Ratio Analysisof Apple

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Ratio Analysis of Apple
Article in SSRN Electronic Journal · July 2021

DOI: 10.2139/ssrn.3895231
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Ratio Analysis of Apple
Rashed Al Mheiri
Abu Dhabi University, Email: 1077359@students.adu.ac.ae
Nasser Al Hosani
Eissa Saif
Supervised by:
Professor Haitham Nobanee

Abu Dhabi University, Email: haitham.nobanee@adu.ac.ae
1
Table of Contents
Abstract .......................................................................................................................................... 4
Apple Ratio Analysis..................................................................................................................... 5
Literature Review ......................................................................................................................... 6
Data and Methodology ................................................................................................................. 7
Table 1: Financial Data of Apple (Yahoo Finance) ................................................................ 7
Results and Discussion.................................................................................................................. 8
Liquidity Ratios .......................................................................................................................... 8
Table 2: Liquidity Ratios of Apple (Yahoo finance) .............................................................. 8
Current Ratio ............................................................................................................................... 8
Figure 1: Current Ratio of Apple (Yahoo finance) ................................................................. 9
Quick Ratio ................................................................................................................................. 9
Figure 2: Apple Quick Ratio (Yahoo finance) ...................................................................... 10
Cash Ratio ................................................................................................................................. 10
Figure 3: Apple Cash Ratio (Yahoo finance) ....................................................................... 10
Discussion on the Liquidity Ratios ........................................................................................... 10
Activity Ratios ............................................................................................................................. 11
Table 3: Activity Ratios of Apple (Yahoo finance) .............................................................. 11
Inventory Turnover ................................................................................................................... 11
Figure 4: Apple Inventory Turnover Ratio (Yahoo finance) ................................................ 12
Receivable Turnover ................................................................................................................. 13
Figure 5: Apple Receivables Turnover (Yahoo finance) ...................................................... 14
Total Asset Turnover ................................................................................................................ 14
Leverage Ratios ........................................................................................................................... 16
Table 4: Leverage Ratios of Apple (Yahoo finance) ............................................................ 16
Debt Ratio ................................................................................................................................. 16
Figure 7: Apple Debt Ratio (Yahoo finance) ........................................................................ 17
Times Interest Earned Ratio.......................................................Error! Bookmark not defined.
Figure 8: Times Interest Coverage Ratio (Yahoo finance) ................................................... 17
Profitability Ratios ...................................................................................................................... 18
2
Table 5: Profitability Ratios of Apple (Yahoo finance)........................................................ 18
Return on Equity ....................................................................................................................... 18
Figure 9: Apple Return on Equity (Yahoo finance).............................................................. 18
Return on Assets ....................................................................................................................... 19
Figure 10: Apple Return on Assets (Yahoo finance) ............................................................ 19
Profit Margin ............................................................................................................................. 19
Figure 11: Apple Profit Margin (Yahoo finance) ................................................................. 20
Discussion on the Profitability Ratios....................................................................................... 20
Table 6: Cash Flow Ratios of Apple (Yahoo finance) .......................................................... 21
Cash Flow to Total Assets ........................................................................................................ 21
Figure 12: Apple Cash Flows to Total Assets (Yahoo finance) ........................................... 22
Cash Flow to Sales .................................................................................................................... 22
Figure 13: Apple Cash Flow to Sales ................................................................................... 23
Comments on the Cashflow Ratios ........................................................................................... 23
