INTRODUCTION
The focus of this semester report is on Apple Inc. Apple is said to be the most valuable company
in the world, so approaching its financial data proved to be ambitious. This report is based on
information from the last 5 years of annual reports and other corporate documents. After assembling all
of the ratios and seeing strong patterns develop I would say that Apple is in outstanding shape financially,
and I would predict that they will continue to grow. Two of their biggest attributes would be their large
amounts of capital and zero long term debt. Technology manufacturing is a highly competitive field and
Apple has worked hard to maintain its dominance. In the last 3 years it has introduced 3 new products in
the iPhone 5 and iPad followed by the iPad mini. These revolutionary products show Apple’s high level
of quality in their technology but also its balance as a business and out growing its financial limits,
because even Apple has a budget. This report will cover the four categories of financial ratios: liquidity,
activity, profitability, and coverage.
LIQUIDITY
Liquidity ratios show how much cash a company has after it has taken care of its bills. These are simple
ratios that give someone a quick idea of how large a company is and what kind of shape the company is in
generally speaking. A higher percentage means that a company has a greater margin of cash after debts
are paid.
CURRENT RATIO
Over the 5 years that I looked at of Apple the Current Ratio has declined each from in 2008 with 264% to
2012 with 149%. I would attribute this decline to the introduction of new products and the rising costs of
production. This is based on the large growth in assets from in 2008 $30,006 million to 2012 $57,653
million. The assets cannot grow without liabilities growing as well because the bills have to get paid; the
current liabilities in 2008 were $11,361 million and grew to $38,542 million in 2012.
QUICK RATIO
This decline continues into the Quick Ratio, which is a measure of how able a company is to pay their
short term debts. In 2008 Apple was at 165% and this fell to 99.8% in 2012.
CURRENT CASH DEBT COVERAGE RATIO
Apple stayed within their means still but was able to grow substantially within the 5 year test
period of this report. The Current Cash Debt Coverage Ratio, which measures the ability to pay off sort
term debts using an average of liabilities for several years, is the most probably the most accurate
showing of how the growth in Apple over the last few years helped the company. In 2008 Apple was at
100.4% and this grew each year until 2012 when it reached 132%. This ratio shows the benefit of
expansion for a business.
ACTIVITY RATIOS
Activity ratios are used to see how fast a company can turn production into cash. The faster a
company can generate cash the more likely that company will be successful.
RECEIVABLES TURNOVER RATIO
The Receivables Turnover Ratio is an activity ratio that measures how efficiently a company collects its
receivables based on a given years sales and an average amount of trade receivables for a test period.
Apple’s Receivables Turnover Ratios are very high, in 2008 it was 679.4% and it grew each year until
2012 when it reached 2836.1%. These numbers are so high likely due to Apple being a direct merchant
and dealing mostly in cash.
INVENTORY TURNOVER RATIO
The Inventory Turnover Ratio shows how effectively a company can turn its inventory into profit.
Apple’s Turnover rate grew from 2977% in 2008 to 12262% in 2012. These huge percentages can be
accredited to Apple having some of its highest selling rates in its history as well as dealing with its
customers directly and doing custom building for its customers. Any of these factors could be the reason
for having such a high Inventory Turnover Ratio.
ASSET TURNOVER RATIO
The Asset Turnover Ratio measures how efficiently a company is using its assets to generate revenue.
This is done by using the net sales for a year and average of the total assets for a test period. Apple’s
Asset Turnover Ratio almost tripled in during the test period. In 2008 the ratio was at 41.5% grew to
173.4% in 2012. High quality technology such as Apple’s can have a low profit margin for its producers,
therefore the ability efficiently use its assets to generate sales would be vital to a company’s success.
PROFITABILITY
Profitability ratios show how the company generates their income compared to the expenses the company
incurred while making this income.
PROFIT MARGIN ON SALES RATIO
The Profit Margin on Sales Ratio shows how much profit is being produced per dollar of sales. Apple’s
Profit Margin on Sales Ratio steadily grew from 16% in 2008 to 27% in 2012. This growth is a good
indicator that Apple continues to use their resources efficiently in order to keep earning more income per
sale.
RATE OF RETURN ON ASSETS
The Rate of Return on Assets Ration measures how profitable the company’s assets are over a period of
time. This is done by comparing the net income for a year with an average of total assets for a given test
period. Apple’s Rate of Return on Assets Ratio grew from 15% in 2008 to 101% in 2012. This large
percentage increase could be attributing to the huge increase in sales Apple experienced in 2011 and
2012.
RATE OF REUTRN ON COMMON STOCK EQUITY RATIO
The Rate of Return on Common Stock Equity Ratio measures how profitable the stockholder’s
investments are over a test period. This is done by comparing the net income less preferred dividends and
an average common stockholders’ equity from the test period. Apple does not have preferred stock so
there is nothing to subtract from the net income. Apple’s Rate of Return on Common Stock Equity Ratio
grew from 55% in 2008 to 374% in 2012.
EARNINGS PER SHARE
Earnings per Share show the net income that each share of common stock will bring in for the
stockholder. Apple’s Earnings per Share increased from $6.78 in 2008 to $44.15 in 2012. This huge
increase can be attributed to the increase in income that Apple experienced in 2011 and 2012.
PRICE-EARNINGS RATIO
The Price-Earnings Ratio compares how much a stock earns per share with how much an investor is
willing to pay for that stock. Apple’s Price-Earnings Ratio has changed in an irregular pattern in
comparison to its other ratios. It started in 2008 with a ratio of 1662% then it went up to 2024% in 2009,
which was its highest ratio. The lowest ratio came in 2011 with a ratio of 1365%. This irregular pattern
can be attributed to rapid stock price growth with a slower growth rate of the Earnings per Share.
PAYOUT RATIO
The Payout Ratio shows how much of the earnings are actually paid out in the form of cash dividends.
From 2008 to 2011 the Payout Ratio was 0%. This called ‘retained earnings’ were a company does not
pay cash dividends and instead the company takes the earnings and reinvests the earnings into the
company. In 2012 Apple had a Payout Ratio of 6%. The retained earnings were probably kept in order to
growing the company but then in 2012 the investors were able to see the fruits of Apple’s
accomplishments.
COVERAGE
Coverage ratios show a company’s ability to repay its lenders. Coverage ratios compare the company’s
income with different expenses like long-tern debts and interest on loans. These ratios would be vitally
important to a prospective investor.
DEBT TO TOTAL ASSETS
Apple has zero debt. I think this is one of its strongest attributes as a company. With its large
growth during the test period Apple was able to never have a Debt to Total Assets Ratio greater than 0%.
Apple has been able to launch new products, open new stores and fund new research projects all with
their own capital. This progress is a reason Apple is able to dominate its competition in the technology
field.
CONCLUSION
Apple has shown huge amounts of growth during this test period. Apple through this analysis has
succeeded to in almost every category to grow from 2008 to 2012. I think that Apple is a very healthy
company because as many companies struggle to maintain profits while launching new endeavors Apple
still experienced large profit growth. The ability to grow without gaining any debt is another reason that
Apple will stay on top of the technology world.