Report Analysis of Financial Statements of Apple Inc.

Financial ratio analysis of Financial Statements of Apple Inc.

The financial ratios provide detailed information regarding the profitability, solvency, liquidity, and asset management of the organization. The financial ratio analysis of Microsoft and Apple Inc. is performed to know the financial performance of both organizations.

Microsoft of Financial Statements of Apple Inc.

Profitability of Financial Statements of Apple Inc.

Source: Morningstar

The profitability ratios of the organization indicate how much profit the organization is generating by utilizing its assets. The profitability ratios of the corporation are showing that the organization is utilizing its assets efficiently for generating profit. However, there is a lot of room for improvement. The ROE ratio in the year 2019 was 42.41 which was 14.36 in the year 2015. It can be said that over the years the return on equity has experience growth and showing positive trends. The return on asset (ROA) has also shown a positive trend over the years. ROA was 7.00 in the year 2015 and has increased significantly over the years to become 14.39.

The organization can further utilize its assets to increase its ROA. The net margin of the organization is indicating that the corporation is generating profit but it needs improvement. The positive or increasing trend in the net margin of Microsoft is a good sign for the organization. Overall it can be said that the profitability of the corporation is showing an increasing trend over the years and in the upcoming future, the profitability of the organization will further increase. The organization should take steps for improving the profitability of the organization so that the business can experience growth.

Liquidity of Financial Statements of Apple Inc.

Source: Morningstar of Financial Statements of Apple Inc.

The liquidity ratios provide detailed information about the liquidity position of the organization. Through the liquidity, ratios organization evaluates whether the corporation has enough cash to pay its short term obligations or not. The organization needs to maintain enough cash from which the organization can pay its short term loans. In the above table, the liquidity ratios of Microsoft are presented. Through the liquidity ratios, it can be said that Microsoft has enough cash for the payment of its short term loans. The current ratio of the corporation in the year 2019 was 2.53 (Mohana, 2011).

The quick ratio in the year 2019 was 2.35. The current ratio and quick ratio of the organization show a good sign of liquidity and the organization has managed its cash efficiently. If the quick ratio of the corporation is lower than it should be a matter of concern for the organization. The low quick ratio means that the organization is facing a problem regarding the adequate amount of current assets. Without an inventory, it will become difficult for the organization to pay its short term obligations. Therefore it is recommended to the organization to enhance its quick ratio so that the liquidity position of the corporation can become more stable. Overall the Microsoft’s quick ratio has shown signs of growth.

Solvency of Financial Statements of Apple Inc.

Source: Morningstar

The solvency ratios of the organization provide information about the capital structure of the organization. Through solvency ratios, the organization evaluates how much resources the organization has to pay its long term obligations. The organization finances its assets from debt and equity methods. Usually, organizations are recommended to maintain an optimum capital structure that is believed to be 60% equity and 40% debt financing. If the organization maintains an optimum capital structure than the cost of capital of the organization decreases. In the Microsoft organization, the assets of the organization have been financed through both debt and equity financing. The financial leverage ratios show that the organization has taken a significant amount of debt (Fridson & Alvarez, 2011).

However, the debt of the organization is in stable condition. The corporation’s solvency ratios are showing a declining trend. The debt to equity ratio was 1.05 in the year 2017 which declined to 0.71 in the year 2019. The financial leverage ratio of Microsoft Corporation has also declined over the years. In the year 2017, the financial leverage ratio of the organization was 3.33 which declined up to 2.80. The declining solvency ratios is a good sign for the organization. However, there is a lot of room for improvement for the solvency ratios of the organization. The organization should try to maintain an optimum capital structure.

Apple Inc.

Profitability of Financial Statements Apple Inc.

Source: Morningstar

The profitability ratios of Apple Inc. shows how much profit the organization is generating by utilizing its assets. The profitability ratios of the corporation are showing that the organization is utilizing its assets efficiently for generating profit. However, there is a lot of room for improvement. The ROE ratio in the year 2019 was 55.92 which was 46.25 in the year 2015. It can be said that over the years the return on equity has experience growth and showing a positive trend. The return on asset (ROA) has also shown a positive trend over the years. ROA was 13.87 in the year 2017 and has increased significantly over the years to become 15.69.

