HRER 825 - Lesson 05 Apple Assessment
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HRER 825 - Lesson 05 Apple Assessment
Evaluation of Apple’s Financial Condition
Based on the calculated financial ratios from Apple's financial statements for the year 2012, we can evaluate the company’s financial condition across four key categories: Profitability, Leverage, Liquidity, and Efficiency.
Profitability Ratios
Profitability ratios provide insights into a company's ability to generate earnings relative to its revenue, assets, and equity (2008). Apple’s Gross Margin Ratio is approximately 44%, indicating that the company retains $0.44 of every dollar of revenue as gross profit. This high gross margin showcases Apple's effective cost management and its strong market position allowing for premium pricing.
The Profit Margin Ratio is around 27%, meaning Apple converts 27% of its revenue into net profit. This robust profit margin reflects Apple's efficiency in controlling its operating expenses and its ability to maximize profitability. Additionally, the Return on Assets (ROA) is about 29%, suggesting that Apple generates $0.29 of profit for every dollar invested in assets. This high ROA indicates efficient asset utilization and strong operational performance (2008).
The Return on Equity (ROE) is approximately 43%, demonstrating that Apple provides excellent
returns to its shareholders. A high ROE signifies effective use of shareholders' equity to generate
profits, highlighting Apple's strong financial health and its ability to deliver substantial returns to
investors.
Leverage Ratios
Leverage ratios assess a company’s level of debt relative to its equity and its ability to meet long-term obligations (2008). Apple's Debt to Equity Ratio is around 0.49, indicating that the company has $0.49 of debt for every dollar of equity. This relatively low leverage ratio suggests that Apple relies more on equity financing than debt financing, which reduces financial risk and potential interest burden. It also reflects the company’s conservative approach to debt management, ensuring financial stability and flexibility (2008).
Liquidity Ratios
Liquidity ratios measure a company's ability to meet short-term obligations (2008). The Current Ratio for Apple is approximately 1.50, indicating that the company has $1.50 in current assets for every dollar of current liabilities. This ratio suggests that Apple is in a strong liquidity position, with sufficient short-term assets to cover its short-term liabilities, reducing the risk of liquidity issues.
The Working Capital is $19,111 million, further affirming Apple’s strong liquidity position. Positive working capital means that Apple has more current assets than current liabilities, enabling smooth business operations and the ability to invest in growth opportunities without the immediate need for external financing.
Efficiency Ratios
Efficiency ratios provide insights into how effectively a company utilizes its assets and manages its operations (2008). Apple’s Inventory Turnover Ratio is approximately 112.12, indicating that the company turns over its inventory more than 112 times a year. This extraordinarily high ratio highlights Apple's efficient inventory management, reducing holding costs and the risk of obsolescence, while ensuring products are readily available for customers.
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Following are selected ratios of Norfolk Southern for 2018 and 2017.
Return on Assets (ROA) Component
2018
2017
Profitability (Net income/Sales)
24.3%
52.2%
Productivity (Sales/Average assets)
0.328
0.309
a. Was the company profitable in 2018?AnswerYesNo
b. Was the company more profitable in 2018 or 2017?Answer20172018
c. Is the change in productivity a positive or negative development?AnswerPositiveNegative
d. Compute the company’s ROA for 2018 and for 2017.Note: Round answers to one decimal places (example: 10.4%).
ROA
2018
Answer
2017
Answer
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Chapter 14, Question 4
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You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.
Required:
(b) Analyze the current financial position for the company from a time series and cross section viewpoint.
(c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.
Historical and Industry Average Ratios
HTS Software , Inc.
Ratio
2010
2011
Industry2011
Current Ratio
2.6
—
2.7
Quick Ratio
1.8
—
1.75
Inventory Turnover
4.5
—
4.7
Average Collection Period
40days
—
42 days
Total Asset Turnover
1.2
—
1
Debt Ratio
20%
—
21%
Times Interest Earned
9
—
8.9
Gross Profit Margin
43%
—
44%
Operating Profit Margin
30%
—
32%
Net Profit Margin
20%
—
21%
Return on total assets
12%
—
13%
Return on Equity
Price/Earnings Ratio
15%
7.3
—
—
16%
8
Balance SheetHTS Software, Inc.December 31,…
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Calculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.
