debt	108,047,000,000	114,483,000,000	115,680,000,000
Total Assets	338,516,000,000	365,725,000,000	375,319,000,000
Total Debt Ratio	0.3192	0.3130	0.3082

A debt-equity ratio can also be used to investigate an organization's long-term solvency. It is a ratio that is arrived at by dividing an organization's liabilities by its shareholder equity. The ratio is vital in evaluating a company's financial leverage. It is used to measure the extent to which an organization's operation is financed through debt versus the organization-owned funds (Palepu et al., 2020). In other words, the ratio is used to gauge the ability of its shareholders' equity to facilitate the payment of all outstanding debts in the event of a business downturn. The ratio is defined as: 

Debt-equity ratio = 

	2019	2018	2017
Total Liabilities	248,028,000,000	258,578,000,000	241,272,000,000
Shareholders’ Equity	90,488,000,000	107,147,000,000	134,047,000,000
Debt-equity ratio	2.7410	2.4133	1.8000

Over the past three financial years, the organization has increasingly used debt to finance its operations. The debt-equity ratio has increased from 1.8000 to 2.7410. For every $1 of funding from shareholder equity, there is a $2.7410 debt funding. Ideally, a debt-equity ratio should not exceed 2. However, in some instances, a debt-equity ratio that is greater than two is allowed. A high debt-equity ratio is sometimes a sign of the effective utilization of debt capital, which enables a company to leverage a small amount of funding into a large sum that it can repay later (Vasilaki et al., 2019). Therefore, effective utilization of debt capital helps in the funding of expansion projects and, as a result, increasing profit at a relatively increased rate. 

Based on the leverage ratios analysis, Apple Inc. faces a low financial risk despite taking advantage of debt capital. With a debt ratio of approximately 0.3, the organization is able to finance its debts with the available equity fund. Nonetheless, the organization has, in the past two financial years, recorded debt-equity ratios that are greater than two. Such a trend, with a low debt ratio, means that the organization has effectively explored the debt capital option. The organization can expect higher profits in the coming financial years. 

Repayment Capacity 

This category of ratios examines the organization's debt in relation to its flow of income. Repayment capacity ratios measure the extent to an organization's income can be used to meet a company's fixed payment obligations (Palepu et al., 2020). The times interest earned ratio gauges the extent to which an organization's earning can decrease before the company cannot meet its interest obligations. Ideally, the times interest earned ratio should be higher than one. A ratio that is below one suggests that a company cannot manage to pay its interest payment using its current income. The times interest earned ratio is defined as: 

Times interest earned ratio = 

	2019	2018	2017
EBIT	69,313,000,000	76,143,000,000	66,412,000,000
Interest Expenses	3,576,000,000	3,240,000,000	2,323,000,000
Times Interest Earned	19.3828	23.5009	28.5889

The ratios show above represents the number of times Apple Inc. can settle its interest using EBIT. The greater the ratio, the better positioned an organization is. Therefore, based on the above analysis, Apple Inc. is in a good position to settle its interest obligation. 

Efficiency Ratios 

Efficiency ratios, also known as asset management ratios, measures the efficiency with which a company manages its assets. Common efficiency ratios include the inventory turnover ratio, average collection period, and total assets ratios, among others. The inventory turnover ratio measures an organization's effectiveness in managing its inventory; it measures an organization's operational efficiency in managing its assets (Palepu et al., 2020). A small inventory turnover ratio suggests excess inventory levels being stocked in relation to the level of sales. On the other hand, a high inventory turnover ratio might be a sign of potential stockouts, which might lead to loss of sales in the event that an organization fails to meet some of the demands. 

Inventory Turnover = 

	2019	2018	2017
Cost of Goods Sold	161,782,000,000	163,756,000,000	141,048,000,000
Average Inventory	4,106,000,000	3,956,000,000	4,855,000,000
Inventory Turnover	39.4014	41.3943	29.0521

Ideally, an inventory turnover should range between 5 and 6. In the case of Apple Inc., the inventory turnover ratio is way higher, which suggests that the organization may be failing to meet some of its demand. Also, the ratio also suggests that the organization has the potential to make more profit by devising ways to meet these excess demands. 

The average collection period can also be used to measure Apple's operational efficiency. The ratio measures the number of days it takes for credit sales to be collected from customers. The ratio is particularly important in the assessment of the collection performance and credit sales management (Vasilaki et al., 2019). Account receivables are financed by debt or equity funds. Therefore, if the average collection period is too high, the financing costs may become too high. Besides, the longer the collection period, the higher the chances of payment default, and thus a financial risk for the organization. With an average collection period of between 28 and 32 days in the last three financial years, Apple displays the good performance of collection and credit management. 

Collection period = 

	2019	2018	2017
Revenue	260,174,000,000	265,595,000,000	229,234,000,000
Average Accounts Receivables	22,926,000,000	23,186,000,000	17,874,000,000
Receivable Turnover	11.3484	11.4550	12.8250
Collection Period (Days)	32	32	28

Total asset turnover ratio, which also measures the efficiency of an organization, measures the number of sales generated from a given amount of assets. The more the sales accrued from a given amount of assets, the more efficient an organization is operating. A higher asset turnover ratio implies that an organization is making more revenue per dollar of assets (Vasilaki et al., 2019). However, extremely high total asset ratio, suggests that a firm may be losing some sales due to lack of necessary assets. 