Liquidity of Financial Statements of Apple Inc.

Source: Morningstar

As discussed earlier liquidity ratios provide detailed information about the liquidity position of the organization. Through the liquidity, ratios organization evaluates whether the corporation has enough cash to pay its short term obligations or not. The organization needs to maintain enough cash from which the organization can pay its short term loans. In the above table, the liquidity ratios of the Apple Inc. organization are presented. Through the liquidity ratios, it can be said that Apple Inc. has enough cash for the payment of its short term loans. The current ratio of the corporation in the year 2019 was 1.54 (Pandey, 2015).

Solvency of Financial Statements of Apple Inc.

Source: Morningstar

The debt of the organization is in stable condition. The corporation’s solvency ratios are showing an increasing trend. The debt to equity ratio was 0.45 in the year 2015 which increased to 1.01 in the year 2019. The financial leverage ratio of Apple Corporation has increased over the years. In the year 2015, the financial leverage ratio of the organization was 2.43 which increased up to 3.74. The increasing solvency ratios are not a good sign for the organization. However, there is a lot of room for improvement for the solvency ratios of the organization. The organization should try to maintain the optimum capital structure (Chandra, 2011).

Comparison of Microsoft & Apple Inc.

Profitability of Financial Statements of Apple Inc.

The organization can further utilize its assets to increase its ROA. The net margin of the organization is indicating that the corporation is generating a significant amount of profit. The positive or increasing trend in the net margin of Apple Inc. is a good sign for the organization. If Apple Inc.’s profitability is compared with Microsoft than it can be said that the profitability of Apple Inc is higher than Microsoft. The return on equity and ROA of Apple Inc. are higher than the Microsoft. In the graphs below the difference between the two organization’s profitability ratios can be seen in detail.

Liquidity of Financial Statements of Apple Inc.

The current ratio of the organization shows a good sign of liquidity. The quick ratio in the year 2015 was 0.89 which increase up to 1.38 in the year 2019. If the declining trend in the quick ratio and current ratio of the corporation occurs than it should be a matter of concern for the organization. The declining liquidity ratios mean that the organization is facing a problem regarding the adequate amount of current assets. If the liquidity ratios of Apple Inc. are compared with the liquidity ratios of Microsoft than it can be said that Microsoft’s liquidity condition is better than the liquidity condition of Apple. However, both current and quick ratios of Apple Inc. are showing that the corporation is in the position to pay its short terms loan efficiently.

Solvency of Financial Statements of Apple Inc.

If the solvency ratio of Apple Inc. is compared with the solvency ratios of Microsoft than it can be said that the solvency condition of Microsoft is way better than the solvency condition of Apple. Apple will have to take action for improving the solvency condition of the organization. If the organization does not take any action then it will become difficult for the company to pay the debt in the future.

SWOT Analysis of the Organization

Strength of Financial Statements of Apple Inc.

One of the major strengths of the organization is that it has established a strong brand name in the market. The strong brand image of the corporation is the major strength of the corporation and allows it to attract a huge number of customers. The services of Microsoft are customer-oriented which allows it to serve its customers more effectively. Over the years Microsoft organization has performed many acquisitions which increases the size of the organization up to a lot of extents (Mulford & Comiskey, 2011).

The organization has adopted a cost leadership strategy which allows it to lower its cost up to a lot of extents. This strategy has allowed the company to increase its sales. The revenue of Microsoft is among the highest in the industry and the market share of the corporation is quite high in the operating system market. The organization focuses on innovation and differentiation which is a major strength of the organization. Due to innovation and differentiation, the corporation has taken a competitive edge over its competitors. The superior supply chain activities of the corporation is another key strength of the corporation and play a key role in the success of the business

Weaknesses of Financial Statements of Apple Inc.

