Question

1. Based on in the table presented below. How would you best balance Apple’s Inc. financial leverage to optimize shareholder wealth going forward taking into consideration the Apple’s Inc. current market position, credit rating, dividend policy, etc.

Financial Leverage

	2015	2016	2017	2018	2019
Debt to Assets	0.59	0.60	0.64	0.71	0.73
Debt to Equity	0.45	0.59	0.73	0.87	1.01
Interest Coverage	99.93	43.15	28.59	23.50	19.38

Answer 1

Debt to assets ratio is total liability to total assets, debt to equity ratio is total debt to total equity and
interest coverage ratio is earning before interest & tax devided by interest expenses.
Debt to assets ratio indicating that debt portion is increasing continue continue to finance the assets
and requirement. Debt to equity ratio represent leverage of debt to shareholder's fund. A higher debt
equity ratio should be better if leverage used effectively to enhace return on equity. As in this case,
debt to equity ratio is increasing continue from .45 in 2015 to 1.01 in 2019 is may be good for company
as leveraged has been enhanced even more than 1 means above equity. It is also indicated by decreasing
interest coverage ratio that interest expenses is increasing as debt increased. Lets understand the same
by an illustration.
For example, a company having last two year financial data as following based on ratio as given in question.
	(2018)	(2019)
	($)	($)
Equity	600	400
Debt	400	600
Assets	1,000	1,000
Suppouse 10 % return on assets and
interest rate is 6%.
So, Return on Equity = Return /Equity
ROE for 2018 = ((1000*10%) - (400*6%)/ 600 =	12.67%
ROE for 2019 = ((1000*10%) - (600*6%)/ 400 =	16.00%
So, we can see in above analysis that leveraging finace by increasing the debt in a firm has increased
return to equity shareholder's, which is quite good for a company.
So it is best balance that debt equity ratio should not be less than 1 as Apple's Inc having.