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Broad Scope Analysis of Apple Incorporated
Apple Incorporated manufactures, designs, and markets mobile communication devices, computers, portable digital music players, and various electronic consumer products. It was founded in 1977 and its headquarters are located in California. Basically, its products include; iPhone, iPad, Mac, iPod, and a wide portfolio of consumer and business applications such as iOS OS X, watchOS, iCloud, and Apple Pay. Moreover, the business also sells a digital content through its websites such iTunes Store, App Store, Mac App, Store, Apple Music, and iBook Store.
Gross Profit Margin
Year 2014
Gross profit margin = [Sales-Cost of goods sold]/Sales
Sales= 182,795
Other business income= 980
Cost of goods sold= 112,258
Other operating expenses= 18034
Gross profit margin= [(182795+ 980)-(112258+ 18034)]/(182795+ 980)
Gross profit margin= 53483/183775= 0.29102
Gross profit margin= 29.102%
Year 2015
Sales= 233715
Other business income= 1285
Cost of sales= 140089
Other operating expenses= 22396
Gross profit margin= [(233715+1285)-(140089+22396)]/ (233715+1285)
Gross profit margin= 72515/235000= 0.30857
Gross profit margin= 30.857%
The business has been enjoying high returns on investments. Better still the improvement profitability means that the company has positive future prospects. Evidently, Apple Inc. gross profit margin increased from 29.102% in the year 2014 to 30.857% in the year 2015.
Net Profit Margin
Net profit margin= Profit after taxes/Sales
Year 2014
Gross Sales= 182795
Net profit 39510
Net sales= 183775
Net profit margin= 39510/ 183775= 0.216
Net profit margin= 21.6%
Year 2015
Gross sales= 233715
Net profit= 53394
Net sales= 235,000
Net profit margin= 53394/ 235000= 0.2272
Net profit margin= 22.72%
Overly, the business profit margins increased by about 1% between the year 2014 and 2015. Notably, this increase is in accordance with the increase in gross profits during this period. Therefore, Apple Inc. enjoyed good financial performance during the 2014 and 2015 financial years. In light of this, it is highly likely that it will continue having good financial performance in the near future.
Return on Total Assets
Return on total assets= [Profit after taxes+ Interest]/ Total assets
Year 2014
Profit after tax= 39510
Interest= 0
Assets= 231, 839
Return on total assets= 39510/231839= 0.17041
Return on total assets= 17.041%
Year 2015
Profit after tax= 53394
Interest= 0
Assets= 290,479
Return on total assets= 53394/290479= 0.18381
Return on total assets= 18.381%
The high return on total assets in 2014 and 2015 is due to Apple Inc. high profitability during these periods. Further, the company’s strong and knowledgeable management supports its chances of having similar business progress in the oncoming years. Consequently, there is a high likelihood that it will make similar profits in the year 2016.
Return on Stockholder’s Equity
Return on stockholder’s equity= Profits after taxes/Total stockholder’s equity
Shareholders equity= shareholders capital + retained earnings
Year 2014
Profits after taxes= 39510
Shareholders capital= 23,313
Retained earnings= 87152
Shareholders equity= 87152+ 23313= 110465
Return on shareholders’ equity= 39510/110645= 0.3577
Year 2015
Profits after taxes= 53394
Shareholders capital= 27,416
Retained earnings= 92,284
Shareholders capital= 27416+92284= 119,700
Return on stockholder’s equity= 39510/119700=0.330075
Apple Inc. enjoyed high returns on stockholders’ equity in 2015 and 2014. Effectively, the shareholder made more profits from what they had invested. Noteworthy, the growth in the company shows there is a high likelihood that it will make similar positive gains during the 2016 financial year. Apple Inc. has been enjoying a high return on equity (ROE). Actually, in 2014 it had a ROE of 0.3577, which means that for every 1 dollar invested by a shareholder, he/she made 0.3577 dollars. On the same note, impressive performances were also witnessed in 2015 with a ROE of 0.33075. In this case, investors made 0.330075 dollars for every 1 dollar invested. Overly, the company’s ROE shows that its performance is positive. Therefore, it is highly likely that the company will continue enjoying this growth in the oncoming years.
Current Ratio
Current Ratio= Current assets/Current liabilities
Year 2014
Current assets= 68,531
Current liabilities= 63,448
Current ratio= 68,531/63,448= 1.0801
Year 2015
Current assets= 89,378
Current liabilities= 80,610
Current ratio= 89,378/80610= 1.10877
