financial ratios of Apple Inc.

In this essay, financial ratios as they apply to Apple Inc. are analyzed. The business creates, produces, and markets personal computers, portable music players, and mobile communication and media devices. These ratios were calculated using its financial statements.

This is the proportion of a company's net income to all of its assets. This ratio is used to assess the efficiency of the business's asset deployment. When an asset's return is low, it indicates that the asset has not been handled well. On the other hand, a high return on assets indicates an efficient management of assets. It is important to note that the ratio can be said to be good if it has been compared to the ratio of other companies in the industry. The return on assets for Apple in 2016 was 14.93% while for its competitors Samsung Electronics and Sony Corporation, it was 7.91% and 0.91% respectively (Morningstar, n.d). As seen, Apple is deploying its assets effectively. The ratio has been high for the years, and this means it will continue to be profitable.

Return on Equity

This ratio determines the return to the owners. Therefore, it is calculated by dividing the net income by the equity of the shareholders. As for Apple, the return on equity from the 2016 financial statements stands at 36.9%. This shows that Apple is efficient in using new investments to generate returns. As such, new investors can easily be attracted to the business.

Return on Capital

This profitability ratio assesses the efficiency of the company in turning capital into profits. As such, the net income less dividends is divided by equity and debt totals. A high value, in this case, shows that the company is doing well in generating profits from its investments. For Apple, the return on capital from the 2016 financial statements is 21.95%. With that of its main competitor, Samsung Electronics being 9.93%, it is deducible that the company is doing will generating profits from investments. Moving forward, this means that the business’ profitability is guaranteed.

Gross Margin

This refers to the ratio of a firm’s gross profit to its revenue. As a profitability ratio, it assesses the proportion of the revenue of the business that ends up as gross profit. It is thus evaluated through dividing the gross profit by the revenue. From the 2016 financial statements of Apple, the gross margin of the company is 39.1%. This high ratio shows the company more profits are earned in relation revenues. As such, moving forward, the company has enough profits to take care of non-production costs.

SG&A Margin

SG&A stands for selling, general, and administrative expenses. It is the sum of all indirect and direct selling, administrative, and general expenses of a firm. The SG& A margin is thus arrived at by dividing the SG&A by the firm’s net sales. A low SG&A margin shows the sales of the company covers well its expenses. Apple’s SG&A margin is 6.62. This is very low and moving forward, the company will continue generating sales using significantly low expenses.

Current Ratio

This is a liquidity ratio, and it seeks to evaluate the firm’s ability to repay its current liabilities from the current assets. As such, it is determined by dividing the current assets of the business by its current liabilities. For Apple, the current ratio is 1.35 as per the 2016 financial statements. Since the ratio is more than 1.0, it means that the business can easily cover its current liabilities using the current assets.

Quick Ratio

This ratio determines a firm’s liquidity through dividing the most liquid assets of the business with the current liabilities. The only difference with the current ratio is that it excludes inventory in its calculation. Apple’s quick ratio is 1.22 from the 2016 financial statements. This further increases the ability of the company in meeting its obligations in the short-term period.

Total Debt/Equity

This is the ratio of a firm’s total debts to its shareholder’s equity. It determines the extent to which debts and equity finance the assets of a firm. Apple’s total debt/equity ratio stands at 0.63. This means that less assets of the company are financed by debt than those financed by equity. This indicates a lower risk for the business.

Total Revenue

This refers to the amount of money that a firm’s receives from the business activities in a particular period. It is important to note that it includes deductions from returned goods and discounts. The 2016 financial statements of Apple show the firm’s total revenue to be $215.64 billion. Such huge total revenue figures show that the company is among the biggest in the world.

Gross Profit

When the cost of goods sold is subtracted from the total revenues above, what is left is gross profit. From the 2016 financial statements of Apple, the gross profit was $84.26 billion. It is important not that that at this point the SG&A expenses have not been deducted. This gross profit is enormous, and it means the business is healthy financially.

Reference

Morningstar. (n.d). Apple Inc AAPL . Retrieved May 24, 2017, from Morningstar: http://financials.morningstar.com/ratios/r.html?t=AAPL