Discussion..................................................................................................................................... 24
Recommendation to Investors ................................................................................................... 25
Conclusions .................................................................................................................................. 26
References .................................................................................................................................... 27
3
Abstract
Apple Inc. is a technology company that has established itself as a market leader in the technology
industry over the years. After conducting numerous financial ratios, it is evident that the company
has achieved its success by efficiently utilizing its assets and equity. Financial ratios analysis was
undertaken using data downloaded from Yahoo Finance. All financial ratios were computed over
four years between 2016 and 2020. The results were then recorded in a table and a line graph
showing the trend line plotted. Through liquidity ratio analysis, this report determined that the
company is financially healthy and has the ability to meet its short-term obligations with ease. The
company has also succeeded in creating value for the shareholders by having a positive and
growing return on investment. The company’s activity ratios depict how it turns its stocks quickly
and efficiently into cash. On the other hand, an analysis of the company’s debt ratios indicates that
the company does not rely heavily on debt to finance its operations.
Keywords: Liquidity Ratios, Activity Ratios, Debt Ratios, Assets, Equity, Return on Investment,
Shareholders Wealth, Profitability Ratios
4
Apple Ratio Analysis
Apple is a technology company that engages in the design, manufacture, and sale of mobile
communication devices, personal computers, accessories, and related software (Reuters, 2021).
The company also engages in developing and selling music players, network solutions, services,
and third-party digital content. Apple was founded in 1971 by Steve Jobs and has since grown into
a multinational company. Apple has established itself over the years as a market leader in the
mobile technology industry. The company achieved the status due to its superior products and a
superior supply chain across the world. This report analyzes the company’s financial ratios
generated by the company in the last five years.
Apple operates under five major segments. These segments are the Americas, Europe,
Greater China, Japan, and the Rest of Asia Pacific. The Americas segment includes North America
and South America. The Europe segment includes all the European countries, India, and the
Middle East. The Great China segment constitutes Hong Kong, China, and Taiwan. The Asian
Pacific segment includes all the Asian countries, Australia, and other regions not represented under
the five segments (Reuters, 2021). Apple develops products like iPhone, Apple Watch, Mac, Apple
TV, and iPod. The company also develops and controls a portfolio of software applications.
Ratio analysis is a quantitative method of gaining information on a company's liquidity,
operational efficiency, and profitability. This company's information is obtained by studying the
company’s financial statements over a period of time. The company’s financial statements used in
ratio analysis include the company's balance sheet and income statements (Ratio Analysis, 2021).
Ratio analysis is a method where users of financial statements like investors examine the
company's ability to convert its assets into liquid cash (Ratio Analysis, 2021).
5
Literature Review
Financial ratios have been used by many investors, managers, and shareholders to calculate
the profitability and financial conditions of a firm. Other parties that use financial ratios analysis
include the customers, suppliers, competitors, and academics. According to Shaikh (2020), the
major objective of ratio analysis is to use the analysis results for decision-making. Husain and
Sunardi (2020) also see financial ratios as a tool that helps to identify and highlight a company's
areas of good and bad performance. Ratios can give the management to identify the areas of
strengths and weaknesses and where further effort or operational change is required (Fraser et al.,
2016)
Various studies reveal the various uses of financial ratio analysis. From the studies, it is
clear that the major use of ratio analysis is for decision-making (Easton et al., 2018). Investors and
managers need a tool or technique that helps them determine the company's future performance.
The results of the analysis enable managers to make efficient and effective decisions on the best
course of action for the company. The actions could be in the form of new investments, new
operational methodologies, or required changes in the workforce (Wadhwa, 2019). Investors use
the ratio analysis results to make decisions on the right companies to include in their investment
portfolios.
Apple Inc. is a public company that has various shareholders all over the world. The
performance of the company is, therefore, felt by many investors worldwide. Through ratio
analysis, investors can decide whether to add Apple's stocks in their portfolios or sell their shares
at a specific point. Through ratio analysis, investors can compare Apple Inc.'s performance with
the performance of other companies in the stock market (Allad, 2017).
6
Data and Methodology
Apple's financial data used in this report was obtained from Yahoo Finance. The data was
used to conduct the ratio analysis in this report. The ratio analysis conducted will be used to assess
Apple's financial activity and liquidity. The data is from Apple's income statements and balance
sheet in the last four financial years. The figures in the data are presented in thousands.
Table 1: Financial Data of Apple (Yahoo Finance)