Ratio
Operating margin
Value
Year 2
Year 1
61.54%
Profit margin
44.39%
Return on total assets
17.09%
Return on common equity
32.13%
Basic earning power
22.22%
Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights into
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ratios. Check all that apply.
A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both.
If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.
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Following are selected ratios of Norfolk Southern for 2018 and 2017.
Return on Assets (ROA) Component
2018
2017
Profitability (Net income/Sales)
25.3%
53.2%
Productivity (Sales/Average assets)
0.338
0.319
a. Was the company profitable in 2018?Answer
b. Was the company more profitable in 2018 or 2017?Answer
c. Is the change in productivity a positive or negative development?Answer
d. Compute the company’s ROA for 2018 and for 2017.
Note: Round answers to one decimal places (example: 10.4%).
ROA
2018
Answer
2017
Answer
e. From the information provided, which of the following best explains the change in ROA during 2018?
Answer
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Required:
(b) Analyze the current financial position for the company from a time series and cross section viewpoint.
(c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.
Historical and Industry Average Ratios
HTS Software , Inc.
Ratio
2010
2011
Industry2011
Current Ratio
2.6
2.08
2.7
Quick Ratio
1.8
1.32
1.75
Inventory Turnover
4.5
6
4.7
Average Collection Period
40days
9.125
42 days
Total Asset Turnover
1.2
1.69
1
Debt Ratio
20%
28.2%
21%
Times Interest Earned
9
5.9%
8.9
Gross Profit Margin
43%
42.8%
44%
Operating Profit Margin
30%
25.5%
32%
Net Profit Margin
20%
17%
21%
Return on total assets
12%
4.11%
13%
Return on Equity
Price/Earnings Ratio
15%
7.3
19%
4.4
16%
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Required:
Compute for the company’s profitability and operating efficiency ratios for 2019
Compute for the financial health ratios of the company for 2019
A.Profitability ratio
a. Return on Assets:
ROA (NI/Total Assets)
ROA (NI/Average Assets)
ROA (EBIT/Total Assets)
ROA (EBIT/Average Assets)
ROE (NI/Capital)
ROE (NI/Average Capital
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Question 8:
You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.
Required:
(a) Calculate the ratios stated in the table below for HTS Software, Inc. for 2011
(b) Analyze the current financial position for the company from a time series and cross section viewpoint.
(c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.
Historical and Industry Average Ratios
HTS Software , Inc.
Ratio
2010
2011
Industry2011
Current Ratio
2.6
—
2.7
Quick Ratio
1.8
—
1.75
Inventory Turnover
4.5
—
4.7
Average Collection Period
40days
—
42 days
Total Asset Turnover
1.2
—
1
Debt Ratio
20%
—
21%
Times Interest Earned
9
—
8.9
Gross Profit Margin
43%
—
44%
Operating Profit Margin
30%
—
32%
Net Profit Margin
20%
—
21%
Return on total assets
12%
—
13%
Return on Equity…
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From Chapter 17
1. From the data given in the following table, please construct as many of the financial ratios
discussed in this chapter as you can and then indicate what dimension of a business firm's
performance each ratio represents.
Cash account
Accounts receivable
Inventories
Fixed assets
Miscellaneous assets
Cost of goods sold
Wages and salaries
Interest expense
Overhead expenses
Depreciation expenses
Selling, administrative,
and other expenses
108 Before-tax net income
117* Taxes owed
325*
After-tax net income
15
160
725
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Accounts payable
Notes payable
Long-term debt (bonds)
Equity capital
A.
Business Assets
B.
C.
D.
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E.
F.
Liabilities and Equity
G.
Annual Revenue and Expense Items
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155
128
286
96
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