Ratio Analysis - Case Study Example

This paper will shed light upon the financial ratios of Apple, how the company will fare in the future will also be comprehensively analyzed. ROI stands for return on investment, Apple’s ROI matches DELL which is great news for the company, return on investment goes to show that the products have been selling very well in the market. The sales growth of Apple has also seen a significant rise in the last quarter, all these are indicators that the company is performing very well. Steve Jobs, the CEO of Apple has been coming up with strategies to promote the products, even though he has had severe health issues, he has been very successful in building the brand name of Apple.

Apple has also managed to diversify which is again very good for the business, the company is not dependent on only one product but they have a plethora of products which can be relied upon, this has reduced the risk for the company. Apple operates on a much higher gross margin than other companies, Gross margin of 29.02% is the margin that the company operates at, this goes to show that the company has adopted a higher selling price mix. Products like iMac and Ipads have really given Apple an edge and this is why the company can afford to set higher prices for their products.

Apple spends 3.8% on research which is very good for the company, perhaps this percentage can be improved so that they can find new and better products. The operating expenses are about 13.38% which goes to show that the company is very stable and investors can invest in this company. The working capital of the company is very healthy; it is again because of the profits. The current ratio of the company stands at 2.96 (Million) which means the company can easily pay off short term debt not once, not twice but thrice.

This is a very strong position to be in; Apple has no need to take loans because it can easily pay off debt. Acid-test ratio goes to show how quickly assets can be converted into liquid cash, Apple has an edge once again and this is hardly surprising. The acid-ratio of the company stands at 2.63 which signify the operating efficiencies of the company give it a huge edge over other companies. Assets turnover ratio stands at 1.42, this means the sales of the company has been picking up, and this ratio is derived by dividing the sales by assets.

The ratio is also an indicator of how assets are used to generate profits. Apple has been doing it very successfully thus far. “This tells us something about Apple’s pricing strategy. The Profit Margin for a product is the net of sales deduct the cost of goods sold. Therefore, Apple has higher pricing charged to its products offering as compared to that of Dell’s, even though Dell’s Inventory Turnover Ratio is much higher in this case. But looking at Dell’s turnover ratio on Net Sales; it is close to that of Cost of Goods Sold, therefore this also explained that Dell has lower pricing charged to its products offerings.

” (Inventory Turnover Ratio) Debt ratio of the company stands at 0.35 which means that there are still some debts which should be cleared; this is not a problem especially when the company is performing so well in the market. The company can easily clear this debt off whenever they want to, this is not an issue for them. The debt/equity ratio of the company is extremely healthy, it stands at 0.55, this goes to show that the equity has been well managed to pay off short term