Item/Year 2020 2019 2018 2017
Current Assets 143,713,000 162,819,000 131,339,000 128,645,000
Current Liabilities 105,392,000 105,718,000 116,866,000 100,814,000
Inventories 4,061,000 4,106,000 3,956,000 4,855,000
Cash 17,773,000 12,204,000 11,575,000 7,982,000
Receivables 37,445,000 45,804,000 48,995,000 35,673,000
Total Assets 323,888,000 338,516,000 365,725,000 375,319,000
Total Liabilities 258,549,000 248,028,000 258,578,000 241,272,00
Sales 274,515,000 260,174,000 265,595,000 229,234,000
Cost of Goods Sold 169,559,000 161,782,000 163,756,000 141,048,000
EBIT 69,559,000 69,313,000 76,143,000 66,412,000
Interest 890,000 1,385,000 2,446,0000 2,878,000
Net Income 57,411,000 55,256,000 59,531,000 48,351,000
Operating Cash 80,674,000 69,391,000 77,434,000 63,598,000
Flow
The data shown in table 1 are financial data for Apple between 2017 and 2020. From the
data, it can be seen that some accounts rose significantly over the years. Cash, for example, rose
7
from 7,982 million in 2017 to 17,773 million in 2020. This is a sign of positive company growth
over the years. Some accounts like operating cash flow and net income have fluctuated over the
years .
Results and Discussion

Liquidity Ratios
Table 2: Liquidity Ratios of Apple (Yahoo finance)
Ratio/Year 2020 2019 2018 2017
Current Ratio 1.36 1.54 1.12 1.28
Quick Ratio 1.33 1.50 1.09 1.23
Cash Ratio 0.17 0.16 0.1 0.08
Current Ratio
Current ratio is calculated using the following equation (Husain et al., 2020);
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Current Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Apple’s current ratio using the figures in table 1 is calculated as follows;

143,713,000
Current Ratio 2020 = = 1.36
105,392,000
162,819,000
Current Ratio 2019 = 105,718,000 = 1.54
131,339,000
Current Ratio 2018 = 116,866,000 = 1.12
128,645,000
Current Ratio 2017 = 100,814,000 = 1.28
8
Apple Current Ratio
1.8
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
2017 2018 2019 2020
Figure 1: Current Ratio of Apple (Yahoo finance)
Quick Ratio
Quick ratio is calculated by using the following formula (Husain et al., 2020):
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Quick Ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The figure below represents Apple’s quick ratios between 2017 and 2020.
Apple Quick Ratio

1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
2017 2018 2019 2020
9
Figure 2: Apple Quick Ratio (Yahoo finance)
Cash Ratio
Cash Ratio is calculated using the following equation
𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

Cash Ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Apple Cash Ratio

0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
2017 2018 2019 2020
Figure 3: Apple Cash Ratio (Yahoo finance)
Discussion on the Liquidity Ratios

Liquidity ratios are used by investors and managers to assess the company’s ability to pay
its short-term obligations. One of the liquidity ratios used by managers and investors is the
current ratio. Current ratio indicates whether the company has the ability to repay its debts due
within one year out of the company's current assets. Apple maintained a current ratio of between
1.28 in 2017 and 1.36 in 2020. These ratios indicate that Apple can repay its debts due within
one year out of its assets. The ratio of 1.36 in 2020 means that Apple has $1.28 of current assets
10
in every dollar of current liabilities. Apple, therefore, is healthy and has the ability to repay its
short-term liabilities.
Activity Ratios
Table 3: Activity Ratios of Apple (Yahoo finance)
Ratio/Year 2020 2019 2018 2017
Inventory Turnover 41.53 40.13 37.17 31.31
Receivable Turnover 6.6 5.49 6.27 5.66
Total Asset Turnover 0.83 0.74 0.72 0.6
Inventory Turnover
Inventory Turnover Ratio is the number of times a company restocks its goods in a given
time period, usually one year. Inventory Turnover Ratio can be calculated using the following
formulae (Kwak, 2019);
Cost of Goods Sold

