Financial Management I

Group Assignment
FINANCIAL PERFORMANCE ANALYSIS: The Case of
Apple Inc

Names

Department: Accounting

Section:-

Date of submission:-04/04/2023

Submitted to:-

TABLE OF CONTENTS
I. Introduction.............................................................................................1
II. Literature Review..................................................................................1
III. Methodology.........................................................................................4
IV. Computation and Results.....................................................................5
V. Interpretation and Trend analysis..........................................................6
Liquidity ratio.......................................................................................6
Asset utilization ratio............................................................................7
Total Asset Turnover ratio..........................................................................7
Fixed Asset turnover ratio..........................................................................8
Efficiency Ratio....................................................................................9
Profitability ratio................................................................................10
VI. References..........................................................................................11
I. Introduction

This is a financial performance analysis of Apple inc. We were originally asked to use
our personal relationship to get data about the financial performance of a local
company but due to lack of connections and the confidential nature of the data we
needed we decided to perform this analysis on a company whose financial statements
are available on the internet and the company we chose is Apple.

Apple Inc. is a multinational technology company that was founded in 1976 by Steve
Jobs, Steve Wozniak, and Ronald Wayne (Apple Inc., 2022a). The company is
headquartered in Cupertino, California, and operates over 500 retail stores in more
than 25 countries (Apple Inc., 2022a). Apple's products include the iPhone, iPad,
Mac, Apple Watch, and Apple TV, as well as a range of accessories and software
applications. In addition, Apple offers a variety of online services, such as the App
Store, iTunes Store, and iCloud, that enable users to download and store content,
access online storage and backup solutions, and collaborate with others (Apple Inc.,
2022a).
Over the years, Apple has become known for its innovative and elegant designs, high-
quality products, and loyal customer base. The company has also been praised for its
commitment to environmental sustainability, social responsibility, and privacy and
security (Apple Inc., 2022b). With a market capitalization of over $2 trillion, Apple is
one of the largest and most valuable companies in the world, and is consistently
ranked among the top companies in terms of revenue, profits, and brand value
(Forbes, 2022).

II. Literature Review

Financial performance is a measure of how well a firm can use assets from its primary
mode of organization and generate revenues. The term is also used as a general
measure of a firm's overall financial health over a given [Link] financial
performance tells investors about the general well-being of a firm. It's a snapshot of
its economic health and the job its management is doing(Kenton 2022).

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Financial performance analysis is the process of evaluating a company's financial
health and performance by examining its financial statements and ratios. It involves
interpreting the financial data to identify trends, strengths, weaknesses, and areas for
improvement in the company's financial performance. Financial performance analysis
is important because it provides insights into the company's ability to generate profits,
manage its assets, liabilities, and equity, and create value for its shareholders(Gibson,
2017).

Financial performance analysis helps stakeholders, including investors, creditors,

managers, and analysts, to make informed decisions about the company's future
prospects, investment potential, and risk exposure . It enables them to understand the
company's financial position and performance, compare it with industry benchmarks
and competitors, and identify areas for improvement. By conducting financial
performance analysis, stakeholders can evaluate the company's operational efficiency,
profitability, liquidity, solvency, and market value, and use this information to make
decisions about investments, financing, and strategic planning(Penman, 2013).

Financial ratios are essential tools used in financial performance analysis. They are
utilized to measure a company's financial health and performance and to evaluate its
liquidity, asset utilization, efficiency, and profitability. Financial ratios provide a way
to analyze a company's financial statements and assess its financial position. The
different types of financial ratios used in performance analysis include liquidity ratios,
asset utilization ratios, efficiency ratios, and profitability ratios(Brigham & Houston,
2019).

Liquidity ratios measure a company's ability to meet its short-term obligations. These
ratios provide insight into a company's ability to pay its current debts and expenses.
Examples of commonly used liquidity ratios are the current ratio, quick ratio, and
cash ratio. These ratios measure a company's ability to convert its assets into cash
quickly, which is important for short-term financial stability(Gitman & Joehnk, 2019).

Asset utilization ratios measure how efficiently a company uses its assets to generate
sales. These ratios provide insight into how effectively a company is using its
resources to generate revenue. Examples of asset utilization ratios include the asset

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turnover ratio and the fixed asset turnover ratio. These ratios help to determine
whether a company is utilizing its assets to their full potential or if there is room for
improvement in how assets are being managed(Ross, Westerfield, & Jordan, 2019).

Efficiency ratios measure a company's ability to manage its assets and liabilities to
generate profits. Brigham and Houston (2019) explain that these ratios measure how
effectively a company is using its resources to generate profits. Examples of
commonly used efficiency ratios include the inventory turnover ratio, the receivables
turnover ratio, and the payables turnover ratio. These ratios help to determine whether
a company is managing its assets and liabilities effectively or if there is room for
improvement in how resources are being allocated.

