Debt Ratio - Samsung, Apple, and Google - Coursework Example

The debt ratio is an indicator of the solvency status of an organization. The ratio reveals the dependency level of a firm on loan to run its operation (Rodgers, 23). The formula for this ratio is (total debt/total asset) * 100. A low debt ratio is advisable which is 50%, and below because a high debt ratio turns away potential investors. There is a high chance of a firm being declared bankrupt when the debt ratio is too high. Samsung, Apple, and Google had the following Debt ratio of 32.9%, 32.9%, and 23.5% respectively. Apple and Samsung have an equal debt ratio of 32.9% in this comparison thus, tend to be risky. Analyzing ROA for Samsung and Apple, Samsung has the lowest; therefore it can be considered the riskiest firm to invest in. The recommended maximum level of debt ratio is 50% and all three firms operate below it.

Question 3
For one to be successful in a stock market like Warren Buffet, a critical analysis needed to be conducted on the financial performance of the interested company. One needs to consider the profitability and risk level of the interested firms. In this case, Apple and Google can be considered based on the high profitability level of Apple, and Google's low-risk level. It should be noted that an investor will look for a high return from the investment. According to (Elton, & Gruber, 41), the higher the return, the riskier the investment, and, therefore, sound decisions need to be done. Comparing the risk versus return of the two firms one can make a sound decision on which firm to invest int. For Apple return versus risk is (32.9/28.5=1.2), while for Google is (23.5/12.9=1.8). Apple has the lowest ratio, thus it is the best firm to invest in and get better returns. Read More