Inventory Turnover Ratio =
Average Inventory
In this case, average inventory is calculated by adding inventory value at the beginning of
the period to the inventory value at the end of the period and dividing the result by two (Kwak,
2019). The following formulae elaborate on how to compute average inventory;
Openning Inventory + Closing Inventory

Average Inventory =
2
The average inventory for Apple is as follows;

4,106,000+4,061,000
Average Inventory for Apple 2020 = = 4,083,500
𝟐
3,956,000+4,106,000
𝟐
11
4,855,000+3,956,000
𝟐
4,155,000+4,855,000
𝟐
A period's opening inventory is equal to the previous period's closing inventory (Kadim
et al., 2020). In the business world, average inventory helps a company's management
understand the amount of inventory that the company needs to hold in a specific time period to
not run into inventory shortages. Having calculated the average inventory for the four years
between 2017 and 2020, we go ahead to compute the inventory turnover ratio as follows;
169,559,000
Inventory Turnover Ratio for Apple 2020 = = 41.53
4,083,500
161,782,000
4,031,000
163,756,000
4,405,500
141,048,000
4,505,000
The four years inventory turnover ratio for Apple is plotted in the following graph;
Apple Inventory Turnover Ratio

45 40.13 41.53
40 37.17
35 31.31
Inventory Turnover
30
25
20
15
10
5
0
2017 2018 2019 2020
year
Figure 4: Apple Inventory Turnover Ratio (Yahoo finance)
12
In the day-to-day operations of any business, the inventory turnover ratio implies how fast
the business replaces its stock every period (Tian et al., 2017). The higher the inventory turnover
ratio, the faster the rate at which the company replaces its stocks with new ones. Apple's sales were
faster in 2020 compared to the previous years. On the other hand, Apple had weak sales in 2017
compared to the following years.
Receivable Turnover
Receivable Turnover Ratio refers to the speed and the efficiency at which a company
collects its debt. The faster a company converts credit sales into cash, the more it becomes
financially stable (Purwanti, 2019). The following is the formulae for the computation of
receivable turnover ratio;
Total Credit Sales

Receivables Turnover Ratio =
Average Receivables
In this case, average receivables is computed by adding opening receivables to closing
receivables and dividing the total value by two. The following formulae elaborates the computation
of average receivables (Purwanti, 2019);
Openning Receivables + Closing Receivables

Average Receivables =
2
Average receivables for Apple are computed below;

45,804,000+37,445,000
Average Receivables for Apple 2020 = = 41,624,500
2
48,995,000+45,804,000
2
35,673,000+48,995,000
2
45,378,000+35,673,000
2
Therefore, Receivables Turnover Ratio for Apple is calculated below;
13
274,515,000
Receivables Turnover Ratio for Apple 2020 = = 6.60
41,624,500
260,174,000
47,399,500
265,595,000
42,334,500
229,234,000
40,525,500
The graph below show receivable turnover for Apple over the four years;
Apple Receivables Turnover

7
6
Receivable Turnover
0
2017 2018 2019 2020
Year
Figure 5: Apple Receivables Turnover (Yahoo finance)
Total Asset Turnover

