This report tries to undertake the financial analysis of Apple Inc. by means of calculating various financial ratios like Current ratio, net profit margin, debt-equity margin etc. Moreover, by means of dividend discount model the report tries to find the share value of Apple Inc. On the basis of the evaluation a recommendation has been made whether to make investment in Apple Inc. or not. At the same time, the strengths and the weakness of Apple Inc. in the recent market has also been highlighted.
The ratio is one of the liquidity ratios which are used as a measure to determine the ability of the firm in focus on pay its obligations from the perspective of both short term and long term. In order to measure this capability of the firm, total assets of a company are taken into consideration, which also include both liquid and illiquid assets relative to the total liabilities of the firm. According to this, the formula for current ratio is given as:
Current Ratio = Current Assets / Current Liabilities
It is known as current ratio because of the fact that as compared to the other kinds of liquidity ratios, this ratio considers all kinds of current assets and the liabilities as well. Another name which is given to the current ratio is working capital ratio. Since the current ratio is considered to be rough measurement of the financial health of the firm. Thus, if a firm is able to maintain a higher ratio then it would signify that it is capable of paying out its obligations, since it is considered to have a large number of assets compared to the liabilities due to it.
In the year 2011, the current ratio of Apple Inc. was calculated to be 1.61 which signifies a very healthy ratio with regards to the amount of liabilities it had in a short term. In the following years, the firm has comfortably been able to maintain a current ratio above 1 (1.50 in the year 2012, 1.68 in the year 2013, 1.08 in the year 2014 and 1.11 in the year 2015). A current ratio of 1 or above signifies a good financial health of the firm to pay its short term obligations. However, it must be noted that no single ratio could signify the financial health of the firm. This is because of the fact that different firms might vary in operations and hence would have different amount of current assets and liabilities. Hence, when comparing two or more than two firms for their financial health, then current ratio is not that helpful to make an investment decision.
Price- Earnings Ratio