PRINCIPLES OF ACCOUNTING

TOPIC
FINANCIAL RATIOS ANALYSIS OF APPLE INC.

Teacher: Nguyen Thi Que Anh

Course code: ACC101

Student: Luong Quang Huy

ID Student: SS170187
 EXECUTIVE SUMMARY

Financial ratios help managers check the financial status of the company, used to compare

with other enterprises in the same industry or compare with the industry average to assess the

strengths and weaknesses of the company. In addition, it is also a tool to predict the future

financial future of the company. From the above practice, the objective of this assignment

is "Analysis of financial ratios of Apple Inc.". The research content is based on the

financial statements of Apple Inc. for the last three years, 2019, 2020 and 2021.

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 CONTENT:

A. INTRODUCTION 1

B. FINANCIAL RATIOS ANALYSIS 1

I. LIQUIDITY RATIOS: 1

1. Acid-test Ratio 1, 2

2. Current Ratio 2, 3

II. PROFITABILITY RATIOS: 3

1. Gross profit margin 3, 4

2. Net profit margin 4, 5

3. Return on asset 5, 6

4. Return on equity 6,7

III. GROWTH RATE: 7

1. Asset growth 7, 8

2. Revenue growth 8, 9

3. Net profit growth 9, 10

IV. TURNOVER RATIOS: 10

1. Receivable turnover 10, 11

2. Days sales receivable (uncollected) 11,12

3. Inventory turnover 12,13

4. Days' sales in inventory 13,14

V. LEVERAGE RATIOS: 14

1. Debt to equity 15

2. Times interest earned (Interest Coverage Ratio) 16

C. CONCLUSION & REFERENCE 17

D. REFERENCE 17, 18, 19

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E. APPENDICES 19, 20, 21

LIST OF FIGURE:

Figure 1. Acid-test Ratio 5

Figure 2. Current Ratio 6

Figure 3. Gross profit margin 7

Figure 4. Net profit margin 8

Figure 5. Return on asset 9

Figure 6. Return on equity 10

Figure 7. Asset growth 11

Figure 8. Revenue growth 12

Figure 9. Net profit growth 13

Figure 10. Receivable turnover 14

Figure 11. Days sales receivable (uncollected) 15

Figure 12. Inventory turnover 16

Figure 13. Days' sales in inventory 17

Figure 14. Debt to equity 18

Figure 15. Times interest earned (Interest Coverage Ratio) 19

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A. INTRODUCTION:

In this assignment, I compare Apple Inc.'s most recent three financial statements, including

the balance sheet and income statement, for the years 2019, 2020, and 2021. The operations

of the business, the asset structure, the capital sources, and upcoming financial trends can all

be analyzed and evaluated using this method. I also reflect financial data, define patterns, and

characterize the volatility of financial indicators using charts.

B. FINANCIAL RATIOS ANALYSIS:

I. LIQUIDITY RATIOS:

Liquidity ratios are an important class of financial metrics used to determine a debtor's

ability to pay off current debt obligations without raising external capital. (Hayes, 2022)

1. Acid-test Ratio:

The acid-test ratio, commonly known as the quick ratio, uses a firm's balance sheet data

as an indicator of whether it has sufficient short-term assets to cover its short-term

liabilities. (Hayes, 2022)

The formula:

Or:

4
 (Apple Inc. 2020)

(Apple Inc. 2021)

Figure 1. Acid-test Ratio

Figure 1 shows the acid-test ratio of Apple Inc. steadily decreased because quick assets

decreased and current liabilities increased steadily over 3 years. But they are still more

likely to pay off all of their short-term debt immediately because the ratio is still greater

than 1.

2. Current ratio:

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term

obligations or those due within one year. (Fernando, 2022)

The formula:

5
 (Apple Inc. 2020)

(Apple Inc. 2021)

Figure 2. Current ratio

Figure 2 shows Apple Inc., whose current ratio is decreasing, which suggests that it is

more likely to pay off the reduced debt over time. The company's current assets also

decreased significantly in 3 years, they can still easily pay short-term liabilities with

short-term financial capacity such as inventory, cash, or outstanding debts. withdrawn

because the index is still more than 1.

