Financial Performance Analysis

RATIO ANALYSIS
Contents
1 Introduction......................................................................................................................2

2 Ratio analysis....................................................................................................................2

2.1 Background..................................................................................................................2

2.2 Liquidity ratios............................................................................................................3

2.2.1 Theory and implications.......................................................................................3

2.2.2 Results..................................................................................................................3

2.2.3 Discussions...........................................................................................................4

2.3 Profitability ratios........................................................................................................5

2.3.1 Theory and implications.......................................................................................5

2.3.2 Results..................................................................................................................5

2.3.3 Discussions...........................................................................................................6

2.4 Valuation ratios (working capital)...............................................................................7

2.4.1 Theory and implications.......................................................................................7

2.4.2 Results..................................................................................................................7

2.4.3 Discussions...........................................................................................................8

2.5 Solvency ratios (Leverage Ratios)...............................................................................8

2.5.1 Theory and implications.......................................................................................8

2.5.2 Results..................................................................................................................9

2.5.3 Discussions.........................................................................................................10

2.6 Valuation ratios (investors).......................................................................................10

2.6.1 Theory and implications.....................................................................................10

2.6.2 Results................................................................................................................11

2.6.3 Discussions.........................................................................................................12

References…………………………………………………………………………...….13

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 ABSTRACT
Apple Inc. has established themselves as the unrivalled market innovator in the field of
consumer technology as the years have passed. The company's success can be attributed to
the fact that it has been able to put its capital and resources to good advantage, as indicated
by a wide variety of ratios. The ratios are calculated for a four-year time period beginning in
2021 and ending in 2022. As a result of their remarkable success, Samsung Electronics Co.,
Ltd. (SEC) has recently dominated headlines around the world. When SEC went from being
"low-cost and often unreliable" to "elevated and intelligent," it caught many people off guard.
Many parallels between SEC and Apple have been drawn. The results revelled that When
contrasting the financial results of Apple Inc. with Samsung Electronics, Apple does have a
greater P/E ratio, lower EPS, and lower dividend payout ratio than Samsung Electronics
provides
.
Keyword: Ratio Analysis. Types of Ratios, Financial Performance, Apple, Samsung.

INTRODUCTION
Ratio analysis is a mathematical technique for analysing a company's financial documents,
including the balance sheet and income statement, to gather knowledge about its liquidity,
organisational effectiveness, and profitability (Nugraha et al., 2020). Basic equity research is
built on ratio analysis. There seem to be primarily five broad categories of proportions, such
as liquidity ratios, solvency ratios, profitability ratios, efficiency ratios, and coverage ratios
that are employed to analyse a business finances and the pattern of its results over time.
These ratios serve as indicators of a financial statement (Mheiri et al., 2021). Apple
incorporation Samsung Electronics Company Limited and its Subsidiaries are two companies
which are evaluated using financial statements of 2021 and 2022 and both of these
Companies belong to consumer and electronics sector and demand of these Apple products
are on 1ST number in the world while products of Samsung Electronics holds second position.
Apple Incorporation has much better results than industry average. This piece will take a look
at Samsung Electronics Co. Ltd.'s financial results from 2021 through 2022. It is understood
today that the company's vulnerability to shifts in its economic climate has had an impact on
its revenue and financial performance (Telan & Nobanee, 2022).
Apple Inc. is a technological business that really has grown through the decades to become a
global innovator in its field. It is clear from a number of financial ratios that the corporation

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successfully used its assets and equity to succeed. Apple Incorporation has performed better
than Samsung Electronics Company Limited and its Subsidiaries, in profitability, Working
Capital, financial gearing and valuation ratios but not so much in liquidity. Nonetheless
Apple incorporation compares favourably with industry average (Lessambo, 2022).

1 Ratio analysis
1.1 Background
I have prepared ratio analysis of Apple Incorporation & its subsidiaries and Samsung
Electronics Company Limited and its subsidiaries for financial year 2022 and 2021
respectively. I choose these two because these are in same industry and compete with each
other in market share.

