Question

What challenges, strengths, or weaknesses does Apple have regarding finances?

Liquidity - Current assets divided by current liabilities

2017                                                                                                                     2018

$128,645/100,814=1.28                                                                                 $131,339/$115,929=1.13

Asset management ratio - inventory turnover = cost of sales divided by average inventory (beginning plus ending inventory divided by 2 to get the average)

2017                                                                                        2018

141,048/2132+4855                                                               163,756/3956+4855/2=37.17

/2=40.38                     

Profitability ratio - profit margin ratio (gross margin divided by sales), return on sales (operating profit over net sales), return on assets (net income divided by total assets)

2017                                                                                        2018

61,344*100/229,234=26.84                                                   70,898*100/265,595=26.74

88,186*100/229,234=38.47                                                   101,839*100/265,595=38.34

Answer 1

Solution:

1.Current Assets/ Current liability means = Current ratio

Current ration indicate availability of current assets to cover the current liability, a test of current solvency ratio. Decrease in current ratio indicate that an increase in short-term debt, a decrease in current assets, or a combination of both. Regardless of the reasons, a decline in this ratio means a reduced ability to generate cash.

Challenges: Apple may face cash shortage in future to meet the current liability.

Weakness: Increase in short-term debt means apple is depend on loans from financial institutions to meet the short terms liability.

2. Inventory Turnover ratio: This ratio generally indicate ability of company to covert the inventory into cash. Low inventory turnovers generally mean a company is holding too much inventory compared to its sales. Decreasing inventory turnover often means sales are decreasing below expected levels, although that is not always the case. Looking at the company's complete financial statements for several periods will help identify whether the decrease in inventory turns is temporary or indicates a long-term problem.

Challenges: Apple Company need to revise it sales estimations so that proper inventory ratio can be maintained

Weakness: Apple is holding too much inventories which increasing the cost of holding for apple.

Strengths: Apple might be holding the the stock for the foreseeable excess sales.

3. Variation of ratio in the year 2017 and 2018 of profit margin, return on sales and return on assets is minimal. which indicate that the company is constant in earning well. the growth rate of company can be maintained. Investor would like to invest in such companies which maintain a constant growth rate as it will helps them forecast the value of investment.

Challenges: The fall in both the ratios indicate the deterioration of performance in comparison to previous years.

Weakness: Apple maintain a constant ratio which may indicate that the growth is constant.

Strengths: Apple having a gross margin around 26.84 is much higher in comparison to the industry.