II. PROFITABILITY RATIO:

Profitability ratios are a class of financial metrics that are used to assess a business's ability to

generate earnings relative to its revenue, operating costs, balance sheet assets, or

shareholders' equity over time, using data from a specific point in time. (Hayes, 2022)

1. Gross profit margin:

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Profit margin is a percentage measurement of profit that expresses the amount a company

earns per dollar of sales. (Maverick, 2022)

The formula:

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 3. Gross profit margin

Figure 3 shows Apple Inc.'s gross profit margin, which increased sharply in the period

of 2019 - 2021, showing the increasing production efficiency of the business. Gross

profit increased strongly year by year and cost of goods sold. This means that the

advantage and competitiveness of Apple Inc. is increasing.

2. Net profit margin:

The net profit margin, or simply net margin, measures how much net income or profit is

generated as a percentage of revenue. (Murphy, 2022)

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The formula:

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 4. Net profit margin

The figure 4 shows Apple Inc., net profit increased in 2019-2021, however, this

company's net profit margin decreased slightly in 2019-2020 then increased sharply in

2020-2021. That shows increased returns and less risk, in 2021 the highest net rate of

return, representing high return and lower risk than the other two years.

3. Return on asset:

The term return on assets (ROA) refers to a financial ratio that indicates how profitable a

company is in relation to its total assets. (Hargrave, 2022)

The formula:

8
 (Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 5. Return on asset

The figure 5 shows the ROA of Apple Inc. increased in the period 2019-2021. This shows

that the efficiency of asset exploitation of this enterprise is increasing. Besides, profit earned

and asset value increased over the 3-year period.

4. Return on equity:

Return on equity (ROE) is a measure of financial performance calculated by dividing net

income by shareholders' equity. (Fernando, 2022)

The formula:

9
 (Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 6. Return on equity

ROE of Apple Inc. increase in 3 years. That said, the management of Apple Inc. more

efficient in generating income.

III. GROWTH RATE:

Growth rates refer to the percentage change of a specific variable within a specific time

period. (Chen, 2022)

1. Asset growth:

The Asset Growth Rate shows how quickly a company has been growing its assets. (Asset

growth % meaning)

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The formula:

(Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 7. Asset growth

Figure 7 shows the asset growth rate of Apple Inc. increase year by year. This shows that the

company's ability to grow assets has improved year by year, although in the period of

2019-2020, this ratio is negative.

2. Revenue growth:

Revenue growth refers to an increase in revenue over a period of time. (Revenue growth:

Understand, calculate & improve it)

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The formula:

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 8. Revenue growth

Figure 8 shows the revenue growth rate of Apple Inc. strong but uneven growth in the period

2019-2021. This shows that the company is capable of generating better and better revenue

year by year.

3. Net profit growth:

Net profit growth – The net profit of the company is the profit that the company generates

after accounting for all its expenses. (The importance of net profit growth (%) ratio 2021)

The formula:

12
 (Apple Inc. 2020)

(Apple Inc. 2021)

Figure 9. Net profit growth

The company's net profit has grown strongly over the past 3 years showing the financial

strength of the company, it has used its resources quite well.

IV. TURNOVER RATIOS:

The turnover ratio or turnover rate is the percentage of a mutual fund or other portfolio's

holdings that have been replaced in a given year (calendar year or whichever 12-month

period represents the fund's fiscal year). (Segal, 2022)

1. Receivable turnover:

The accounts receivables turnover ratio measures the number of times a company collects its

average accounts receivable balance.. (Accounts receivable turnover ratio 2022)

The formula:

13
 (Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 10. Receivable turnover

Figure 10 shows that Apple Inc. receivable turnover ratio has increased year over year

in the period of 2019-2021. This business has outstanding debts and receivables, and

its positive financial position can prevent bad credit risks. Enterprises need to maintain

and further improve this indicator to become positive.

