Analysis of Key Financial Ratios for Apple

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Humber College *

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Finance

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Apr 3, 2024

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Analysis of Key Financial Ratios for Apple The Current Ratio – - 2019-09-30: The Current Ratio is above 1, which is generally considered good as it suggests that the company has more than enough liquid assets to cover its short-term liabilities. - 2020-09-30: The ratio has decreased compared to 2019 but is still above 1, maintaining a healthy level. - 2021-09-30: A further decrease in the Current Ratio could indicate that the company’s liquidity is tightening, but it remains above the threshold of 1. - 2022-09-30: The ratio dips below 1, which can be a red flag as it might imply that the company does not have enough liquid assets to meet its current obligations. - 2023-09-30: The Current Ratio remains below 1, suggesting the company's liquidity position has not improved. In summary, the trend from 2019 to 2023 shows a declining Current Ratio, with the company moving from a position of strong liquidity to a potentially more concerning position where current liabilities exceed current assets. This could be viewed as a negative trend as it may signal financial stress or a need for the company to potentially increase its short-term borrowings or liquidate assets to meet its obligations. The Long-term Debt-capital ratio - 2019-09-30: The ratio is at a moderate level, which suggests a balanced approach between debt and equity financing. - 2020-09-30 and 2021-09-30: The ratio increases slightly, indicating a higher reliance on long-term debt in the company’s capital structure. This isn't necessarily bad as it could be used for growth investments, but it does increase the financial risk. - 2022-09-30: The ratio peaks compared to the previous years, which implies the company has increased its use of long-term debt even more. This could be a concern if the company is not generating sufficient returns on its investments to cover the cost of this debt. - 2023-09-30: There is a decrease in the ratio, suggesting a reduction in the reliance on long-term debt or an increase in equity, which could be seen as a positive development if the company is aiming to strengthen its balance sheet and reduce financial risk. In conclusion, a moderate Long-term debt-to-capital ratio is generally considered healthy, but the ideal ratio varies by industry and company life cycle stage. It is also critical to consider the cost of debt, the company's ability to service its debt, and the returns generated from debt-funded investments when evaluating the implications of this ratio.

Debt to Equity (D/E) Ratio - - 2019-09-30: The D/E ratio is above 1, suggesting that the company has more debt than equity. This can be common in capital-intensive industries but may indicate higher risk. - 2020-09-30: The ratio has decreased since 2019, which could mean the company has paid down some of its debt or increased its equity, potentially a positive sign. - 2021-09-30: The D/E ratio spikes, which suggests a significant increase in debt or a decrease in equity, or both. This could be a cause for concern as it indicates increased leverage and financial risk. - 2022-09-30: The ratio remains high, reinforcing the idea that the company is heavily reliant on debt financing. - 2023-09-30: There is a noticeable decrease in the D/E ratio, suggesting the company may have taken steps to reduce its debt levels or increase its equity, which could be viewed as a positive development if it is part of a strategy to reduce financial risk. In summary, a lower D/E ratio generally indicates a less risky investment. However, what is considered a "good" D/E ratio can vary greatly depending on the industry and the stage of the company's growth. The cost of debt, the returns on the debt-financed investments, and the industry's average D/E ratio should also be considered. The decrease in 2023 could indicate the company is on a path to a more sustainable financial structure. Gross Margin - 2019-09-30: The Gross Margin is at its lowest point on the chart, which might indicate either high production costs or lower sales prices relative to the cost of goods sold. - 2020-09-30: The Gross Margin has increased from the previous year, suggesting improvements in cost management or the ability to sell products at higher prices relative to costs. - 2021-09-30: There is a decrease in the Gross Margin compared to 2020, which could indicate rising costs or pricing pressure. - 2022-09-30: The Gross Margin increases again, suggesting better cost control or improved pricing strategies. - 2023-09-30: The Gross Margin shows the highest value on the chart, which is typically a positive sign, indicating that the company has managed to significantly control its cost of goods sold or increase its sales prices without a corresponding rise in costs. Overall, the upward trend in Gross Margin from 2019 to 2023 would generally be interpreted as positive, suggesting the company is becoming more efficient or gaining pricing power. However, this analysis would need to be confirmed by looking at other factors such as market conditions, changes in the company’s product mix, and overall industry trends.