Profitability ratios measure a company's ability to generate profits from its operations.
According to Gitman and Joehnk (2019), these ratios provide insight into how well a
company is performing financially. Commonly used profitability ratios include the
gross profit margin, the operating profit margin, and the net profit margin. These
ratios help to determine whether a company is generating profits from its operations
or if there is room for improvement in how the company is being managed.

Numerous studies have been conducted on the financial performance analysis of

companies in the technology industry, including Apple Inc. A review of past studies
has shown that financial ratio analysis is widely used in the evaluation of financial
performance.

Vintilă, Gherghina, and Gheorghe (2017) analyzed the financial performance of

technology companies listed on NASDAQ(National Association of Securities Dealers
Automated Quotations) which is a popular stock exchange in the USA home to many
well-known technology and internet-based companies, including Apple Inc. The study
found that Apple Inc. had a high return on assets (ROA) and return on equity (ROE),
indicating efficient asset utilization and profitability.

Another study by Chandra and Kumar (2016) focused on the financial performance of
Apple Inc. between 2009 and 2014. The study found that the company's profitability
had increased significantly over the years due to the high demand for its products,

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such as the iPhone and iPad. However, the study also noted that the company's
liquidity had decreased over the years, indicating a need for better management of its
short-term obligations.
We are going to perform a financial performance analysis of Apple from the year
2018-2022

III. Methodology
We gathered the financial information of Apple inc of the past 5 years from the
financial statements which are found publicly on the internet specifically on the SEC
EDGAR website which is s a reliable source for accessing and viewing publicly
available filings submitted by companies to the U.S. Securities and Exchange
Commission (SEC Edgar, n.d.). The following are the formulas we used to calculate
the ratios.

Liquidity Ratio = Current Assets / Current


Liabilities

 Asset utilization ratios :-The two types of asset utilization ratios are:
i. Total Asset Turnover Ratio: The formula for calculating total asset turnover ratio is:

Total Asset Turnover Ratio = Net Sales / Average

Total Assets

Average Total Assets = (Beginning Total Assets +

Ending Fixed Assets) / 2
ii. Fixed Asset Turnover Ratio: The formula for calculating fixed asset turnover ratio
is:
Fixed Asset Turnover Ratio = Net Sales /
Average Fixed Assets

Average fixed Assets) = (Beginning fixed Assets +

Ending fixed Assets) / 2


Efficiency Ratio = net Sales / Total Assets


Profitability Ratio=(Net Profit / Net Sales) x
100
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IV. Computation and Results
The following table shows all the financial data taken from Apple’s financial
statements that are required to calculate these ratios.
Inputs(in millions) 2017 2018 2019 2020 2021 2022
Current Assets - 131,339 162,819 143,713 134,836 135,405

Current Liabilities - 115,929 105,718 105,392 125,481 153,982

Liquidity ratio - 1.13 1.54 1.36 1.07 0.88

Net Sales - 265,595 260,174 274,515 365,817 394,328

Total Assets 375,319 365,516 338,516 323,888 351,002 352,755

Average Total assets - 370,417.5 352,016 331,202 337,445 351,878.5

Total asset - 0.717 0.739 0.829 1.094 1.120

turnover ratio
Fixed assets 35,499 41,304 37,378 36,766 39,440 42,117

Average fixed assets - 38,401.5 39,341 37,072 38,103 40,778.5

Fixed asset - 6.916 6.613 7.40 9.60 9.67
turnover ratio
Efficiency ratio - 0.727 0.769 0.848 1.042 1.118
Net Profit -
59,530 55,256 57,411 94,680 99,803

Profitability Ratio - 22.41% 21.24% 20.91%

25.88% 25.3%

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V. Interpretation and Trend analysis

Liquidity ratio

Based on the data , we can see that Apple's liquidity ratio has fluctuated over the past
few years. Here is a quick trend analysis of the data:
 In 2018, Apple had a liquidity ratio of 1.13.
 In 2019, the liquidity ratio increased to 1.54, indicating an improvement in its
ability to meet short-term obligations.
 However, in 2020, the ratio decreased to 1.36, possibly due to the economic
impact of the COVID-19 pandemic.
 In 2021, the ratio further decreased to 1.07, potentially indicating continued
challenges related to the pandemic.
 Finally, in 2022, the ratio decreased even further to 0.88, which may be a cause
for concern.
Overall, this data suggests that Apple's liquidity ratio has been somewhat volatile over
the past few years, with some fluctuations likely due to external factors such as the
pandemic.

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Asset utilization ratio

Total Asset Turnover ratio

Looking at the data, we see that the Total Asset Turnover Ratio has increased steadily
from 2018 to 2022. The increase in the ratio from 2018 to 2019 was relatively small,
indicating a gradual improvement in the company's ability to generate sales with its
assets. However, the increase in the ratio from 2019 to 2020 was more significant,
suggesting that the company may have implemented some changes that resulted in
greater efficiency or productivity.