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1.2 Liquidity ratios
1.2.1 Theory and implications
Liquidity ratios are a set of financial ratios that measure a company's ability to meet
its short-term obligations by assessing its ability to convert its current assets into
cash quickly.
[Link] Current ratio
The current ratio is calculated by dividing a company's current assets by its current
liabilities, and it measures the company's ability to meet its short-term obligations
with its current assets.
[Link] Quick ratio
The quick ratio is similar to the current ratio, but it excludes inventory from the
calculation, as inventory is often less liquid than other current assets.
[Link] Cash ratio
The cash ratio is the most conservative of the three ratios, as it only takes into
account the most liquid assets, such as cash and cash equivalents.
Implications:
Liquidity ratios provide insight into a company's ability to pay its short-term
obligations, which is essential for maintaining good relationships with suppliers and
creditors. Secondly, they can be used to identify potential cash flow problems before
they become critical, allowing management to take corrective action. Finally,
investors and lenders often use liquidity ratios to assess a company's financial health
and risk profile.

1.2.2 Results

Apple Samsung Electronics

Incorporation and Company Limited
its Subsidiaries and its Subsidiaries
Input data for Liquidity Ratios: 2022 2021 2022 2021

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Current Assets 135,405 134,836 169,206 168,968
Current Liabilities 153,982 125,481 60,678 68,248
Inventories 4,946 6,580 40,420 32,052
Cash 23,646 34,940 38,478 30,230

LIQUIDITY RATIOS: 2022 2021 2022 2021

Current Ratio 0.88 1.07 2.79 2.48
sCurrent Assets/Current Liabilities
Quick Ratio (or Acid Test Ratio) 0.85 1.02 2.12 2.01
(Current Assets-Inventories)/Current Liabilities
Cash Ratio 0.15 0.28 0.63 0.44
Cash/Current Liabilities

1.2.3 Discussions
As of the end of FY2022, Apple had a current ratio of 0.88, quick ratio of 0.85 and cash ratio
of 0.15 which suggests that the company has sufficient short-term assets to meet its current
liabilities. Samsung Electronics also has generally strong liquidity ratios, with a current ratio
of 2.79, quick ratio of 2.12 and cash ratio of 0.63 as of the end of FY2022.
.

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1.3 Profitability ratios
1.3.1 Theory and implications
Profitability ratios are a set of financial ratios that measure a company's ability to
generate profits relative to its revenue, assets, and equity:
[Link] Gross Profit Margin:
Gross profit margin measures the percentage of sales revenue that remains after
deducting the cost of goods sold.
[Link] Net Profit Margin:
Net profit margin measures the percentage of sales revenue that remains after all
expenses, including taxes and interest, have been deducted.

[Link] Return on Assets (ROA):

ROA measures the company's ability to generate profit from its total assets.
[Link] Return on Equity (ROE):
ROE measures the company's ability to generate profit from its equity investment.
[Link] Operating Profit Margin:
Operating profit margin measures the percentage of sales revenue that remains after
deducting operating expenses.
The implications of these ratios can vary depending on the company's industry and
business model. Generally, a higher profitability ratio indicates that the company is
generating more profit and is therefore more efficient and profitable.

1.3.2 Results

Apple Samsung Electronics

Incorporation and Company Limited
its Subsidiaries and its Subsidiaries
Input data for Profitability Ratios: 2022 2021 2022 2021

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Gross Profit 170,782 152,836 86,891 87,669
Operating Income 119,437 108,949 33,595 39,991
Pre Tax Income 119,103 109,207 35,968 41,321
Net Income 99,803 94,680 43,104 30,908
Sales 394,328 365,817 234,079 216,555
Total Equity 50,672 63,090 274,755 236,146
Total Assets 352,755 351,002 347,307 330,420

PROFITABILITY RATIOS: 2022 2021 2022 2021

Gross Margin 0.43 0.42 0.37 0.40
Gross Profit/Sales
Operating Margin 0.30 0.30 0.14 0.18
Operating Income/Sales
PreTax Margin 0.30 0.30 0.15 0.19
PreTax Income/Sales
Net Profit Margin 0.25 0.26 0.18 0.14
Net Income/Sales
Return on Equity (ROE) 1.97 1.50 0.16 0.13
Net Income/[Link]
Return on Assets (ROA) 0.28 0.27 0.12 0.09
Net Income/[Link]
2.5