Operating Margin - 2019-09-30: The Operating Margin is moderately high, indicating healthy profitability from the company’s core operations. - 2020-09-30: There is a slight decrease in Operating Margin compared to 2019, suggesting an increase in operating costs or a decrease in sales prices relative to those costs. - 2021-09-30: The Operating Margin increases again, implying that the company has either reduced its variable costs or managed to increase its prices without a proportional increase in costs. - 2022-09-30: There's another slight decrease in Operating Margin, which might be due to rising costs or other operational challenges. - 2023-09-30: The Operating Margin shows the highest value for the period in question, indicating that the company has likely optimized its operational efficiency or increased its sales significantly relative to its operating costs. Overall, the upward trend in Operating Margin from 2019 to 2023, particularly the peak in 2023, would generally be seen as a positive sign, suggesting that the company is generating more profit from its core operations and managing its costs effectively. However, an in-depth analysis would also consider industry benchmarks, the company's historical margins, and other financial metrics to provide a complete picture. EBITDA - 2019-09-30: The EBITDA Margin appears relatively low compared to the following years, which might suggest lower operational profitability at that time. - 2020-09-30: There's a significant increase in EBITDA Margin, indicating improved operational efficiency and profitability. - 2021-09-30: The margin maintains at a level similar to 2020, suggesting stability in the company's operational profit relative to its revenue. - 2022-09-30: The EBITDA Margin slightly decreases, which could imply a minor reduction in profitability or an increase in operating costs that outpaced revenue growth. - 2023-09-30: There's a noticeable drop in the EBITDA Margin, which could be concerning if it indicates deteriorating operational efficiency or rising costs that are not matched with increased revenue. It's important to consider these figures in the context of the company's industry, business strategy, and broader economic conditions. A detailed analysis would compare these margins to industry benchmarks and consider other financial indicators to fully understand the company's performance. Pre-Tax Profit Margin - 2019-09-30: The Pre-Tax Profit Margin is shown at a moderate level, suggesting that the company has a reasonable percentage of revenue left as profit before taxes. - 2020-09-30: There is a slight decrease in the margin, which could indicate that the company’s costs have increased, or revenue has decreased, leading to a lower profit ratio.

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- 2021-09-30: The margin rebounds, implying that the company may have managed to control costs or increase its revenue more effectively than the previous year. - 2022-09-30: The margin shows a further increase, which could be a positive sign of continuing operational efficiency and cost management. - 2023-09-30: The Pre-Tax Profit Margin decreases compared to 2022, suggesting a potential increase in costs or decrease in sales efficiency. In summary, while the Pre-Tax Profit Margin in 2023 is lower than in 2022, it is still higher than in 2019 and 2020, which could indicate overall good performance over the period shown. The key would be to understand the reasons behind the fluctuations and to compare these figures with industry standards to draw more accurate conclusions about the company's financial health. Net Profit Margin - 2019-09-30: The Net Profit Margin is relatively lower compared to the following years, indicating that a smaller portion of revenue was retained as net profit. - 2020-09-30: The margin increases, suggesting that the company was able to retain a higher percentage of revenue as net profit, which could be due to increased revenues, decreased costs, or both. - 2021-09-30: The margin decreases slightly, indicating a small drop in profitability, but it's still higher than in 2019. - 2022-09-30: The margin increases again, suggesting improved profitability over the previous year. - 2023-09-30: The Net Profit Margin appears to return to levels similar to those of 2019, which might suggest that some of the gains in profitability seen in the intervening years have not been sustained. Overall, a fluctuating Net Profit Margin indicates that the company's profitability is not stable over the years. While it's not uncommon for margins to fluctuate due to various internal and external factors, the goal is generally to achieve a stable or increasing Net Profit Margin trend. The decrease in 2023 would typically prompt a closer examination to understand the underlying causes and to determine if corrective actions are needed. Asset Turnover ratio - 2019-09-30: The Asset Turnover ratio is at a moderate level, suggesting average efficiency in using assets to generate revenue. - 2020-09-30: The ratio decreases slightly, indicating that the company is generating slightly less revenue for each dollar of assets compared to the previous year. - 2021-09-30: The ratio further decreases, which could imply that the company's efficiency in using its assets has continued to decline. - 2022-09-30: The ratio increases, suggesting an improvement in asset efficiency compared to 2021. - 2023-09-30: The ratio shows a significant increase and is the highest over the five years, indicating that the company has potentially optimized its use of assets or has significantly increased its sales relative to its asset base.