The total Assets Turnover ratio shows how efficiently a company generates sales revenue
from its assets. In other words, the assets turnover ratio measures the ability of a company to
maximize the return from its assets. The following formulae are used to compute the total assets
turnover ratio;
Total Sales
Total Assets Turnover Ratio =
Average Total Assets
Average total assets, on the other hand, is calculated using the following formulae;
14
Assets at the start of the year + Assets at Year End
Average Total Assets =
2
The following are the average total assets for Apple Inc.;
338,516,000+323,888,000
Average Total Assets for Apple 2020 = = 331,202,000
2
365,725,000+338,516,000
2
375,319,000+365,725,000
2
390,125,000+375,319,000
2
Therefore, the total assets turnover ratio for Apple Inc. is computed below;
274,515,000
Total Assets Turnover Ratio for Apple 2020 = 331,202,000 = 0.83
260,174,000
265,595,000
229,234,000
The graph below indicates Apple’s total assets turnover ratio over the four years between
2017 and 2018; Figure 6: Apple Total Assets Turnover (Yahoo finance)
Apple Total Assets Turnover

35
30
25
Total assets Turnover
20
15
10
0
2017 2018 2019 2020
Year
15
According to the graph, Apple Inc.'s efficiency and performance have been improving
since 2017. Even without necessarily increasing its assets base, Apple has managed to tap more
and more income from the available assets every other year.
Leverage Ratios
Table 4: Leverage Ratios of Apple (Yahoo finance)
Ratio/Year 2020 2019 2018 2017
Debt Ratio 1.07 0.73 0.71 0.64
Times Interest Earned
Ratio 24.21 19.38 23.5 28.59
Debt Ratio
The debt ratio is used to measure a company's amount of leverage. It is the percentage of
the organization's assets that is acquired through debt (Fullwiler, 2016). The formulae for
calculating debt ratio is as follows;
Total Debts
Debt Ratio =
Total Assets
The debt ratio for Apple Inc. is computed as follows;

258,549,000
Debt Ratio for Apple 2020 = 241,272,000 = 1.07
248,028,000
258,578,000
241,272,000
The debt ratio figures are plotted in the graph below;
16
Debt Ratio of Apple
35
30
25
Debt ratio
20
15
10
0
2017 2018 2019 2020
Year
Figure 7: Apple Debt Ratio (Yahoo finance)
Times Interest Coverage Ratio

35
30
25
20
15
10
0
2017 2018 2019 2020
Figure 8: Times Interest Coverage Ratio (Yahoo finance)
Apple times earned interest ratio is above the required number, and hence the company has
been in a good solvency position.
17
Profitability Ratios
Table 5: Profitability Ratios of Apple (Yahoo finance)
Ratio/Year 2020 2019 2018 2017
Return on Equity 0.88 0.61 0.55 0.36
Return on Assets 0.18 0.16 0.16 0.13
Profit Margin 20.91% 21.24% 22.41% 21.09%
Return on Equity
Return on equity ratio informs the investors of the amount of profit that the company can
earn for a certain amount of investment. Return on equity ratio is calculated by dividing the net
income made by the company by the shareholder's equity in the company (Myšková et al., 2017).
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Equity = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
Below is a representation of Apple’s return on equity between the years 2017 and 2020.
Apple Return on Equity

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2017 2018 2019 2020
Figure 9: Apple Return on Equity (Yahoo finance)
18
Return on Assets
Return on Assets (ROA) is used to determine the profitability of a company. Return on
Assets informs the users of financial statements in how efficient the company is in using its assets.
Return on Assets indicates how much profit a company makes relative to its assets. The ratio is
calculated as follows.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Assets = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Below is a representation of Apple's Return on Assets between the years 2017 and 2020.
Apple Return on Assets

0.2
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
2017 2018 2019 2020
Figure 10: Apple Return on Assets (Yahoo finance)
Profit Margin
Profit margin is a ratio used by managers and investors to determine the percentage of
profit that a company produces from its total revenue. Profit Margin calculates the amount of profit
that a company makes per dollar of the total revenue gained by the firm. The profit margin is
determined by dividing the net profit by the total revenue. The figure is expressed as a percentage.
19
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
Profit Margin Ratio = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
The figure below represents Apple’s profit margin between the years 2017 and 2020.
Apple Profit Margin