2. Days sales receivable (uncollected):

The days’ sales are uncollected, also known as the average collection period. (Day’s sales

uncollected (formula) - step by Step Calculation)

The formula:

14
 (Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 11. Days sales receivable (uncollected)

Figure 11 shows days sales receivable of Apple Inc. is decreasing in 2019-2020 after that

increasing in 2021. They take about 21 days on average to receive the sales receivable in

2020, less days than 2 years ago.

3. Inventory turnover:

Inventory turnover is a financial ratio showing how many times a company turned over its

inventory relative to its cost of goods sold (COGS) in a given period. (Fernando, 2022)

The formula:

15
 (Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 12. Inventory turnover

Figure 12 shows that Apple Inc.'s inventory turnover ratio is increasing 2019-2020 and

decreasing 2021, which shows that goods are sold out faster and faster in first period,

revenue is earned more, and users' demand for that item is huge.

4. Days' sales in inventory:

The days’ sales of inventory (DSI) is a financial ratio that indicates the average time in days

that a company takes to turn its inventory, including goods that are a work in progress, into

sales. (Hayes, 2022)

The formula:

16
 (Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 13. Days' sales in inventory

Figure 13 shows that days' sales in inventory of Apple Inc. decreased 2019-2020 and

increased 2021. Inventory sales of 8 days in 2020, showing that it is making 8 days of sales in

inventory, lower than 2 years ago. This number of days indicates a shorter inventory release

period.

V. LEVERAGE RATIOS:

A leverage ratio is any one of several financial measurements that look at how much capital

comes in the form of debt (loans) or assesses the ability of a company to meet its financial

obligations. (Leverage ratio: What it is, what it tells you, how to calculate)

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1. Debt to equity:

Debt-to-equity (D/E) ratio is used to evaluate a company’s financial leverage. (Fernando,

2022)

The formula:

(Apple Inc. 2019)

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 14. Debt to equity

The figure 14 shows the debt-to-equity ratio of Apple Inc. gradually over three years. It

shows that the company's risk ratio when investing in the company is increasing, but this

index is still quite low compared to the general level.

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 2. Times interest earned (Interest Coverage Ratio):

The interest coverage ratio measures a company's ability to handle its outstanding debt.

(Hayes, 2022)

The formula:

(Apple Inc. 2020)

(Apple Inc. 2021)

Figure 15. Times interest earned (Interest Coverage Ratio)

Figure 15 shows that the Time interest earned ratio of Apple Inc. increased sharply in the

period of 2019-2021. That shows that this business is in a better position to pay its debts. So

investors will trust lending debt because they can afford to pay interest expenses well.

However, interest expenses have decreased significantly over the years, it is possible to

realize that the amount of debt this enterprise borrows also decreases.

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C. CONCLUSION & RECOMMENDATION:

In recent years, the Coronavirus pandemic has caused many problems and affected the

economy of the nation. Under those circumstances, Apple Inc. went through a tough period.

As a result, the business has been able to continuously maintain production operations since

the outbreak. It can be said that Apple Inc. is the company least affected by the covid 19

epidemic. The bank should lend to this company because almost all of the indexes increase

after 3 years.

D. REFERENCE:

Apple Inc.. (2022) Wikipedia. Wikimedia Foundation. Available at:

