Financial Analysis Report

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Financial Analysis Report
Trend Analysis
Based on the financial ratios calculated in the previous assignment, the trend analysis can be
summarized as follows:
Liquidity:
Both the current ratio and quick ratio decreased between the 3 years with current ratio falling
below 1 in 2022. Decreasing current ratio below 1 shows that the company is not able to meet all
its current liabilities from its current assets and therefore the company has liquidity issues. In
conclusion, there is a downward trend for the liquidity of the company and therefore the
company should take actions to ensure it has sufficient current and quick assets to meet
obligations arising from its current liabilities.
Profitability:
The gross profit ratio, net profit ratio, return on assets and return on equity ratios increased
between the three years, meaning that the profitability of the company improved. Therefore, the
ability of the company to generate earnings relative to its revenues, assets and equity has
improved, and this is a sign of good financial health of the company.
Efficiency
The inventory turnover ratio for the company declined between the three years and consequently,
the day’s sales in inventory increased. Declining inventory turnover ratio implies that inventory
is being sold at a slower rate and the increasing day’s sales in inventory shows that it takes more
days to be able to convert inventory into sales. Decreasing inventory turnover ratio and
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increasing day’s sales in inventory could lead to other problems for the company such as
decreased sales and lower margins.
The accounts receivables turnover increased in 2021 but decreased in 2022 and consequently the
day’s sales in receivables decreased in 2021 and increased in 2022. However, the general trend
between the three years for the accounts receivables turnover is increasing and the day’s sales in
receivables is decreasing, meaning that the company’s collection of accounts receivables is
efficient and customers are generally paying for their credit sales on time.
Long-Term Solvency:
Both the debt to equity ratio and total debt ratio had been increasing between the three years and
this shows that debt has been increasing relative to equity and we can conclude that more and
more assets of the company are being financed through debt. While high levels of debt increase
the risk of bankruptcy and financial distress, for Apple, the high debt levels are due to borrowing
money to finance growth and the company’s share buybacks which significantly reduce equity.
Equity Multiplier:
The equity multiplier ratio for the company has been increased between the three years, and this
shows that the company is using more debt than equity in financing the assets. The times interest
ratio on the hand has been increasing over the three years, which shows that the ability of the
company to pay interest expense from its earnings before interest and taxes has improved.
Market Value Ratios:
The EPS for the company has increased over the three years, meaning that the company is
generating more income relative to common shareholder equity which is a good sign of
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increasing shareholder’s wealth. The PE ratio has been decreasing meaning that the share price is
low relative to the company’s earnings, which makes the share attractive to investors.
Bond average yield
The average yield for Apple’s bonds is 4.50%. From data gathered on bonds issued by Apple,
majority of the bonds have yields of between 4-5% and therefore on averaging, the bond yield is
about 4.5% (source: morning star & Business insider).
Firm beta
The beta of a company is a measurement of its volatility of returns relative to the entire market.
The market has a beta of 1, therefore, the closer the beta of a company to 1 the better since it
signifies that the returns are stable and hence the company is less risky to invest in. The beta for
Apple Inc. (beta, 5Y monthly) is given as 1.30 on Yahoo Finance.
Stock price last three years
The stock price for Apple Inc. for the three years (as of 31/12) of every year is summarized
below
Year Stock Price
2020 $131.75
2021 $176.03
2022 $129.55
Source: Yahoo Finance
Generally, the stock price increased in 2021 but decreased in 2022.
Firm WACC
WACC (weighted average cost of capital) is the weighted average cost of capital after taking into
consideration all sources of funding for the company. From Apple’s capital structure, the
company used a combination of debt and equity. The relevant data to calculate WACC is
summarized below
Cost of equity = 11%
Cost of debt = 4.45%
Tax rate = 21% (corporate tax rate)

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Number of shares outstanding = 15.73B
Share price = $129.55
Market value of equity = 15.73B * $129.55 = 2,029.17B
Market value of debt = 109.61B
Total value of equity and debt = $2,138.78

Weight for equity = 2,029.17B / $2,138.78 = 0.95
Weight for debt = 109.61B / $2,138.78 = 0.05
WACC = (0.95*11%) + (0.05 * 4.45% (1 – 0.21)) = 10.62%
Analysis of data gathered
Generally, apple is in a strong financial health since it has strong earnings, sufficient cash, and is
leading in innovation which makes its sales projections strong. Comparing the company’s
performance to the technology industry, Apple is among the best performing companies and the
company is actually the highest valued brand in the industry. Although the company is using
much more debt in its capital structure, the company has strong debt coverage ratio and therefore
there is no cause of concern for the high debt levels. The liquidity of the company however
appears to be slightly below the desired level of above 1 for the current ratio but since the
company has good long-term prospects, it should be able to borrow in order to meet current
obligations if need be. The earning per share for the company (EPS) has shown an improvement,
therefore, the company is doing well since it is creating shareholder wealth and the stock is likely
to attract investors which is also supported by the decreasing price earnings ratio. The company’s
beta of 1.30 is also good since it shows the company is not risky to invest in while the bond
yields of about 4.5% is attractive to risk-averse investors who want to invest in triple A-rated
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bonds for the company; therefore, the company should not have any problems raising funds
through bond issuance.
References
Apple Inc. Annual Financial Report

https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K-2022-(As-Filed).pdf/
Business Insider https://markets.businessinsider.com/bonds/finder?p=3&borrower=20821/
Morning star https://www.morningstar.com/bonds/
Yahoo Finance https://finance.yahoo.com/quote/AAPL/key-statistics/

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Financial Analysis Report

obligations arising from its current liabilities.

improved, and this is a sign of good financial health of the company.

decreased sales and lower margins.

receivables is decreasing, meaning that the company’s collection of accounts receivables is

Market Value Ratios:

Bond average yield

Stock price last three years

Year Stock Price

Source: Yahoo Finance

Generally, the stock price increased in 2021 but decreased in 2022.

Cost of equity = 11%

Cost of debt = 4.45%

Tax rate = 21% (corporate tax rate)

Number of shares outstanding = 15.73B

Share price = $129.55

Market value of equity = 15.73B * $129.55 = 2,029.17B

Market value of debt = 109.61B

Total value of equity and debt = $2,138.78

Weight for debt = 109.61B / $2,138.78 = 0.05

WACC = (0.95*11%) + (0.05 * 4.45% (1 – 0.21)) = 10.62%

Analysis of data gathered

through bond issuance.

Apple Inc. Annual Financial Report

Business Insider https://markets.businessinsider.com/bonds/finder?p=3&borrower=20821/

Morning star https://www.morningstar.com/bonds/

Yahoo Finance https://finance.yahoo.com/quote/AAPL/key-statistics/

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WACC = (0.9511%) + (0.05 4.45% (1 – 0.21)) = 10.62%