Apple Inc: Financial Analysis Problem 1: Liquidity Analysis: Liquidty Ratios are used to judge short term solvency of the company as if it have sufficient working capital to pay off its short term obligation. Generally two measures of Liquidity Ratios are used by analyst to adjudge the liquidity position of the company: • Current Ratio • Quick Ratio/Acid Test Ratio 1) Current Ratio: Calculated as ratio of Current Asset and Current liability, this liquidity ratio is considered to be true indicator of a firm’s liquidity. Current Ratio: Current Assets/ Current Liabilities 2011 2012 2013 Current Ratio 1.608438 1.495849 1.678639 2) Quick Ratio: A more stringent measure of liquidty assessment, quick ratio is calculated as ratio of Current Assets less Inventory to Current Liabilities. Quick Ratio: (Current Assets – Inventory)/ Current Liabilities 2011 2012 2013 Quick Ratio 1.580694 1.475326 1.678639 Summary: Refering to above liquidity analysis of Apple Inc. It can be easily infered that the company went into a liquidity trap during 2012 with falling current ratio and quick ratio providing evidence for it. However, the company improved its liquidity psoition during 2013 when the current ratio increased from 1.49 to 1.68 and quick ratio increasing from 1.47 to 1.67. Another important point to note was there is a very negligible difference between current ratio and quick ratio which means that inventory accounts for a very small portion of current assets. Problem 2: Please highlight that refering to the financial statements of Apple Inc, we found that the company has total bond outstanding worth $17 Billion. Following is the detailed description of bonds issued by Apple Inc: (MorningStar Analyst Team) Maturity Date Amount Credit Quality Price Coupon % Coupon Type Callable Rule 144 A Yield to Maturity% 5/3/2023 5,500.00 --- 90.1 2.4 Fixed No No 3.67 5/3/2018 4,000.00 --- 97 1 Fixed No No 1.72 5/4/2043 3,000.00 --- 83.2 3.85 Fixed No No 4.94 5/3/2018 2,000.00 --- 99.3 0 FRN No No --- 5/3/2016 1,500.00 --- 99.6 0.45 Fixed No No 0.61 5/3/2016 1,000.00 --- 99.8 0 FRN No No --- Problem 3: No bond issue of Apple Inc has experienced change in Yield to Maturity during last one year. Problem 4: Refering to the data issued by Apple Inc, the company has no bond issue with call option embedded with it. Call option is an option for the issuers of the bond which allows them to redeem the bond before maturity. Also there is no provision made for sinking funds. Problem 5: Refering to Bond issued by Apple Inc with price of $99.3 and assuming that with the maturity of 1 year, the bond will have Yield to Maturity of 8%, in such case the value of bond after one year will be: Future Value= Bond Value(1+ YTM)number of years*2 = 99.3* (1+(.08/2))1*2 =99.3/(1+.04)2 =$107.40 Thus, the Future Value of bond will be $107.40. The difference between present value and future value after one year is simply the interest amount that will be earned by the investor during one year of holding the bond.
Suppliers are mostly concerned with a company 's ability to pay on their liabilities. Therefore, the current ratio and the quick ratio are both looked at by suppliers. The current ratio takes a company’s current assets and divides that by the company’s current liabilities. This number is
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
Current Ratio. The current ratio can indicate a company’s liquidity and is considered one of the most valuable ratios in analyzing
The Current Ratio is calculated by taking the current debt and dividing it by the current liabilities. It is the measurement on how a company can meet its short term liabilities with liquid assets (Loth, Rihar, 2015a).A higher ratio indicates favorable activity. A company should be able to meet it responsibilities with its
It shows the investors that how liquid the inventory of the company is. This ratio measures and shows that how easily a company can turn its inventory or merchandise into cash. The increase in the ratio clearly indicates that the management of the company is managing its merchandise in an efficient and effective manner and it is also contribution to the profits of the company.
Liquidity Ratio (LR) measures the short term solvency of the business. LR measures the ability of the business enterprise to meet its short term obligation as and when they are due. The liquidity ratios are also called the short- term solvency ratios.
Liquidity measures a company's capacity to pay its debts as they come due. However, Wal-Mart’s current ratio is 0.93, Target current ratio is 1.11 and the industry ratio is 3.04, which is much higher, so I would say that it is good but needs improvement. The quick ratio for Wal-Mart is 1.04 and Target’s quick ratio is 0.21 and the industry ratio is 0.31, which is much higher. Wal-Mart’s is higher and needs some improvement and Target’s is good. Accounts receivable for Wal-Mart is 9 days and Target’s is 6 days, whereas an estimate for the industry is 17 days, which means that both of them are doing better than the industry standards. Target’s inventory ratio is 6.04 and Wal-Mart’s inventory ratio is 0.81, and the industry ratio 1.58. These numbers shows that Wal-Mart is good but Target needs improvement. Furthermore, based on this analysis, I would say that Wal-Mart and Target are doing well but both have areas that need improvement.
The quick ratio is an alternate calculation of liquidity that does not take account of inventory in the current assets. The quick ratio is the ratio of current assets minus inventory then compared to current liabilities. The current assets used in the quick ratio are cash, accounts receivable, and notes receivable. It is a sign of a business’s short-range convertible assets. The greater the quick ratio the healthier the business's liquidity situation is.
Overall, Horizontal analysis and financial ratios are essential factors that businesses use to monitor its liquidity. Therefore, in order to improve Apple’s ratios and profitability, the company needs to implement a strategy to increase the company’s liquidity. Business owners or managers should monitor current ratio and acid test ratio as these ratios help us to ensure the company has the proper liquid assets to pay current liabilities, to stay in operations and to expand the company. As we noted in our acid test ratio and current ratio for the company, we show a lower ratio for acid test ratio than the current ratio, which means that the company’s current assets rely on inventory. Therefore, the company needs to convert old inventory into
The increasing trend in the quick ratio from 4.7 to 7.7 during 2013 – 2014 shows that its quick assets are more as compared to its current liabilities. This shows that the firm is easily paying off its current liabilities. Similarly, the increasing trend in the current ratio reflects that the firm is easily paying off its current debts by using profits generated from its current operations. Likewise, the increasing trend in the asset turnover ratio means that the firm is using its assets productively.
Currently, the quick ratio is 0.45 which clearly shows a lack of ability to cover short term cash needs. The liquidity decreased from the same period a year ago, despite already having weak liquidity to begin with. This would indicate deterioration cash flow.
By taking into account only the most liquid assets, ratio 1.0 in 2013 and 2012, which increased by a small margin 0.2 from 2011, indicates that company has strong liquidity position.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
The Current Ratio shows that as of September 28, 2013, the current assets were higher than any of the previous five years. The current liabilities were lower than they were the previous two years (Walt Disney Co. (DIS) | Liquidity).