23.00%
22.50%
22.00%
21.50%
21.00%
20.50%
20.00%
2017 2018 2019 2020
Figure 11: Apple Profit Margin (Yahoo finance)
Discussion on the Profitability Ratios

From the profitability ratios analyzed, Apple is a profitable company and has significant
returns to its investors. Return on equity ratio measures the ability of the company to generate
profits from the investments made by shareholders to the company. Return on equity indicates the
efficiency of a business in turning shareholder’s investments into profits. Apple experienced
growth in ROE since 2017 from 0.36 to 0.88 in 2020. This means that Apple is able to generate
$0.88 from a dollar invested in the company. The constant growth of ROE is an indication of a
company with potential growth in profitability.
20
Cash Flow Ratios
Table 6: Cash Flow Ratios of Apple (Yahoo finance)

Ratio/Year 2020 2019 2018 2017
Cash Flow to Total Assets 0.25 0.20 0.21 0.17
Cash Flow to Sales 0.29 0.27 0.29 0.28
Cash Flow to Total Assets

Cash flow to total assets ratio is used to measure the amount of operating cash that a firm
generates for every dollar of the assets owned by the firm. The ratio is calculated by dividing cash
flows from operations by the average total assets of the firm.
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑠 𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠

Cash Flow to Total Assets =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠.
21
The graph below represents Apple’s cash flow to total assets ratio between the years 2017
and 2020.
Apple Cash Flow to Total Assets

0.3
0.25
0.2
0.15
0.1
0.05
0
2017 2018 2019 2020
Figure 12: Apple Cash Flows to Total Assets (Yahoo finance)
Cash Flow to Sales

Cash flow to sales ratio compares the operating cash flows of a company in a certain period
to its sales. Cash flow to sales ratio informs investors, managers, and other users of financial
information on the ability of a business to generate cash flows in proportion to the company's sales
volume (Masdupi et al., 2018). The ratio is calculated by dividing the operating cash flows of a
firm in a certain financial period by the net sales made by the company during that period.
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑠 𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠

Cash Flow to Sales Ratio = 𝑆𝑎𝑙𝑒𝑠.
Below is a representation of Apple’s cash flow to sales ratios between the years 2017 and
2020.
22
Apple Cash Flow to Sales
0.295
0.29
0.285
0.28
0.275
0.27
0.265
0.26
2017 2018 2019 2020
Figure 13: Apple Cash Flow to Sales
Comments on the Cashflow Ratios

