Profitability Ratios

a) Gross Profit Margin

Gross Profit Margin tells us what an organization earns after deducting its cost of goods sold
from its revenues. It’s measured in percentage terms. Gross Profit Margin trend of Apple Inc. is
as follows:

Adapted from: (Finbox, 2019)

Apple’s gross profit margin has been declining since last four years i.e. from FY 2016 to FY 2019.
Gross profit margin declined from 38.34% during FY 2018 to 37.82% during FY 2019. Although
both, revenues and cost of sales reduced during FY 2019, however gross profit margin has been
reduced due large percentage decrease in Revenues i.e. -2.04% as compared to decline in cost
of sales by -1.17%.
Gross profit margin’s industry trend during FY 2019 is as follows:
Inter Corp. 58.56%, NVIDIA Corp. 61.21%, Qualcomm Inc. 64.57%, and Texas Instruments Inc.
63.71%.
It’s clearly evident that Apple’s gross profit margin is low as compared to its peers.
b) Net Profit Margin

Net Profit Margin is much better criteria to measure a firm’s profitability since it takes into
account all the expenses including cost of sales, admin & general expenses, finance cost and
taxes. It tells us how much profit is left after netting off all these expenses.
Apple’s trend of Net profit margin is as follows:
Apples net profit margin has been volatile for last seven years. Apple’s net profit margin
reduced in FY 2017 to 21.09% from 21.19% during FY 2016. It then soared to 22.41% during FY
2018 and declined to 21.24% during FY 2019. It declined during FY 2019 majorly due to
decrease in revenues and increase in expenses.
Net profit margin’s industry trend during FY 2019 is as follows:

Intel Corp. 29.25%, NVIDIA Corp. 35.34%, Qualcomm Inc. 18.07%, Texas Instruments 34.88%.