Overall, the upward trend in 2023, especially if it represents a sustained improvement, is a good sign, indicating better asset utilization and potentially improved operational efficiency. However, this should be considered in the context of the industry average and the company's historical performance to make a full assessment. Inventory Turnover - 2019-09-30: The Inventory Turnover Ratio is high, suggesting that the company was able to sell through its inventory quickly during this period. - 2020-09-30: The ratio decreases, which may indicate that the company took longer to sell through its inventory compared to the previous year. - 2021-09-30: The ratio is at its lowest, suggesting a further slowdown in selling inventory. This could be due to excess inventory or decreased sales. - 2022-09-30: The ratio increases significantly, indicating that the company has either improved sales, reduced inventory levels, or a combination of both. - 2023-09-30: The ratio decreases again but remains higher than in 2021. This suggests that while the company may not be moving inventory as quickly as in 2022, it is still performing better than in the year with the lowest turnover. The variability in the ratio over the years indicates fluctuating efficiency in inventory management. While the decrease in 2023 might not be ideal, it doesn't necessarily represent a bad outcome if the company's overall sales and profitability are healthy. It's also important to consider industry standards and economic conditions when evaluating these figures. For instance, a lower turnover might be acceptable if the industry average has also declined due to broader market challenges. Receivables Turnover - 2019-09-30: The Receivables Turnover is at a lower point compared to the following years, suggesting slower collection of receivables. - 2020-09-30: There is an increase in the ratio, indicating that the company has improved its collection times. - 2021-09-30: The ratio decreases slightly, which could mean that the company's collections have slowed down somewhat or that sales on credit have increased without a proportional increase in collections. - 2022-09-30: The ratio remains roughly the same as in 2021, indicating stable collection efficiency. - 2023-09-30: The Receivables Turnover decreases, suggesting that the company may be taking longer to collect on its receivables compared to the previous years. While a higher ratio generally indicates efficient collections and credit policies, the interpretation needs to be nuanced by considering the context, such as changes in sales policies, industry averages, and economic conditions. A decreasing ratio in 2023 may warrant a closer look at the company's credit policies and accounts receivable management practices.

Days Sales in Receivables - 2019-09-30: The Days Sales in Receivables is high, indicating that it takes the company a longer time to collect on its sales. - 2020-09-30: The number decreases, suggesting an improvement in the collection process or a change in credit terms that results in faster payment from customers. - 2021-09-30: The days increase again, implying a slowdown in collections relative to 2020. - 2022-09-30: The number of days remains relatively stable compared to 2021, suggesting no significant change in how quickly the company collects receivables. - 2023-09-30: The Days Sales in Receivables increased substantially, indicating that it now takes the company much longer to collect on its sales than in previous years. The increase in 2023 would generally be a cause for concern and might prompt the company to review its credit policies or take action to improve its collections process. It's important to consider this metric in the context of the company's cash flow needs, the industry standard, and the broader economic environment. Return on Equity (ROE) - 2019-09-30: ROE is at its lowest for the period, suggesting lower profitability relative to equity. - 2020-09-30: ROE increases, indicating improved profitability or more effective use of equity. - 2021-09-30: ROE sees a significant increase, suggesting a substantial improvement in generating profit from shareholders' equity. However, this high level could also be due to reduced equity, perhaps from buybacks or losses in previous years. - 2022-09-30: ROE decreases but is still higher than in 2019 and 2020, indicating sustained profitability. - 2023-09-30: ROE drops further, suggesting a decrease in profitability relative to shareholders' equity compared to the peak in 2021. The absolute values of ROE are quite high, which could indicate a highly leveraged company, an accounting anomaly, or exceptional profitability. Extremely high ROE figures, often above 20%, can sometimes be a result of a small equity base rather than exceptional performance. Return on Tangible Equity (ROTE) - 2019-09-30: The ROTE is relatively low, suggesting that the company is generating less profit from its tangible equity. - 2020-09-30: There is an increase in ROTE, which indicates improved profitability from tangible assets. - 2021-09-30: ROTE peaks for the period shown, suggesting a high level of profitability from tangible equity. However, very high levels of ROTE may need to be investigated to ensure they're not due to a reduced equity base or other one-time factors.