Although there are many advantages of the organization there are many weaknesses of the Microsoft Corporation as well that must be considered by the stakeholders of the corporation in mind. The first key weakness of the organization is its imitable business model. Other corporations that are working in the same industry can easily follow or imitate the model adopted by Microsoft. Another key weakness of the corporation is declining margins in most of the areas where it operates. It is evident that in all areas the sales of the corporation are not much impressive (Mulford & Comiskey, 2011).

The organization has faced many criticisms as well which has declined the reputation of the organization. Whenever the organization faces criticisms its profitability and revenue face a significant amount of impact. One famous criticism is regarding tax avoidance. Another weakness of the corporation is its failures and flop products. All the products of the organization cannot become equally popular in the customers. The corporation also has limited brick and mortar presence which is a major weakness of the organization. The organization is growing rapidly across the globe and have the opportunity to remove these weaknesses by adopting new strategies (Mohana, 2011).

Opportunities of Financial Statements of Apple Inc.

There are many opportunities for the corporation and the corporation can recognize these opportunities for further improving its operations. The organization has the opportunity to expand its business in developing countries. There are many customers in developing countries who want to purchase their products. Therefore if the organization capture, these market than the organization can expand its business even further. In developing countries, the corporation can analyze the needs and preferences of the customers and then can provide services according to customer needs. The organization can also take benefit from the increasing trend in online sales.

The organization has the opportunity to improve its operations by focusing on the latest technology. The technology around the world is changing rapidly. If the organization wants to stay ahead of its competitors than the organization will have to focus on the latest technologies so that not only it can reduce its cost but also can provide good quality products & services to its customers. Through new technologies, the business has the opportunity to differentiate itself from the rest of the competitors. The expansion of its stores will provide an opportunity for businesses to attract more customers. The organization can enhance its brand image in the mind of its customers (Fridson & Alvarez, 2011).

Threat of Financial Statements of Apple Inc.

Many issues can become a major threat to the corporation and can decrease its overall profitability and revenues. The major threat for corporations is the criticisms that the organization has faced in the past. Such criticisms or controversies can decrease the reputation of the organization which ultimately declines the brand image of the organization. The external environment factors such as economic factors, political factors, technological factors, and legal factors have a huge impact on the operations of the business. The rules and regulations made by the government can decline the sales of the company up to a lot of extents.

The increasing problems such as cybercrime also affect the business of Microsoft up to a lot of extents. As the businesses earn revenue from its software products the cybercrime can affect the sales up to a lot of extents if the corporation does not take any action against such threats. Changing technology is another major issue for the corporation. As discussed earlier the technology around the world is changing rapidly. If the organization wants to stay ahead of its competitors than the organization will have to focus on the latest technologies so that not only it can reduce its cost but also can provide good quality services to its customers. The cost associated with the technology is a major issue for corporations (Chandra, 2011).

Conclusion of Financial Statements of Apple Inc.

It is concluded that if the solvency ratio of Apple Inc. is compared with the solvency ratios of Microsoft than it can be said that the solvency condition of Apple Inc. is not better than the solvency condition of Microsoft. Apple will have to take action for improving the solvency condition of the organization. If the organization does not take any action then it will become difficult for the company to pay the debt in the future. If Apple Inc.’s profitability is compared with Microsoft than it can be said that the profitability of Apple Inc. is higher than Microsoft. The return on equity and ROA of Apple Inc. are higher than the Microsoft. In the graphs, the difference between the two organization’s profitability ratios can be seen in detail.

References of Financial Statements of Apple Inc.

Chandra, P. (2011). Financial Management. Tata McGraw-Hill Education.

Fridson, M. S., & Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Mohana, R. P. (2011). Financial Statement Analysis and Reporting. PHI Learning Pvt. Ltd.

Mulford, C. W., & Comiskey, E. E. (2011). The Financial Numbers Game: Detecting Creative Accounting Practices. John Wiley & Sons.

Pandey, I. (2015). Financial Management. Vikas Publishing House.