1.5
Apple 2022
Apple 2021
1 Samsung 2022
Samsung 2021

0.5

0
Gross Margin Net Profit Operating PreTax Return on Return on
Margin Margin Margin Assets (ROA) Equity (ROE)

1.3.3 Discussions
Apple's profitability ratios have been consistently strong, with a gross profit margin of 43%
and net profit margin of 25% in FY2022. Its return on assets and equity were also above
industry averages. Apple outperformed Samsung Electronics with higher net profit margins.
Its profitability ratios have remained consistent over the years, indicating its efficiency and
profitability.

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1.4 Valuation ratios (working capital)
1.4.1 Theory and implications
Valuation ratios are financial metrics that measure how effectively a company utilizes its
assets and liabilities to generate revenue and profits.
[Link] Inventory turnover ratio
It measures the number of times inventory is sold and replaced in a year.
[Link] Accounts receivable turnover ratio
It measures the frequency of customer payments.
[Link] Accounts payable turnover ratio
It measures how frequently a company pays its vendors.
[Link] Asset turnover ratio
It measures the efficiency of a company's use of assets to generate revenue.
[Link] Fixed asset turnover ratio
It measures the efficiency of a company's use of fixed assets to generate revenue.
[Link] Operating cash cycle
It measures the number of days between when a company pays its suppliers for inventory and
when it receives payment from customers.
Implications: Valuation ratios identify areas of operational improvement. High ratios
suggest efficient use of resources while low ratios indicate poor use. These ratios are used by
investors and analysts to compare performance and evaluate efficiency. The operating cash
cycle measures cash management efficiency and a shorter cycle indicates a company can
generate cash more quickly for growth or debt repayment.

1.4.2 Results

Apple Samsung Electronics

Incorporation and Company Limited
its Subsidiaries and its Subsidiaries
VALUATION RATIOS Input: 2022 2021 2022 2021

Earnings (Net Income) 99,803 94,680 43,104 30,908

Total Ordinary Shares Outstanding 16,216 16,701 5,970 5,970

Total prefernce Shares Outstanding 823 823

**Current market price 149 178

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 43 61
Dividends per ordinary share 0.97 0.86 0.84 0.84
Dividends per preference share 838.13 838.13

Total Equity 50,672 63,090 274,755 236,146

VALUATION RATIOS: 2022 2021 2022 2021

Earnings per share 6.15 5.67 7.22 5.18
Earnings/[Link] - Basic
Price/Earnings Ratio 24.21 31.40 5.96 11.78
Market price/Earnings per share
Book Value per Share 3.12 3.78 46.02 39.56
[Link]/[Link]
Dividend Yield- Ordinary Share 0.65% 0.49% 1.95% 1.37%
[Link]/Market Price

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1.4.3 Discussions
Apple outperforms Samsung in terms of inventory turnover ratio and accounts receivable
turnover ratio, indicating better inventory management and faster collection of payments
from customers. However, Samsung may outperform in other areas. It's important to consider
various ratios and compare them with trends, industry averages, and competitors for a
comprehensive understanding of operational efficiency.

1.5 Solvency ratios (Leverage Ratios)

1.5.1 Theory and implications
Solvency ratios are used to evaluate a company's ability to meet its long-term
obligations and remain financially stable

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[Link] Debt-to-equity ratio
This ratio measures the proportion of debt financing to equity financing used by a
company
[Link] Debt-to-assets ratio
This ratio measures the percentage of a company's assets that are financed through
debt.
[Link] Interest coverage ratio
This ratio measures a company's ability to meet its interest payments on debt.
[Link] Debt service coverage ratio
This ratio measures a company's ability to pay its debt obligations.

Solvency ratios provide insight into a company's long-term financial stability and
ability to meet its obligations. Investors and analysts can use them to evaluate a
company's financial health and make informed investment decisions.

