The Return on Assets and Roe, the Return on Sales, and Liquidity of Apple Inc - Term Paper Example

The paper "The Financial Ratio Analysis of Apple, Inc" is a great example of a case study on finance and accounting. The results of different ratios are provided in the Appendix.  The company’s Return on Assets (ROA) measured has improved over three years period.

Profit before Taxes / Tangible Net Worth has improved from 41.36% in 2009 to 49.84% in 2011. This is due to the 85% increase in the company’s profits resulting from a sharp increase in the company’s sales. The company has opened up its boutique shops throughout the US which has increased the value of its brand the contributed positively to its business. In comparison to the industry average of 31.30%, the company appears to have outperformed industry participants. In a similar manner, the value of another ratio - Profit before Taxes / Total Assets has also shown improvement from a value of 25.

40% in 2009 to 29.39% in 2011. In 2011, the industry average is just 10.20% which implies that the company has been able to post remarkable sales performance and profit-generating ability. In the case of both ratios, the growth rate of the company’s profits is greater than that of its assets. Another area of investigation is the Return on Sales (ROS) which is measured by net profit margin and also by sales / total assets indicates an overall improvement. The company’s net profit margin has gone up from 19% in 2009 to 24% in 2011.

This is due to the overall success of the company to deliver innovative products to its brand loyal customers and also to customers in new markets like China, India, and Southeast Asian markets(Apple Inc.). The asset turnover that has shown a slight decline in 2010 and then improved in 2011, remains below the industry average of 2.2. Though sales per sq ft of the company’s stores remain the highest in the industry still argument can be made that the growth rate in sales is less proportionate to the increase in its assets.

The company’s ROE has also improved in three years from 26% in 2010 to 34% in 2011. The company’s equity has increased significantly due to the sharp increase in its retained earnings generated from a higher level of sales and profits. The company’s P/E ratio has also remained healthy despite the decline since 2009, the company’s stock still trading at high P/E values over the industry average of 13.95. The decline in P/E suggests that the company’s stock though is still attractive for the shareholders and the company is generating higher profits but its price is not completely reflective of the company’s current potential.