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In: Finance

Choose a publicly traded company and analyze the financial statements based on the various ratios discussed...

Choose a publicly traded company and analyze the financial statements based on the various ratios discussed in concept 5 (leverage, debt to equity, liquidity ratios, etc.). Provide an overview of how financially healthy the company is and predictions for the future of the company.

Solutions

Expert Solution

Answer: Ratios- Are the indicators of financial performance of a company.

Types of Ratios:

Profitability ratios- Are calculated and used to measure how much, a company is profitable in its existing product or service.

Liquidity ratios- Are calculated and used to measure how much, a company is liquid and can it meet its short term capital needs and obligation.

Solvency ratios- Are calculated and used to know whether a company is able to meet its long term obligation (debt).

Ratio Analysis: I am taking Apple Inc. as a publicly traded company. Its symbol is AAPL.

Profitability:

(1): Its net profit margin is 23.68% (as on Dec. 2018). It shows that company is profitable.

Net profit margin = Net profit / Sales

(2): Its ROE is 16.93% (as on Dec. 2018). ROE is the return on shareholder's equity.

ROE = Net profit / Shareholder's equity

Liquidity:

(1): Its current ratio is 1.30 (as on Dec. 2018). It shows that company is liquid. Ratio above 1 is good. Current ratio is the best measure of liquidity.

Current ratio = Current assets / Current liabilities

(2): Quick ratio- It is 1.25 (as on Dec. 2018). It shows company has good amount of liquid assets that can be easily converted into cash if needed.

Quick ratio = Liquid assets / Current liabilities

Solvency:

(1): Its debt to equity ratio is 2.17 (as on Dec. 2018). It shows that company has heavy debt. Ratio below .50 is good.

Debt to equity ratio = Total liabilities / Total equity

(2): Its debt to asset ratio is .68 (as on Dec. 2018). It shows the amount of assets, financed by debt.

Debt to asset ratio = Total liabilities / Total assets

Conclusion- Overall financial health of Apple Inc. is good, company has good profitability and liquidity position but heavy debt.

jeff jeffy answered 1 year ago
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