From the cash flow ratios analyzed, it is clear that Apple generates significant cash flows
from the assets it owns and the sales made. Apple’s cash flow to total assets rose from 0.17 in 2017
to 0.25 in 2020. This indicates that the company is increasing its profitability or profits made from
the assets it owns (Pattiruhu, 2020). A ratio of 0.25 means that for every dollar of assets Apple
owns, the company makes a profit of $0.25. Although the company has not achieved the desired
efficiency, the company makes significant profits. Relative to sales, Apple also makes significant
profits based on the cash flow to sales ratio analysis (AL Zubaidi and Nobanee, 2020) .
23
Discussion
Apple is a multinational company that has a lot of investors and customers all over the
world. As a publicly-traded company, the company has the aim of creating value for the
shareholders. Every activity, product, or service produced or offered by the company is for the
development of the company and the generation of profits. Over the years, Apple has made
significant progress in the process of creating shareholder value. Based on the profitability,
liquidity, activity, debt, and cash flow ratios analyzed, it is clear that Apple has been performing
well over the years.
As evident in the liquidity ratio analysis, Apple Inc. is a healthy company in terms of
finances and has the ability to repay its short-term liabilities using the assets the company owns.
The company can easily meet its short-term obligations using the current assets the company owns.
This liquidity status has also been improving over the years. The liquidity analysis indicates a
financially stable company that has the potential of performing extremely well in the future.
The activity and debt ratio analysis performed also indicates a financially stable company
that does not rely heavily on debts for operation. The debt analysis indicates that Apple does not
rely on the debt alone for its operations. This is an indication of a stable company that has a good
balance of equity and debt in its working capital. The profitability ratio analysis performed on the
company’s financial statements since 2017 indicates a company that makes a profit and generates
significant returns to investors. Apple experienced growth in ROE since 2017 from 0.36 to 0.88 in
2020. This means that Apple is able to generate $0.88 from a dollar invested in the company. This
is a significant return to the investors with Apple's stocks. The company also has the potential of
growing its return on investments due to the constantly growing return on equity.
24
Recommendation to Investors
Apple has a positive and significant return on equity. Return on equity indicates how
efficiently the company turns equity into profit. A higher return on equity is an indication that the
company makes higher profits from the equity invested in the company (Musallam, 2018). A
higher return on equity also indicates that the company has the ability to create significant value
for the shareholders of the company.
From the return on equity ratio analysis performed on the company, it is clear that Apple
is a good investment option for any investor in the stock market. In the year 2017, Apple had a
return on equity of 0.36. This means that the company made an income of $0.36 in every dollar
invested by the shareholders. In 2018, the company had a return on equity ratio of 0.55, and in
2019 0.61. By the year 2020, Apple had a return on equity ratio of 0.88. This means that Apple
was able to generate $0.88 for every dollar invested in the company by the shareholders. This rate
of turning equity into income is efficient for any publicly-traded company.
Based on the analysis, Apple can create a significant value for any shareholder in the
company. The efficiency in turning equity to income means that the investors enjoy significant
dividends from the investments they made (Restianti et al., 2018). Apple, therefore, is the best
company to invest in at the moment. The investors enjoy significant dividends every year.
The gradual rise or improvement in return on investment also indicates a company that has
the potential of performing extremely well in the future (Ichsani et al., 2021). Apple, therefore, is
a good company to add to the investment portfolio. Due to the high potential, it has for performing
well in the future, the company's stocks could rise in the future. Investors can, therefore, achieve
a gain in their investments in the future.
25
Conclusions
Apple Inc. is a company that has established itself as a market leader since its formation.
The achievements of the company are evident in the ratio analysis performed. The liquidity ratios
indicate that Apple is financially stable and healthy. The current and quick ratios performed
indicate that the company can repay its short-term liabilities with ease. This is an indication of
positive financial health and a company that can handle its operations with ease.
The debt ratios performed also indicate a company that is not heavily reliant on debts for
operations. A company that heavily relies on debt for daily operations can encounter problems
with rising operational costs. The higher operational costs arise due to the interest expenses that
the debt could attract. The result of the increasing operational costs is reduced profits in the long
run. Apple has achieved a good mix of use of both equity and debt to meet the operational costs
of running the company.
Apple also used its assets to generate profit in an efficient manner. Since 2017, Apple has
recorded a constantly rising assets turnover ratio. This means that as the company grew, its
efficiency in terms of using its assets to generate sales or revenue was improving. Apple used its
assets efficiently to generate revenue for the company.
In general, Apple is a company that is financially healthy and uses its resources efficiently.
The company also generates significant income for the investors. Investors, therefore, should
consider adding Apple's stocks to their investment portfolios. In the long run, Apple's stocks could
gain significant value in the stock market due to its high potential of performing well in terms of
sales and profit generation.
26
References
• Allad, I., 2017. A Conceptual Research on Financial Statement Analysis. International
Journal of Research in All Subjects in Multi Languages, 5, pp.104-110.
• Corporate Finance Institute. 2021. Ratio Analysis. Available at:
https://corporatefinanceinstitute.com/resources/knowledge/finance/ratio-analysis/
• AL Zubaidi, A. and Nobanee. (2020) Performance Analysis of Almarai. Available at
SSRN: https://ssrn.com/abstract=3675016 or http://dx.doi.org/10.2139/ssrn.3675016
• Easton, P.D., McAnally, M.L., Sommers, G.A. and Zhang, X.J., 2018. Financial
statement analysis & valuation. Boston, MA: Cambridge Business Publishers.
• Finance.yahoo.com. 2021. Yahoo Finance. Available at:
https://finance.yahoo.com/quote/AAPL/financials?p=AAPL
• Fraser, L.M., Ormiston, A. and Fraser, L.M., 2016. Understanding financial statements.
Boston: Pearson.
• Fullwiler, S.T., 2016. The debt ratio and sustainable macroeconomic policy. World
Economic Review, 7, pp.12-42.
• Husain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on Profitability Ratios
and Dividend Policy. Finance & Economics Review, 2(2), pp.13-26.
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Firm Value. Psychology and Education Journal, 58(3), pp.346-355.
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financial ratios, intellectual capital and dividend policy. Accounting, 6(5), pp.859-870.
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Ratio Analysis of Apple

