Week 2 Assignment 3 - Accounting
Ratio analysis provides another set of patterns to evaluate before deciding to buy or sell a company’s stock. Ratios reveal more than just the past performance; ratios reveal how effectively the company converts product sales into shareholder returns. Ratios provide a gauge for comparison across time and across the industry (competitors), while removing the impact of size differences. Would you rather invest in Company A, with $1.0 million in earnings, or Company B, with $10.0 million in earnings? It’s hard to say. However, if Company A earns a ROA of 25\%, while Company B earns a ROA of 2\%, the decision becomes clear.
Liquidity ratios provide clues to how effectively the company manages its cash collection cycle. Asset turnover ratios reveal how efficiently the company uses its assets to generate profits. Debt management ratios reveal how leveraged a company is, which provides an indication of future risk. Taken together, a company’s ratios and its ratios compared to the industry competitors provide important insight to the investment strength of the company’s stock. In this assignment, you will review the trend in your chosen company’s financial ratios over the past 3 years and compare your chosen company’s ratios to the average ratios from top competitors in the industry.
Prepare:
Prior to beginning work on this assignment,
Make sure you have completed the Company Ratios: Appendix C and Industry Competitor Ratios: Appendix D assignments. It is recommended that you keep those two PDFs open or printed when completing this assignment.
Write:
In your paper, address the following four parts in a Word document:
Part 1: (three to five paragraphs)
Summarize the trends in your company’s ratio performance over the 3 most recent years. Be sure to address the following ratios included in Appendix C:
Profitability ratios: ROA, ROE, return on investment (ROI).
Liquidity ratios: quick ratio, current ratio.
Debt management ratios: long-term debt to equity, total debt to equity, interest coverage ratio.
Asset management ratios: total asset turnover, receivables turnover, inventory turnover, and accounts payable turnover.
Per share: book value per share.
Part 2: (two paragraphs)
Interpret whether the trend for each ratio (listed in Part 1) is an improvement or a decline in performance for the company.
Create a table that lists each ratio as either a strength or a weakness in the most current year, based on its trend and your interpretation.
Determine the overall financial strength of the company based on the ratios identified as either strengths or weaknesses.
Consider all of the ratios discussed so far. Is the company’s strength the fact that the debt management ratios are improving? Or is it that the liquidity ratios are increasing? Is the company’s weakness that the turnover ratios are declining? Or is the company’s weakness that debt management ratios are weakening?
Categorize the company’s overall ratio performance as either strong, neutral, or weak, based on your determination from the ratios.
Part 3: (one to two paragraphs)
Compare your chosen company’s ratio performance to the industry competitor ratios in the most recent year based on Appendix D. Be sure to address the following ratios included on Appendix D:
Profitability ratios: ROA, ROE, gross margin, and net margin.
Liquidity ratios: quick ratio and current ratio.
Debt management ratios: long-term debt to equity, total debt to equity, and interest coverage ratio.
Asset management ratios: asset turnover and inventory turnover.
Create a table that lists each ratio as either higher or lower than the average ratio for the competitors in the industry.
Part 4: (one paragraph)
Categorize the company’s overall financial performance as either better than average, average, or worse than average compared to the industry based on the ratios.
Interpret which ratios are the most important and explain your reasoning.
Justify your conclusion based on the table you created, your interpretation of which ratios are the most important, and the company’s overall ratio performance compared to the industry competitors.
The Section 2: Financial Ratio Analysis paper
Must be two to three double-spaced pages in length including any tables or calculations (but not including title and references pages) and formatted according to APA Style (Links to an external site.) as outlined in the Writing Center’s APA Formatting for Microsoft Word (Links to an external site.)
Must include a separate title page with the following:
Title of paper in bold font
Space should be between title and the rest of the information on the title page.
Student’s name
Name of institution (The University of Arizona Global Campus)
Course name and number
Instructor’s name
Due date
Must utilize academic voice. See the Academic Voice (Links to an external site.) resource for additional guidance.