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- 2022-09-30: ROTE decreases but remains high, indicating continued profitability, though not at the extraordinary level of the previous year. - 2023-09-30: ROTE decreases further but still remain above the level seen in 2019, indicating that while profitability has decreased from its peak, it remains at a healthy level above where it started. Implications for the company: - Good: The overall trend from 2019 to 2021 shows increasing profitability from tangible equity, which is a positive indicator of the company's operational efficiency and profitability. - Bad: The decreases in 2022 and 2023 may be a cause for concern if they reflect underlying issues in profitability or asset utilization. However, the ROTE is still higher than in 2019, which suggests that the company's overall profitability from its tangible assets may still be considered strong. Return on Assets (ROA) - 2019-09-30: The ROA is at a moderate level, indicating a reasonable level of asset efficiency in generating profits. - 2020-09-30: The ROA decreases, suggesting the company was less efficient at generating profit from its assets compared to 2019. - 2021-09-30: The ROA increases, which is a positive sign, indicating improved efficiency in using assets to generate earnings. - 2022-09-30: The ROA remains relatively stable, maintaining the improvement seen in 2021. - 2023-09-30: The ROA increases to the highest level over the five-year period, suggesting that the company has become even more efficient at generating profit from its assets. Overall, an increasing ROA is generally considered a positive indicator of financial health and operational efficiency. However, it's always good practice to compare the company's ROA to that of other companies in the same industry and to look at the trend in conjunction with other financial metrics to get a complete picture of the company's performance. Return on Investment (ROI) - 2019-09-30: The ROI is at a certain level, which sets a baseline for the company's investment efficiency during this period. - 2020-09-30: There is a decrease in ROI, which could suggest that the company's investments are yielding less return relative to their cost. - 2021-09-30: The ROI increases, indicating that the efficiency or profitability of the company's investments has improved. - 2022-09-30: The ROI shows a slight decrease from the previous year but is still higher than in 2020, suggesting a continued relative efficiency in investments. - 2023-09-30: The ROI decreases further, dropping below the levels seen in 2020 and 2021, which might indicate a reduction in investment profitability.

Overall, a declining ROI might be a signal to reevaluate investment decisions, cost management, and operational efficiency. It's important to consider ROI in conjunction with other financial and operational metrics, and where possible, to compare ROI to industry benchmarks or the expected returns of alternative investment opportunities. The company should investigate the underlying reasons for the decrease in ROI to ensure long-term investment profitability. Book Value Per Share (BVPS) - 2019-09-30: BVPS is at its highest for the period depicted, indicating that the shareholders' equity value per share was at its peak relative to other years shown. - 2020-09-30: There is a decline in BVPS, which could suggest that the company's total equity has decreased or the number of shares has increased. - 2021-09-30: BVPS increases slightly from 2020, indicating a possible improvement in the company's equity value or a reduction in the number of shares outstanding. - 2022-09-30: BVPS dips again, which could be due to an increase in the number of shares outstanding or a decrease in total equity. - 2023-09-30: BVPS drops to the lowest level in the five-year period, which might indicate that the company's equity value has decreased significantly or that there has been a substantial increase in the number of shares outstanding. Overall, a decreasing BVPS could potentially be viewed negatively by investors as it suggests that the value of the company is decreasing on a per-share basis. However, the actual implications would depend on the reasons behind the change in book value and the overall strategic direction of the company.