Article in SSRN Electronic Journal · July 2021

Eissa Saif Haitham Nobanee

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Abu Dhabi University, Email: 1077359@students.adu.ac.ae

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Abu Dhabi University, Email: 1080497@students.adu.ac.ae

Professor Haitham Nobanee

Shareholders Wealth, Profitability Ratios

generated by the company in the last five years.

Ratio analysis is a quantitative method of gaining information on a company's liquidity,

the performance of other companies in the stock market (Allad, 2017).

Table 1: Financial Data of Apple (Yahoo Finance)

Current Assets 143,713,000 162,819,000 131,339,000 128,645,000

Current Liabilities 105,392,000 105,718,000 116,866,000 100,814,000

Inventories 4,061,000 4,106,000 3,956,000 4,855,000

Cash 17,773,000 12,204,000 11,575,000 7,982,000

Receivables 37,445,000 45,804,000 48,995,000 35,673,000

Total Assets 323,888,000 338,516,000 365,725,000 375,319,000

Total Liabilities 258,549,000 248,028,000 258,578,000 241,272,00

Sales 274,515,000 260,174,000 265,595,000 229,234,000

Cost of Goods Sold 169,559,000 161,782,000 163,756,000 141,048,000

EBIT 69,559,000 69,313,000 76,143,000 66,412,000

Interest 890,000 1,385,000 2,446,0000 2,878,000

Net Income 57,411,000 55,256,000 59,531,000 48,351,000

Operating Cash 80,674,000 69,391,000 77,434,000 63,598,000

Results and Discussion

Current Ratio 1.36 1.54 1.12 1.28

Quick Ratio 1.33 1.50 1.09 1.23

Cash Ratio 0.17 0.16 0.1 0.08

Apple’s current ratio using the figures in table 1 is calculated as follows;

Figure 1: Current Ratio of Apple (Yahoo finance)

Apple Quick Ratio

𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

Apple Cash Ratio

Figure 3: Apple Cash Ratio (Yahoo finance)

Discussion on the Liquidity Ratios

Inventory Turnover 41.53 40.13 37.17 31.31

Receivable Turnover 6.6 5.49 6.27 5.66

Total Asset Turnover 0.83 0.74 0.72 0.6

formulae (Kwak, 2019);

Cost of Goods Sold

2019). The following formulae elaborate on how to compute average inventory;

Openning Inventory + Closing Inventory

The average inventory for Apple is as follows;

Apple Inventory Turnover Ratio

Figure 4: Apple Inventory Turnover Ratio (Yahoo finance)

compared to the following years.

receivable turnover ratio;

Total Credit Sales

In this case, average receivables is computed by adding opening receivables to closing

of average receivables (Purwanti, 2019);

Openning Receivables + Closing Receivables

Average receivables for Apple are computed below;

Therefore, Receivables Turnover Ratio for Apple is calculated below;

Apple Receivables Turnover

Figure 5: Apple Receivables Turnover (Yahoo finance)

Total Asset Turnover

Apple Total Assets Turnover