The largest increase in the Total Asset Turnover Ratio occurred between 2020 and
2021, where the ratio jumped from 0.829 to 1.094. This indicates a significant
improvement in the company's ability to generate sales compared to the previous year.
The increase in the ratio from 2021 to 2022 was less significant than the previous
year, but still indicates ongoing improvement in the company's operations.

Overall, the trend in the Total Asset Turnover Ratio suggests that the company has
been improving its efficiency and productivity over time, resulting in a greater ability
to generate sales with its assets. It would be important to continue monitoring the ratio
and other financial metrics to ensure sustained performance.

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Fixed Asset turnover ratio

Looking at the data, we see that the Fixed Asset Turnover Ratio has increased steadily
from 2018 to 2022. In 2018, the Fixed Asset Turnover Ratio was 6.916, which
decreased slightly to 6.613 in 2019. However, there was a significant increase in the
ratio from 2019 to 2020, where the ratio jumped to 7.4, indicating an improvement in
the company's ability to generate sales with its fixed assets.

The largest increase in the Fixed Asset Turnover Ratio occurred between 2020 and
2021, where the ratio jumped from 7.4 to 9.6. This indicates a significant
improvement in the company's ability to generate sales compared to the previous year.
The increase in the ratio from 2021 to 2022 was less significant than the previous
year, but still indicates ongoing improvement in the company's operations.
Overall, the trend in the Fixed Asset Turnover Ratio suggests that the company has
been improving its efficiency and productivity over time, resulting in a greater ability
to generate sales with its fixed assets. It would be important to continue monitoring
the ratio and other financial metrics to ensure sustained performance.

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Efficiency Ratio

From 2018 to 2022, the Efficiency Ratio increased consistently each year. In 2018,
the Efficiency Ratio was 0.727, which increased to 0.769 in 2019, then to 0.848 in
2020, and finally to 1.042 in 2021. In 2022, the Efficiency Ratio further increased to
1.118.

This trend indicates that Apple has been utilizing its assets more efficiently over the
years. The increase in Efficiency Ratio indicates that the company is generating more
revenue for every dollar of assets it holds. This trend is a positive sign for the
company's financial health and shows that it is effectively utilizing its assets to
generate profits.

However, it's worth noting that an Efficiency Ratio greater than 1 indicates that the
company is spending more on operating expenses than it is earning in revenue.
Therefore, while the increasing trend is generally positive, the Efficiency Ratio
exceeding 1 in 2021 and 2022 may raise some concerns.

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Profitability ratio

The Profitability Ratio of Apple has shown a mixed trend over the past five years. In
2018, the ratio was 22.41%, indicating that Apple earned a profit of 22.41 cents for
every dollar of sales. However, in the following years, the ratio declined steadily. In
2019, the ratio was 21.24%, a decrease of 1.17 percentage points from the previous
year. In 2020, the ratio further declined to 20.91%, a decrease of 0.33 percentage
points from the previous year.
However, in 2021, the ratio increased sharply to 25.88%, an increase of 4.97
percentage points from the previous year. This increase in the Profitability Ratio was
driven by a significant increase in net profit, which grew from $57.4 billion in 2020 to
$94.68 billion in 2021.
In 2022, the Profitability Ratio decreased slightly to 25.30%, a decrease of 0.58
percentage points from the previous year. Overall, the trend analysis suggests that

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while the Profitability Ratio of Apple has fluctuated over the past five years, it has
remained relatively strong, with the company earning a significant profit on its sales.

VI. References

 Kenton, W. 2022, Financial Performance, Investopedia, viewed 29 April 2023,

[Link]
 Apple Inc. (2022a). About Apple. Retrieved April 30, 2023, from
[Link]
 Apple Inc. (2022b). Supplier Responsibility. Retrieved April 30, 2023, from
[Link]
 Forbes. (2022). Forbes Global 2000. Retrieved April 30, 2023, from
[Link]
 Gibson, C. (2017). Financial reporting & analysis. Cengage Learning.
 Penman, S. H. (2013). Financial statement analysis and security valuation.
McGraw-Hill.
 Brigham, E. F., & Houston, J. F. (2019). Fundamentals of financial management.
Cengage Learning.
 Gitman, L. J., & Joehnk, M. D. (2019). Fundamentals of investing. Pearson.
 Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Essentials of corporate
finance. McGraw-Hill.
 Vintilă, G., Gherghina, Ş., & Gheorghe, C. M. (2017). Financial performance
analysis of technology companies listed on NASDAQ: Apple Inc. case study.
Procedia Economics and Finance, 39, 90-95.
 Chandra, B., & Kumar, K. (2016). Financial performance analysis of Apple Inc.
between 2009 and 2014. International Journal of Management and Commerce
Innovations, 3(1), 75-81.
 SEC Edgar. (n.d.). Retrieved May 1, 2023, from
[Link]

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