A Report on Apple Inc. Financial Performance using the Financial Ratio Analysis Approach

Analyzing the fiscal 2022 Second Quarter Results using Financial Ratios.

Report Organization

Thesis Statement

  • Give an introductory background to annual reports and financial statements, stating their several purposes and uses.
  • Discuss financial ratios, their importance, and their limitations.
  • Critically evaluate Apple Inc.’s financial performance using the financial ratio approach.

EVALUATING APPLE INC.’S FINANCIAL PERFORMANCE

Analyzing the fiscal 2022 Second Quarter Results using Financial Ratios

Price-to-earnings ratio

  • Unstable market prices: When the market prices are unstable and volatile, this can unsettle the price-to-earnings ratio in the short term.
  • Company’s total earnings: These earnings are hard to decide because the price-to-earnings ratio is usually determined by calculating trailing earnings or historical earnings. These kinds of earnings are counterproductive and may be considered to not be of great use to investors and shareholders because they reflect inadequate information about future earnings. These future earnings are what the investors and shareholders are more concerned about.
  • Earnings per share growth: The price to earnings ratio does not contain the earnings per share growth, not knowing the growth information reveals inadequate information about the potential earnings per share growth of the company. It is often challenging for an investor or shareholder to know if a high price-to-earnings ratio is a result of potential growth or if the stock is just overvalued.

Current or Working Capital ratio

  • This ratio is not an efficient measurement of the company’s liquidity because it gives inadequate information about its working capital. It depends on the current asset quantity instead of the current asset quality.
  • Inventory is included in the breakdown and calculation of the current assets of a company, which leads to exaggerating the liquidity state. When inventory is included in the calculation of the current assets it can lead to reflecting the wrong liquidity health of the said company.
  • The company can have a conflicting or unstable current ratio if the sales are not consistent. Low sales will result in low current ratios, high sales will result in a high current ratio. The variation of the current ratio will lead to a misinterpretation of the company’s liquidity.

Earnings per share (EPS)

  • A company can influence the earnings per share value by decreasing the outstanding shares, this can happen when the company repurchases or overturns a stock split.
  • The earnings per share do not expressly show the true performance of the company because it does not consider or regard the price of the share.

Debt to equity ratio

  • The debt to equity ratio has numerous variations and this makes it difficult to compare and evaluate. Most times this information is not easily obtainable or accessible in the financial statements and may need further research.
  • Volatile input is another limitation, the ratio value on the market which has a sensitive share price may be plausible, but it may require polishing, this is an estimation hence it may not be error-free.
  • Debt to equity ratio differs from one company or industry to another, this is because different industries possess different capital requirements.

Acid test or Quick ratio

  • Acid test or Quick ratio does not consider long-term liabilities
  • This ratio can exaggerate or overemphasize the actual state of invoices, bills, or accounts receivable
  • The ratio can exaggerate the actual working capital and cash flow of marketable securities during economic downtimes.

Net profit margin

Return on Equity (ROE) ratio

  • Return on Equity ignores cash flow. When a company focuses on return on equity, it may ignore cash flow which is also as important. This ratio uses only net income.
  • The value of the Return on Equity ratio can be influenced using various accounting management policies.
  • The return on equity ratio fails to measure the actual figure that a company can produce.

CONCLUSION

REFERENCES

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Princess Akari

I write about Business management/strategy and Product Management