1.5.2 Results

Apple Samsung Electronics

Incorporation and Company Limited
its Subsidiaries and its Subsidiaries
LEVERAGE RATIOS Input: 2022 2021 2022 2021
Total Debt 120,069 124,719 7,160 13,214
Total Equity 50,672 63,090 274,755 236,146
Total Assets 352,755 351,002 347,307 330,420
EBIT (Operating income) 119,437 108,949 33,595 39,991

Interest Expense 2,931 2,645 1,180 667

LEVERAGE RATIOS: 2022 2021 2022 2021
Debt/Equity Ratio 2.37 1.98 0.03 0.06
Total Debt/Total Equity
Debt/Capital Ratio 0.70 0.66 0.03 0.05
Total Debt/([Link]+[Link])
Equity Multiplier 6.96 5.56 1.26 1.40
Total Assets/Total Equity
Interest Coverage Ratio 40.75 41.19 28.46 59.94
EBIT/Interest Expense

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 70

60

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40 Apple 2022
Apple 2021
30 Samsung 2022
Samsung 2021
20

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0
Debt/Capital Ratio Debt/Equity Ratio Equity Multiplier Interest Coverage
Ratio

1.5.3 Discussions
Apple has strong solvency ratios, with a debt-to-equity ratio of 2.37 and an interest coverage
ratio of 41 times, outperforming Samsung.

1.6 Valuation ratios (investors)

1.6.1 Theory and implications
Valuation ratios are used to assess the worth of a company's stock and help investors make
informed investment decisions.
[Link] Earnings Per Share (EPS)
EPS is a measure of a company's profitability that indicates how much profit is attributable to
each outstanding share of common stock. It is calculated by dividing the company's net
income by the number of outstanding shares.
[Link] Price-to-Earnings (P/E) Ratio
P/E ratio is a widely used valuation ratio that compares a company's stock price to its
earnings per share.
[Link] Dividend Payout Ratio
This ratio shows the portion of earnings that a company pays out to its shareholders in
dividends. It is calculated by dividing the total dividends paid by the net income.

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Valuation ratios are important tools for investors to assess a company's stock and make
investment decisions.

1.6.2 Results

Apple Samsung Electronics

Incorporation and Company Limited
its Subsidiaries and its Subsidiaries
VALUATION RATIOS Input: 2022 2021 2022 2021

Earnings (Net Income) 99,803 94,680 43,104 30,908

Total Ordinary Shares Outstanding 16,216 16,701 5,970 5,970

Total prefernce Shares Outstanding 823 823

**Current market price 149 178 43 61
Dividends per ordinary share 0.97 0.86 0.84 0.84
Dividends per preference share 838.13 838.13

Total Equity 50,672 63,090 274,755 236,146

VALUATION RATIOS: 2022 2021 2022 2021

Earnings per share 6.15 5.67 7.22 5.18
Earnings/[Link] - Basic
Price/Earnings Ratio 24.21 31.40 5.96 11.78
Market price/Earnings per share
Book Value per Share 3.12 3.78 46.02 39.56
[Link]/[Link]
Dividend Yield- Ordinary Share 0.65% 0.49% 1.95% 1.37%
[Link]/Market Price

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1.6.3 Discussions
In comparing Apple Inc. and Samsung Electronics' financial performance, Apple has a higher
P/E ratio, lower EPS, and lower dividend payout ratio.

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REFERENCES
Al Mheiri, R., Al Hosani, N., Saif, E., & Nobanee, H. (2021). Ratio Analysis of Apple.
Available at SSRN 3895231.

Lessambo, F. I. (2022). Apple and Microsoft. In Financial Statements: Analysis, Reporting

and Valuation (pp. 369-399). Cham: Springer International Publishing.

Nugraha, N. M., Puspitasari, D. M., & Amalia, S. (2020). The effect of financial ratio factors
on the percentage of income increasing of companies in United States. International Journal
of financial analysis, 24(1), 2539-2545.

Statements, C. F. (2021). Consolidated Financial Statements Of Samsung Electronics Co.,

Ltd. And Subsidiaries.

Thomas, J., & Rabiyathul Basariya, S. (2019). A Study on the Issues of Financial Ratio
Analysis. Indian Journal of Public Health Research & Development, 10(3).

Telan, K., & Nobanee, H. (2022). Ratio Analysis of Samsung Electronics Co., Ltd.

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