Example Of Case Study On Applying Financial Analysis-Apple Case
Type of paper: Case Study
Topic: Finance, Ratio, Business, Steve Jobs, Apple, Investment, Return, Company
It has been a concern in the business sector when determining the financial position or financial performance of any company. It is easy to use financial analysis method in assessing the performance of a company. This is where the assessment of profitability, stability and viability of any project in a business is carried out. By evaluating the financial statements of an enterprise, the picture of the company's profitability and financial position is determined in a particular accounting period. Financial analysis of the business is carried out by the use of ratio analysis. Ratio analysis can be used to evaluate the financial statement of a business. In carrying out financial analysis, accounting principles must be followed. This way will give the organization’s correct view of the financial situation.
In Apple Inc.’s case, ratio analysis is going to be used as a tool for evaluating the financial performance of the company. This financial analysis will be for the period 2009 to 2011. With the help of this analysis, we can be able to assess Apple’s financial performance, any concerns that may arise, which ratios seem to be strong or weak and lastly we can be able to determine how healthy Apple’s finances are. Therefore, ratio analysis is imperative in any organization in terms of determining the financial position and financial analysis of that organization in a particular accounting period.
Current ratio = current assets/ current liabilities.
Current liability = Total liability-Total long-term liabilities
15,861-3,502 = 12359
Current ratio = 33993/ 12359 = 2.7505
Current liability = 27392-5531= 21861
Current ratio = 51011 / 21861 = 2.3334
Current liability = 39755-10100 = 29655
Current ratio = 81570/ 29655 = 2.7506
The above analysis indicates that, Apple can comfortably use its current assets available to settle the current obligations available (Bizmove.com). This shows a good financial performance of the company. It can sustain itself with the use of current assets that it has. The higher current ratio of Apple shows a good sign of financial performance of the company (Bizmove.com).
Debt ratio = total liabilities/ total assets.
Debt ratio = 15861/ 47501 = 0.3339
Debt ratio = 27392 / 75183 = 0.3643
Debt ratio = 39756 / 116371 = 0.3416
The debt ratio is low. This shows that Apple’s most assets were financed by its equity and not through debt. This indicates a good financial performance of the company over the three years of operation (Bizmove.com 22). The low the debt ratio the higher the implementation of the budget.
Operating profit margin = Operating profits / Net sales
Operating profit margin = 11740 / 42905 = 0.2736
Operating profit margin = 18385 / 65225 = 0.2819
Operating profit margin = 33790 / 108249 = 0.3122
Despite the low operating profit margin that is experienced over the three-year, there is an increasing trend of the operating profit margin from 2009 to 2011. This shows a great improvement in terms of increment in sales. It indicates that sales are somehow increasing fast than cost (Teach, Coach, and Consult 12). Therefore an improvement in the financial performance of Apple Inc.
Return on equity = Net income / Total shareholders’ equity
Return on equity = 8235/ 31640 = 0.2603
Return on equity = 14013 / 47791 = 0.2932
Return on equity = 25922 / 76615 = 0.3383
Apple Inc. has a low return on equity over the three years. Even if the return on investment is increasing over the years, the rate is too small hence unfavorable thus the company is insufficient in generating income on new investments in the three years (Teach, Coach, and Consult 22).
ROI =net profit after taxes / total assets.
Return on investment = 8235 / 47501 = 0.1734
Return on investment = 14013 / 75183 = 0.1864
Return on investment = 25922 / 116375 = 0.2227
Strong or Weak Ratios
Healthy of Apple Finances
Apple’s finances are healthy in that; they can be used to cater for the obligations that might arise in the Company. The finances can be used to cater for both short term and long term obligations.
Bizmove.com, 'Financial Ratio Analysis - Balance Sheet Analysis.' N.p., 2015. Web. 22 Mar. 2015.
Teach, Coach & Consult, 'Financial Analysis.' N.p., 2010. Web. 22 Mar. 2015.