In general, a current ratio that is greater than 1 shows that the business can comfortably be able to repay its short term and long term current liabilities. Given that Apple Inc. had a current ratio of more than 1 in 2014 and 2015, it is possible for it to comfortably repay its current financial obligations. Nonetheless, a current ratio has a weakness of including inventories in the repayment of short-term liabilities. Consequently, a quick ratio is preferred to analyze an enterprise ability to repay current debts.
Quick ratio (Acid-test ratio)
Quick ratio= (Current assets- Inventory)/ Current Liabilities
Year 2014
Current assets= 68,531
Inventory= 2,111
Current liabilities= 63,448
Quick ratio= (68531-2111)/63,448= 1.0468
Year 2015
Current assets= 89,378
Inventory= 2,349
Current liabilities= 80, 610
Quick ratio= (89378-2349)/ 80610= 1.0796
The business had a quick ratio of 1.0796 in the year 2014 and 1.0468 in the year 2015. In practice, these figures indicate that the company can comfortably repay both its short term and long term financial obligations. Consequently, Apple has a proper credit portfolio.
Inventory to Net Working Capital
Inventory to net working capital= Inventory/ [Current assets- Current liabilities]
Year 2014
Current assets= 68531
Inventory= 2111
Current liabilities= 63448
Inventory to net working capital= 2111/[68531-63448]
Inventory to net working capital= 0.4153
Year 2015
Current assets= 89,378
Inventory= 2,349
Current liabilities= 80,610
Inventory to net working capital= 2349/ [89378-80610]
Inventory to working capital= 0.2679
Since the entire inventory to working capital ratio is positive, therefore, most of the company’s short-term purchases are financed using the business own capital. In light of this, the Apple Inc. can be able to buy these commodities without the need for credit. Further, it can comfortably repay its financial obligations when they are due.
Cash Ratio
Notably, the cash ratio shows the component of the business current liabilities that can be rapid using the company’s readily accessible sources of finance.
Cash ratio= (Cash+ Cash equivalents+ Investment funds)/ Current liabilities
2014
Cash and cash equivalents= 13844
Short term marketable securities= 11233
Current liabilities= 63448
Cash ratio= (13844+ 11233)/ 63448
Cash ratio= 0.3952
2015
Cash and cash equivalents= 21120
Short term marketable securities= 20481
Current liabilities= 80,610
Cash ratio= (21120+ 20481)/ 80610
Cash ratio= 0.516077
Overly, the company’s cash ratio increased from 0.3952 in the year 2014 to 0.516077 in the year 2015. Impliedly, Apple Inc. improved its ability to repay its current liabilities. In this case, the business’ management appears to be restructuring its finances so that it is able to repay its financial obligations when the are due.
Debt-to-Asset Ratio/ Debt Ratio
Debt-to-asset ratio= Total debt/Total assets
Year 2014
Total liabilities= 120292
Total assets= 231839
Debt-to-assets ratio= 120292/231839= 0.51886
Year 2015
Total liabilities= 171,124
Total assets= 290,479
Debt-to-assets ratio= 171124/290479= 0.58911
In general, Apple Inc. has maintained its debt to equity ratio at about 50 % of its asset base. Notably, in the year 2014, it had a debt-to-equity ratio of 0.51886. In the same breath, it had a debt-to-equity ratio of 0.58911 in 2015. Nonetheless, the company should reduce this ratio to a percentage that is less than 0.5. Importantly, such a ratio will ensure that it is safeguarded from risks of default when there is a slowdown in sales. Noteworthy, the business’ debt to equity ratio increased from 0.51886 to 0.58911, which is about 0.07025.
Debt-to-Equity Ratio
Debt-to-equity ratio= Total debt/ Total stockholder’s equity
Stockholders equity/ shareholders equity= Shareholders capital + Retained earnings
Year 2014
Total debt= 120292
Shareholders capital= 23,313
Retained earnings= 87152
Shareholders equity= 87152+ 23313= 110465
Debt-to-equity ratio= 120292/110564= 1.08798
Year 2015
Total debt= 171124
Shareholders capital= 27,416
Retained earnings= 92,284
Shareholders capital= 27416+92284= 119,700
Debt-to-equity ratio= 171124/119700= 1.4296
            Overly, the business has a high debt to equity ratio, which means that it mainly relies on debt to finance its operations. Notably, the company had a debt-to-equity ratio of 1.08798 in 2014 and 1.4296 in 2015. Since these figures are more than 1, they show that Apple Inc. has a huge dependence on credit financing. Moreover, the trend of using credit is increasing with time. Given that excessive reliance on credit limits a company’s ability to make risky financial decisions and to invest in certain high return business opportunities, Apple Inc. should reduce its reliance on debt.
Capitalization Ratio
