Interpreting Financial Results

Interpreting Financial Results

Tierney Kennedy
FIN/571
Joseph McDonald
June 29, 2015

Interpreting Financial Results

Overall, financial ratio analysis of Apple, Inc. yields positive results, as

trends are largely positive and in most regards, Apples ratios are better than
similar companies (Google and Microsoft).
Apples market value ratios show mixed results. Although Apples price
to earnings ratio declined by $6.56 from 2010 to 2013, its 2013 price to
earnings ratio of $12.06 is much better than its industry competitors. This
indicates that investors in Apple would be expecting higher future earnings
growth than that of its competitors. Additionally, Apple has showed a positive
trend in its dividend yield. No dividends were issued in 2010 or 2012, but
increasing dividends were issued in 2012 and 2013. This is in comparison to
Google, which has not issued dividends, and Microsoft, which has a much
higher dividend yield. This is because of Apples much higher stock price.
Profitability ratios for Apple are also largely positive. Profit margin ratio
increased steadily by .03 annually from 2010 to 2013, but decreased to .22
in 2013, meaning for every $1 of sales, Apple generates $.22 of profit. This
profit margin is above the .21 ratio it had in 2010. This is slightly lower than
but within 5% of industry profit margin ratios. Increasing competition within
the industry may be responsible for the 2013 decrease in sales.Its gross
margin has held relatively steady over the past several years, but is lower
than the industry. In 2013, its gross margin ratio was .38 vs. Google and
Microsofts ratios of .57 and .74. Its return on total assets has also decreased,

Interpreting Financial Results

but not significantly so. Its ratio of .19 is slightly higher than its competitors
with ratios of .13 and .17. Its return on equity of .31 is also strong in
comparison with the industry, but did decrease slightly over the past several
years.
Like its profitability ratios, Apples efficiency ratios primarily show
consistent increases over the past three years with a decrease in 2013.
Compared to the industry, Apples efficiency ratios are excellent. Apples AR
turnover of 14.22 represents a decrease from 2012 and 2011, but is similar
to its 2010 ratio of 14.71. Google and Microsofts respective accounts
receivable turnovers of 7.14 and 4.68 are less than half of Apples accounts
receivable turnover of 14.22. Similarly, Apples days sales in receivable is
27.98, whereas Google and Microsoft have ratios of 51.15 and 77.98 days
sales, respectively. This indicates that Apple does a good job of managing its
receivables. Likewise, Apple does a good job of managing its inventory. Total
Asset Turnover, or how efficiently Apple utilizes all of its assets to generate
sales also is largely positive. Its 2013 ratio of .89 is a decrease from prior
year ratios that were all slightly above 1, but industry standards are lower at
around .58 and .59 respectively. Overall, Apple utilizes its assets efficiently
in generating revenue and sales.
Apples liquidity ratios show positive trends from 2010 to 2013.
Although Apples 2013 current and quick ratios of 1.68 and 1.23 are lower
than its 2010 ratios of 2.01 and 1.5, respectively, both of the 2013 ratios

Interpreting Financial Results

represent increasing trends from 2011 and 2012. However, Apples liquidity
ratios are much lower than similar companies. In 2013, Apple had a current
ratio of 1.68 and a quick ratio of 1.23, whereas Apple and Google,
respectively had ratios of 4.58 / 2.71 and 4.28 and 2.53. Apple is a much less
liquid company than these two competitors, but because it has much higher
efficiency ratios, this is not necessarily a negative indicator.