Total Asset Turnover = 

	2019	2018	2017
Total Sales	260,174,000,000	265,595,000,000	229,234,000,000
Average Total Assets	338,516,000,000	365,725,000,000	375,319,000,000
Total Asset Turnover	0.7686	0.7262	0.6108

Apple Inc. has had a total asset turnover of between 0.6 and 0.8 in the last three fiscal years. While this might be alarming, the telecommunication industry tends to have a lower asset turnover ratio compared to other industries due to the larger asset bases and low asset turnover. 

Profitability Ratios 

These ratios gauge a company's efficiency in generating profits. A profit margin ratio can be used to show the profitability potential of a company. While a zero or negative profit margin suggests that a company is struggling to attain good sales, a positive profit margin shows that an organization has the potential to make a profit. 

Profit margin = 

	2019	2018	2017
Net Income	55,256,000,000	59,531,000,000	48,351,000,000
Total Revenue	260,174,000,000	265,595,000,000	229,234,000,000
Profit Margin	0.2124	0.2241	0.2109

Apple managed to maintain a profit margin of between 0.2109 and 0.2241 in the last three financial years, showing a steady profitability capacity. Besides, with a profit margin that is greater than zero, the company is making adequate Sales. 

In summary, based on the ratio analysis, Apple Inc. stock is a suitable option for the investor. The organization's financial health, in terms of its ability to meet its short-term obligation along with its long-term solvency, is great. In addition, the organization shows great efficiency in managing its assets and account receivable. Furthermore, the company's profit margin suggests that Apple Inc. has the potential to generate profit consistently. Therefore, based on the above analysis, the company is suitable, particularly for long-term investment. 

Stock Prices Analysis 

The chart above shows AAPL stock prices for the past three years. Based on the analysis, AAPL stocks have witnessed an increase in prices over the last three years. Over the past year, AAPL stock experienced a drop in price in March, majorly due to the novel coronavirus outbreak. The stock, however, managed to regain in prices following the start of the outbreak. On average, based on the historical stock prices, AAPL stock prices are expected to increase in the coming years. 

Various ratios can be employed in the analysis of stock prices, including the price-earnings ratio, and the market-to-book ratio. The price-earning ratio shows the relationship between a company's stock price and its earning per share of the stock issued (Cohen et al., 2011). A higher price-earning ratio is an indicator that investors will receive higher earnings. A high price-earning ratio can also be an indicator of an overvalued stock. Apple's price earning ratio has remained relatively consistent between 2017 and 2019, and thus disapproving the probability of the stock being overvalued. Besides, with such a high price-earnings ratio, people who invest in AAPL stocks should anticipate higher returns (Cohen, 2012). 

	2019	2018	2017
Stock Price	55.99	56.44	38.32
Earnings per Share	2.97	2.98	2.30
Price-Earnings	18.8519	18.9396	16.6609

The market-to-book ratio can also be used to explore the market's perception of a given stock. A low ratio that is less than one shows that a stock is undervalued, while a stock that is greater than one shows that the stock is overvalued (Cohen et al., 2011). With a market-to-book ratio of between 5.9 and 11.0, AAPL stocks are overvalued according to the market's perception. 

	2019	2018	2017
Share Price	55.99	56.44	38.32
Total Assets	338,516,000,000	365,725,000,000	375,319,000,000
Total Liabilities	248,028,000,000	258,578,000,000	241,272,000,000
Net Book Value	90,488,000,000	107,147,000,000	134,047,000,000
Share Issued	17,772,994,000	19,019,944,000	20,504,804,000
Net Book Value Per Share	5.0913	5.6334	6.5373
Market-to-Book Ratio	10.9972	10.0188	5.8617

Recommendation 

Based on the Analysis, AAPL stocks is a suitable long-term investment for the investor. Aside from assuring profitability, the organization has a strong brand, which ensures longevity. In addition, the financial health of the organization, along with its operational efficiency shows that the organization enjoys good management. The organization is also expected to increase its profit margin through the introduction of new products into the market. The organization has the potential to bring substantial returns to the investor. The investor should, therefore consider AAPL stocks in his stock portfolios as it will help him achieve his long-term goal of having adequate retirement savings and an estate. 

References 

Cohen, G., Kudryavtsev, A., & Hon-Snir, S. (2011). Stock market analysis in practice: Is it technical or fundamental?.  Journal of Applied Finance and Banking ,  1 (3), 125. 

Cohen, G. (2012). Professional vs. Non-Professional Investors: A Comparative study into the usage of Investment Tools.  GSTF Journal on Business Review (GBR) ,  2 (2). 

Editorial, B. (2012). Six Rules to Follow When Picking Stocks. Retrieved 21 November 2020, from https://www.forbes.com/sites/benzingainsights/2012/06/15/six-rules-to-follow-when-picking-stocks/?sh=44ed7c0a5a2e 

Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020).  Business analysis and valuation: Using financial statements . Cengage AU. 

Vasilaki, M., & Tsakalidis Jr, G. (2019). Apple Inc. Equity Valuation. 

Yahoo is now a part of Verizon Media. (2020). Retrieved 21 November 2020, from https://finance.yahoo.com/quote/AAPL/financials?p=AAPL