Notably, capitalization ratio represents the amount of money that the business has for investment purpose. Since long-term liabilities have the effect of resulting in a business been able to use this money in its long-term projects, it is also regarded as capital. Therefore, capitalization ratio is calculated as follows:
Capitalization ratio= Long-term debt/ (Long-term debt+ Shareholders equity)
Shareholders equity= shareholders capital + retained earnings
Year 2014
Long-term liabilities= 56844
Shareholders capital= 23,313
Retained earnings= 87152
Shareholders equity= 87152+ 23313= 110465
Capitalization ratio= 56, 844/(56844+ 110465)
Capitalization ratio= 0.33975
Year 2015
Long-term liabilities= 90514
Shareholders capital= 27,416
Retained earnings= 92,284
Shareholders capital= 27416+92284= 119,700
Capitalization ratio= 90514/ (90514+119700)
Capitalization ratio= 0.4306
The capitalization ratio increased from 0.3397 in the year 2014 to 0.4306 in the year 2015. Effectively, it means that Apple Inc. reliance on debt for its investment purposes increased during this period. In as much as the use of debt is important since it enables a company to exploit viable business opportunities, it is prudent that this ratio should be maintained at reasonable levels. Basically, a very small capitalization ratio shows that the management is too afraid to use credit to exploit various opportunities in the industry. On the other hand, a high capitalization ratio shows that an enterprise’ management is extremely aggressive. Impliedly, it also shows that the business has a high risk of failure due to over-reliance on loans. In the case of Apple, the company should slow down on its use of credit to finance most of its investments. Generally, it should maintain its capitalization ratio between 20% and 50%.
Fixed Assets Turnover
Fixed assets turnover= Sales/ Fixed assets
Year 2014
Sales= 182795
Fixed assets= 163308
Fixed assets turnover= 182795/163308= 1.119
Year 2015
Sales= 233715
Fixed assets= 201101
Fixed assets turnover= 233715/201101= 1.16218
Inventory Turnover
Inventory turnover= Sales/Inventory of finished goods
Year 2014
Sales= 182795
Inventory= 2111
Inventory turnover= 182795/2111= 86.59
Year 2015
Sales= 233715
Inventories= 2349
Inventory turnover= 233715/ 2349= 99.50
Basically, the rise in inventory turnover from 86.59 times in the year 2014 to 99.5 times in the year 2015 shows that the business has been having more sales. Consequently, it means that the Apple Inc. future prospects are good. In turn, it means that the company’s shareholders will keep enjoying a high return on investment.
Average Collection Period
Average collection period= Accounts receivable/ [Total sales/365]
Year 2014
Accounts receivable= 17460
Total sales= 182795
Average collection period= 17,460/ [182795/365]= 34.86
Approximately 35 days
Year 2015
Accounts receivable= 16,849
Total sales= 233715
Average collection period= 16849/ [233715/365] = 26.313
Approximately 27 days
In general, the reduction in average collection period from 35 days to 27 days shows that the business has improved on its debt management. Impliedly, in 2015 creditors were paying their debts 8 days earlier than in 2014. In light of this, Apple incorporated has high prospects of becoming profitable in future. Notably, a delay in repayment of credit affects a company’s purchasing power.
Conclusion
To sum up, the financial analysis of Apple Inc. shows that the business future and current financial positions are positive. Actually, the company’s profitability has been increasing over time. Nonetheless, Apple Inc. has a high dependency on credit. In fact, the high dependency on debt financing is its main undoing. Basically, in as much as Apple Inc. has demonstrated its ability to launch new and innovative products, which have consistently led to higher profits, it is prudent for its management to realize that profits are not always guaranteed. With this in mind, they should limit its dependency on credit. On a positive note, the enterprise positive future prospects demonstrate its ability to continue having high returns to its shareholders. In light of this, it is highly likely that it will continue making profits in the near future. Consequently, it is a going concern.
 
 
 
 
 
 
 
 
 
 
 
 
Appendix
Table 1
Apple Inc.: Consolidated balance sheet for the year 2014 and 2015
Source: (United States Security and Exchange Commission a 41)
Table 2
Apple Inc.: Consolidated statement of operations for the year 2014 and 2015
Source: (United States Security and Exchange Commission a 43)
 
 
 
 
Works Cited
United States Security and Exchange Commission a. Apple Inc. Form 10-K. For the Fiscal Year Ended September 26, 2015. 001-36743. Washington, DC: Security and Exchange Commission, 2015. Web.