HRER 825 - Lesson 05 Apple Assessment

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Pennsylvania State University, World Campus *

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825

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Finance

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Jun 21, 2024

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docx

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Krissy Avancena June 11 th , 2024 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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