Question

Apple, Inc. has been riding high, and is consistently one of the largest corporations in the world.

Google is one of Apple’s primary competitors. One quick way to analyze Apple and Google can be accomplished by using DuPont Analysis (ROE = PM * AT * EM)1. Complete the following:

• Go to www.finance.yahoo.com and find the most current Income Statement and Balance Sheet for Apple.

• Compute all 4 ratios for Apple for 2009 through 2011. Please use the Yahoo site so that numbers are consistent.

• Compute the DuPont Ratio for Google for the most current year only. Take all numbers out at least 2 places past the decimal.

• When you are done computing your ratios, write an essay sharing your analysis. Be sure to discuss all four ratios of the DuPont analysis in a time series as well as the cross-sectional comparison with Google. In the essay, do not focus on the numbers used to compute ratios but instead, show an ability to interpret the economic meaning of the computed ratios.

Answer 1

du pont analysis: NI/SALES * SALES/ASSETS * ASSETS /EQUITY,

WHERE, NI/SALES: NET PROFIT MARGIN (1)

SALES/ASSETS: ASSET TURNOVER (2)

ASSETS/EQUITY : EQUITY MULTIPLIER (3)

FOR THE YEAR 2017: (1) IS

= 48351000/339234000 = 0.21

FOR 2016 IT IS :

45687000/215639000 = 0.21

FOR 2015 IT IS,

53394000/233715000 = 0.23

COMPUTING (2)

FOR YEAR 2017:

229234000/128645000 = 1.78

FOR YEAR 2016:

=215639000/10689000

= 2.01

FOR 2015,

233715/89378 =2.61

ASSETS/EQUITY

FOR THE YEAR 2017:

1286345000/134047000=0.96

FOR 2016,

106869000/1289249000= 0.83

2015:

89378000/110355000=0.81

DU PONT FOR APPLE IN 2017:35.88

2016: 35.03

2015: 48.62

DU PONT FOR GOOGLE:AS OF 2017

NI/SALES = 5426000/24750000 = 0.22

SALES/ASSETS = 24750000/17275000=1.43

ASSETS/EQUITY = 172756000/144949000=1.19

THEREFORE, DU PONT IS : 0.22*0.14*1.19= 0.3743=37.43

DU PONT ANALYSIS IS BASICALLY FINDING OUT WHICH COMPONENT IS MOST RESPONSIBLE FOR THE CHANGES IN THE ROE:

COMPARING THE DATA OF APPLE FOR THE LAST THREE YEARS WE FIND OUT THAT:

ITS NET PROFIT MARGIN IS DECLINING,WHICH MIGHT NOT BE GOOD FOR APPLE,

THE EFFICIENCY WITH WHICH IT IS USING ITS ASSETS SEEMS TO BE FALLING AS WELL OVER THE YEARS WHICH NOT BE A POSITIVE INDICATOR AGAIN.

ITS EQUITY MULTIPLIER IS RISING, WHICH MEANS THE COMPANY IS FINANCING LESS BY ITS EQUITY AND MORE BY DEBT. A CERTAIN PERCENTAGE OF DEBT IS GOOD FOR THE COMPANY,BUT IT SHOULD CROSS LEVELS WHICH MIGHT BE DANGEROUS FOR THE COMPANY.

COMPARING THE PERFORMANCE WITH GOOGLE WE FIND THAT,

GOOGLE NET PROFIT MARGIN IS ALMOST IDENTICAL WITH APPLE'S CURRENT YEAR ,

THE EFFICIENCY WITH WHICH IT IS UTILIZING THE ASSETS SEEMS TO BE MUCH BETTER IN COMPARISON TO APPLE

THE EQUITY MULTIPLIER IS HIGHER,WHICH SHOWS THE DEPENDENCE OF APPLE ON DEBT,TO FINANCE THE OPERATIONS.