Financial Analysis of Apple Inc.

The assignment is a comprehensive financial analysis of Apple Inc., examining its debt, risk, and returns on equity. It compares the company's performance to that of Microsoft and industry averages, highlighting areas where Apple excels or lags behind.

RUNNING HEAD: FINANCE FOR BUSINESS
Financial analysis

Finance for business 1
Contents
Introduction...........................................................................................................................................2
Financial Ratio Analysis........................................................................................................................2
Current ratio......................................................................................................................................2
Inventory turnover.............................................................................................................................2
Debt ratio...........................................................................................................................................3
Time Interest Earned.........................................................................................................................3
Gross Profit margin...........................................................................................................................4
Equity Multiplier...............................................................................................................................4
Return on Assets................................................................................................................................4
Net Profit Margin..............................................................................................................................5
Total asset Turnover..........................................................................................................................5
Return on Equity................................................................................................................................5
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7

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Introduction
Analysis of the financial statements of a company provide a good insight to the company’s
strengths and weaknesses. This report will analyse the SEC 10-K reports of Apple
Corporation for the year 2016 and 2017. Apple Inc. is an America based multinational
technology company that deals in the designing and development of computer software and
hardware. It is a publically traded company listed on NASDAQ with a ticker NASDAQ:
APPL.
This report contains a financial ratio analysis of the company compare with the industry
average and its one of the competitor Microsoft Corporation, followed by a conclusion in the
end.
Financial Ratio Analysis
Current ratio
Apple
Inc.
Microsoft corporation Industry Average
2016 1.35 2.35 1.39
2017 1.28 2.48 1.40
From the above table, it is observed that Apple’s Current ratio has been reduced in 2017 from
1.35 to 1.28 and is also less than the industry average of 1.40 and its competitor’s CR. This is
due to increase in the current liabilities. Although Apple’s ratio is more than 1 but the
company is not quite as strong as Microsoft Corporation. This implies that, company is not
very much strongly positioned to pay off its debt.

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Inventory turnover
Apple
Inc.
Microsoft corporation Industry Average
2016 58.64 3.18 19.49
2017 40.37 3.87 15.26
It can be seen that Apple’s ITR is way more than its competitor and industry average. It
means the company is doing well in generating sales and is able to sell its inventory quickly.
The change can be seen in the total revenue of the company.
Debt ratio
Apple
Inc.
Microsoft corporation Industry Average
2016 60% 63% 80%
2017 64% 70% 83%
In 2017, the debt ratio of the industry was 83% which was way too high. In comparison to
that, Apple and Microsoft has debt ratio of 64% and 70% respectively (Apple.com. 2017).
When compared, it is observed that Apple is less leveraged as it has less debt ratio, though
increased over the year. It also implies that company has low financial risk as compare to
Microsoft and Industry average. Reason being, the change in total assets is more than the
change in Apple’s total liabilities (Higgins, 2012).
Time Interest Earned
Apple
Inc.
Microsoft corporation Industry Average
2016 41 16 18
2017 26 10 17

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It is said that a high time interest is favourable for a company. Apple’s ICR is more than
Microsoft and Industry average. However it has reduced to a great extent in 2017 as compare
to 2016. This reduction is due to huge upsurge in the interest expense of the company. As
calculated, the company can pay its interest expense 26 times in a fiscal year, more than its
competitor.
Gross Profit margin
Apple
Inc.
Microsoft corporation Industry Average
2016 39% 61.6% 36%
2017 38% 61.9% 36%
The ratio of Apple Inc. is more than the industry average but less than its competitor.
Microsoft had a GPR of 61.9% in 2017, whereas the same figure reported by Apple was 38%
in same year. This is because, the sales of Microsoft was way more than that of the Apple in
both the years.
Equity Multiplier
Apple
Inc.
Microsoft corporation Industry Average
2016 2.51 2.69 1.13
2017 2.80 3.33 0.89
Apple has a low multiplier ratio than Microsoft, but more than industry average. This implies
that it uses equity financing more rather than debt financing. Also Apple does not have high
financial risk and is favourable for the investors and creditors.
Return on Assets
Apple Microsoft corporation Industry Average

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Inc.
2016 28% 10% 11%
2017 27% 9% 11%
The ROA of Apple Inc. is more than both its competitor and industry average. This means
company is efficient enough in utilizing its assets effectively for making more earnings. This
is because the operating profit made by Apple Inc. is more than that of Microsoft.
Net Profit Margin
Apple
Inc.
Microsoft corporation Industry Average
2016 21.19% 20% 12%
2017 21.09% 24% 13%
Just like the GPR, Apple’s NPR is also less than Microsoft Corporation. Reason being the
same, the amount of sales generated by Microsoft is more than the Apple’s sales.
Total asset Turnover
Apple
Inc.
Microsoft corporation Industry Average
2016 70% 12% 51%
2017 66% 10% 72%
Apple’s TA turnover is very much higher than the Microsoft. However, in 2017, it was less
than industry average but more than its competitor. This means company is able to generate
more sales with the use of its assets. Also it has high amount of assets as compare to
Microsoft.

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Return on Equity
Apple
Inc.
Microsoft corporation Industry Average
2016 37% 6% 6%
2017 39% 8% -7%
The ROE of Apple is higher as compare to Microsoft and Industry average. It is calculated by
using the DuPont method which takes into account the asset turnover ratio, Net profit ratio
and equity multiplier. The reason for such a high ratio is the high total asset turnover ratio. It
implies company offers high and positive returns to its shareholders.
Conclusion
From the above report, it can be concluded that Apple Inc. has performed pretty well in last
fiscal year as the company has less debt, low risk and offers great returns to its owners. In
some aspects, it is performing better than Microsoft and the industry. Apart from GPR and
NPR, overall financial performance of the firm is good.