Must include a separate references page that is formatted according to APA Style as outlined in the Writing Center. See the APA: Formatting Your
Since this is Section 2 of the Week 5 final project, there is no need for an introduction paragraph.Apendix A
Apple .Inc
12 Months Ended
Income statement
Sep. 25, 2021 Sep. 26, 2020 Sep. 26, 2019
Net sales
Cost of sales 365817 274515 260174
Gross margin 212981 169559 161782
Operating expenses:
Research and development 21914 18752 16217
Selling, general and administrative 21973 19916 18245
Total operating expenses 43887 38668 34462
Operating income 108949 66288 63930
Other income/(expense), net 258 803 1807
Income before provision for income taxes 109207 67091 65737
Provision for income taxes 14527 9680 10481
Net income 94680 57411 55256
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions Sep. 25, 2021 Sep. 26, 2020 Sep. 26, 2019
Current assets:
Cash and cash equivalents 34940 38016 48844
Marketable securities 27699 52927 51713
Accounts receivable, net 26278 16120 22926
Inventories 6580 4061 4106
Vendor non-trade receivables 25228 21325 22878
Other current assets 14111 11264 12352
Total current assets 134836 143713 162819
Non-current assets:
Marketable securities 127877 100887 105341
Property, plant and equipment, net 39440 36766 37378
Other non-current assets 48849 42522 32978
Total non-current assets 216166 180175 175697
Total assets 351002 323888 338516
Current liabilities:
Accounts payable 54763 42296 46236
Other current liabilities 47493 42684 37720
Deferred revenue 7612 6643 5522
Commercial paper 6000 4996 5980
Term debt 9613 8773 10260
Total current liabilities 125481 105392 105718
Non-current liabilities:
Term debt 109106 98667 91807
Other non-current liabilities 53325 54490 50503
Total non-current liabilities 162431 153157 142310
Total liabilities 287912 258549 248028
Commitments and contingencies
Shareholders’ equity:
Common stock and additional paid-in capital, 57365 50779 45174
$0.00001 par value: 50,400,000 shares
authorized; 16,426,786 and 16,976,763
shares issued and outstanding, respectively
Retained earnings 5562 14966 45898
Accumulated other comprehensive income/(loss) 163 -406 -584
Total shareholders’ equity 63090 65339 90488
Total liabilities and shareholders’ equity $ 351,002 $ 323,888 $ 338,516
Apendix B
Apple .Inc
12 Months Ended
Income statement
Sep. 25, 2021 Sep. 26, 2020 Sep. 28, 2019
Net sales 100\% 100\% 100\%
Cost of sales 58\% 62\% 62\%
Gross margin 42\% 38\% 38\%
Operating expenses:
Research and development 6\% 7\% 6\%
Selling, general and administrative 6\% 7\% 7\%
Total operating expenses 12\% 14\% 13\%
Operating income 30\% 24\% 25\%
Other income/(expense), net 0\% 0\% 1\%
Income before provision for income taxes 30\% 24\% 25\%
Provision for income taxes 4\% 4\% 4\%
Net income 26\% 21\% 21\%
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions Sep. 25, 2021 Sep. 26, 2020 SIBM financial ratios
2021 2020 2021
Market Cap Growth 6.87\% -5.51\% 14.92\%
Enterprise Value 160,228 152,494 163,668
PE Ratio 20.87 20.07 12.59
PS Ratio 2.09 2.03 2.06
PB Ratio 6.34 5.45 5.7
P/FCF Ratio 11.51 7.4 9.57
P/OCF Ratio 9.37 6.16 8.04
EV/Sales Ratio 2.98 3.04 3.12
EV/EBITDA Ratio 12.73 13.76 10.65
EV/EBIT Ratio 24.36 30.45 16.61
EV/FCF Ratio 16.42 11.09 14.51
Debt / Equity Ratio 2.92 3.16 3.27
Debt / EBITDA Ratio 4.1 5.33 4.03
Debt / FCF Ratio 5.29 4.29 5.5
Current Ratio 0.88 0.98 1.02
Asset Turnover 0.4 0.36 0.39
Return on Equity (ROE) 27.20\% 27.20\% 51.70\%
Return on Assets (ROA) 4.00\% 3.60\% 6.40\%
Return on Capital (ROIC) 8.30\% 5.50\% 10.80\%
Earnings Yield 4.79\% 4.98\% 7.95\%
FCF Yield 8.69\% 13.51\% 10.45\%
Dividend Yield 4.90\% 5.17\% 4.81\%
Payout Ratio 102.20\% 103.70\% 60.50\%
Buyback Yield / Dilution -0.90\% -0.42\% 2.56\%
Total Shareholder Return 4.00\% 4.75\% 7.37\%
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