Research Paper Part III
For this assignment, you will continue researching your chosen company. Compose a paper on the financials of your chosen firm; you will choose two ratios from each category (liquidity, profitability, and solvency) and conduct an analysis as well as highlight key areas/trends of the income statement and balance sheet. Be sure to answer the following questions in your response:
- What do the ratios reflect?
- Does the company appear healthy and headed in the right direction? Explain.
- How does the company compare to another firm in the same industry in regards to financial metrics (for instance, a comparison of Target versus Walmart based on the basic ratio categories mentioned above)?
Your paper must be at least two pages in length, and you must use at least two sources. Please adhere to APA style when creating citations and references for these sources.
Running head: RESEARCH PAPER PAGE 1
RESEARCH PAPER PAGE 5
Columbia Southern University
“Apple Inc. is a leading company in designing, manufacturing and marketing mobile communication devices, computers and related hardware,” (Schauer et al., 2018). Apple also sells digital content to a third party, services, software, and applications. The firm has always targeted a diverse customer base. Apple operates in a Consumer Electronics industry. The company was founded in 1977, and its headquarters are in Cupertino, California. It offers a line of smartphones such as the iPhone and Mac computers. Retail and online stores have been integrated by the firm to sell its array of products. The current CEO of the firm is Tim Cook. 88% of the board members are independent of operations of the firm. OECD model is utilized by the firm to assess the corporate governance structure at the firm, and the compensation plan is based on performance. The company makes 16% of the market capitalization in this sector. Apple’s key competitors include Microsoft, Samsung Electronics, Nokia, HP and Sony.
Current and Past Investments of Apple
The investment activities at Apple based on past years; 2019 investment activities at an annual measure were at $-1.078 billion, which was a 44.7% increase from 2018. As of June 30, 2020, Apple investment activities were valued at $-2.323 billion, which is an increase of 123.58%, (Macrotrends.net. 2020). The company tends to invest in highly rated securities. The investment policy is limited to the amount of credit exposure to the issuer, and the firm reviews the changes in the market interest rates, financial conditions, time and value of the investment. The debts at Apple should be less of a concern because it has $95 billion in short-term investments and cash.
The capital structure of Apple is a combination of debt and equity that is used in financing the overall operations and growth. The equity capitalization of Apple is based on the sum of the common stock and retained earnings. By June 2019, the shareholder’s equity at the firm was valued at $96.5 billion; the common stock was $43.4 billion and retained earnings were $53.7 billion, (Yahoo Finance, 2020). The capital structure at Apple has been very successful through debt leveraging and increasing equity. Debt capitalization is another component of Apple’s capital structure. Current liabilities of Apple in 2019 were $89.7 billion, where accounts payable stood at $29.1 billion, and bonds and notes were valued at $13.5 billion. The total of Apple’s liabilities is $225.8 billion, including long-term debt and non-current liabilities of $136 billion. However, the debt capitalization concerning the last three years has increased by 63%.
The accumulation of debt has changed the capital structure of the firm. The current ratio at the firm has risen to 33%, and the quick ratio has increased by 59% in the last five years. The debt to equity ratio at the firm has grown considerably; in 2016, the debt-to-equity ratio was 50%, and the ratio increased in 2019 was at 112%. This proves that the capital structure of a firm can change drastically. A company that pays for its assets with more equity than debt probably has a low leverage ratio and a conservative capital structure. If the leverage ratio is high with a capital structure that is aggressive like Apple’s higher growth rates are likely to be experienced, (Li & Wang, 2019). The corporate strategy employed at Apple is the use of both equity and debts to finance operations.
In conclusion, the measure of Apple’s worth has been detrimental to investment bankers. However, the capital structure at Apple has been highly leveraged; it should not pose a threat to the solvency of the company. Apple’s capital structure has contributed a lot to its growth in the smartphone market and the overall consumer electronics industry.
Li, L., & Wang, Z. (2019). How does capital structure change product-market competitiveness? Evidence from Chinese firms. PloS one, 14(2), e0210618. Retrieved from https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0210618
Macrotrends.net. (2020). Apple Investing Activities – Other 2006-2020 | AAPL. Retrieved from https://www.macrotrends.net/stocks/charts/AAPL/apple/investing-activities-other
Schauer, B., Zielinski, B., & Kolb, K. (2018). Apple Incorporated, AAPL. UWEC. Retrieved from https://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/SMIFC2018-1-UWEC-paper.pdf
Yahoo Finance. (2020). Apple Inc. (AAPL). Retrieved from https://finance.yahoo.com/quote/AAPL?p=AAPL