https://en.wikipedia.org/wiki/Apple_Inc. (Accessed: October 23, 2022).
Hayes, A. (2022) Understanding liquidity ratios: Types and their importance, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/l/liquidityratios.asp
(Accessed: October 23, 2022).
Hayes, A. (2022) Acid-test ratio definition: Meaning, formula, and example, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/a/acidtest.asp
(Accessed: October 23, 2022).
Seth, S. (2022) Quick ratio formula with examples, pros and cons, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/q/quickratio.asp
(Accessed: October 23, 2022).
(2019) Document. Available at:
https://www.sec.gov/Archives/edgar/data/320193/000032019319000119/a10-k2019928
2019.htm (Accessed: October 23, 2022).
(2020) AAPL-20200926. Available at:
https://www.sec.gov/Archives/edgar/data/320193/000032019320000096/aapl-2020092
6.htm (Accessed: October 23, 2022).
(2021) AAPL-20210925. Available at:
https://www.sec.gov/Archives/edgar/data/320193/000032019321000105/aapl-2021092
5.htm#icffec2d5c553492089e1784044e3cc53_79 (Accessed: October 23, 2022).
Hayes, A. (2022) Profitability ratios: What they are, common types, and how businesses use
them, Investopedia. Investopedia. Available at:
https://www.investopedia.com/terms/p/profitabilityratios.asp (Accessed: October 23,
2022).
Maverick, J.B. (2022) Gross profit margin vs. net profit margin formula, Investopedia.
Investopedia. Available at:

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 https://www.investopedia.com/ask/answers/021215/what-difference-between-gross-pro
fit-margin-and-net-profit-margin.asp (Accessed: October 23, 2022).
Murphy, C.B. (2022) What is net profit margin? formula for calculation and examples,
Investopedia. Investopedia. Available at:
https://www.investopedia.com/terms/n/net_margin.asp (Accessed: October 23, 2022).
Hargrave, M. (2022) Return on assets (ROA): Formula and 'good' roa defined, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/r/returnonassets.asp
(Accessed: October 23, 2022).
Fernando, J. (2022) Return on equity (ROE) calculation and what it means, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/r/returnonequity.asp
(Accessed: October 23, 2022).
Chen, J. (2022) Growth rates: Formula, how to calculate, and definition, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/g/growthrates.asp
(Accessed: October 24, 2022).
Asset growth % meaning (no date) Stockopedia. Available at:
https://www.stockopedia.com/ratios/asset-growth-5122/ (Accessed: October 24, 2022).
Revenue growth: Understand, calculate & improve it (no date) Revenue Growth: Understand,
Calculate & Improve It. Available at:
https://www.profitwell.com/recur/all/revenue-growth (Accessed: October 24, 2022).
The importance of net profit growth (%) ratio (2021) StockEdge Blog. Available at:
https://blog.stockedge.com/net-profit-growth/ (Accessed: October 25, 2022).
Segal, T. (2022) Turnover ratio definition, Investopedia. Investopedia. Available at:
https://www.investopedia.com/terms/t/turnoverratio.asp (Accessed: October 25, 2022).
Accounts receivable turnover ratio (2022) Corporate Finance Institute. Available at:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounts-receiva
ble-turnover-ratio/ (Accessed: October 25, 2022).
Days’ sales uncollected (formula) - step by Step Calculation (no date). Available at:
https://www.wallstreetmojo.com/days-sales-uncollected/ (Accessed: October 25, 2022).
Fernando, J. (2022) Inventory turnover ratio: What it is, how it works, and Formula,
Investopedia. Investopedia. Available at:
https://www.investopedia.com/terms/i/inventoryturnover.asp (Accessed: October 25,
2022).
Hayes, A. (2022) Days sales of inventory (DSI): Definition, formula, importance,
Investopedia. Investopedia. Available at:
https://www.investopedia.com/terms/d/days-sales-inventory-dsi.asp (Accessed: October
25, 2022).
Fernando, J. (2022) Debt-to-equity (D/E) ratio formula and how to interpret it, Investopedia.
Investopedia. Available at: https://www.investopedia.com/terms/d/debtequityratio.asp
(Accessed: October 25, 2022).
Hayes, A. (2022) Interest coverage ratio: The formula, how it works, an example,
Investopedia. Investopedia. Available at:

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 https://www.investopedia.com/terms/i/interestcoverageratio.asp (Accessed: October 25,
2022).

E. APPENDICES:

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