Question

 

Financial Statement Interpretation

Please take the company Apple Inc. and perform a Financial Analysis using the available data for the most recent fiscal year (i.e. 12/31/17) and compare that year to the previous fiscal year (i.e. 12/31/16).

Your analysis should include at least one analytical equation from each of the five sections of Financial Analysis which are listed below:

· Liquidity

· Asset Management

· Debt Management

· Profitability

· Market Value

In your analysis should include the following interpretations:

1. Has the firm improved its’ performance from the previous year?

2. Is the firm managed efficiency?

3. As a potential investor would you consider this a stock you would purchase?

Answer 1

1. Liquidity ratio. In liquidity ratio we look at the current ratio. The current ratio is defined as the ratio of current assets to the current liabilities.

Current ratio = current assets/current liabilities

Current ratio for 2016 = 106,869,000/79,006,000 = 1.35

Current ratio for 2017 = 128,645,000/100,814,000 = 1.27

2. Asset management : We look at the asset turnover ratio which defined as the ratio of the total sales to the total assets

Asset turnover = Sales/Total assets

For 2016, Asset turnover = 215,639,000/321,686,000 =0.67

For 2017, Asset turnover = 229,234,000/375,319,000 = 0.61

3. Debt management: We look at the debt to equity ratio which is defined as the total long term debt to shareholders equity.

Debt to equity = Long term debt/ Total shareholders equity

Debt to equity in 2016 = 75,427,000/128,249,000 = 0.58

Debt to equity in 2017 = 97,207,000/134,047,000 = 0.72

4. Profitability: We look at the net profit margin which is defined as the ratio of the net income to the total sales.

Net profit margin (NPM) = Net Income/ Total sales

NPM for 2016 = 45,687,000/215,639,000 = 0.21 = 21%

NPM for 2017 = 48,351,000/229,234,000 = 0.21 = 21%

5. Market Value ratio: We look at the return on equity (ROE) which is defined as the ratio of the net income to the total shareholders equity.

ROE = Net income/ total shareholder's equity

ROE for 2016 = 45,687,000/128,249,000 = 35.62%

ROE for 2017 = 48,351,000/134,047,000 = 36.07%

Analysis

1. Yes the firm has improved in the overall performance when compared to the last year. The firm has increased the return on equity marginally which is a good aspect and also is able to maintain a very high net profit margin at 21%. Hence the overall performance of the firm improved in 2017 from 2016 although the weak area would be the increase in long term debt which however is still manageable.

2. In term of efficiency, we can say that is efficiency slightly underperformed in 2017 when compared to 2016 as the asset turnover marginally reduced firm 0.67 to 0.61

3. Yes, I would buy the stock since long term performance is expected to be good and also the firm has managed to get better than industry profits over the long run.