Apple Inc: Financial Analysis

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Recommended: Chapter 4 analysis of financial statement

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.

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