Decoding Apple's Financial Prowess: A Ratio-Based Approach

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 ABSTRACT
In the present era, technology firms have become an integral part of society’s lifestyle

and economic productivity and hence need a focus on continuous operations and sustainable

development. This paper uses Apple Inc. as a case study to provide financial statement analysis

focusing on liquidity ratios, solvency analysis, and profitability analysis from 2021 to 2023. The

information in this paper originates from Apple’s financial statements for the said period as well

as from other sources that have previously looked into this topic. With regards to liquidity, based

on the liquidity ratios, Apple has been in a tight position, though the figures have been

manageable. On the issue of solvency, based on the solvency ratios, the company has been seen

to have utilized a high level of leverage to drive its profitability. On the profitability analysis, the

company has maintained a high return on assets and equity, which has translated to handsome

returns to investors.

INTRODUCTION

Starting as a mere project in 1976, situated within a Silicon Valley garage, Apple Inc. has

always been at odds with the rest of its industries by continuously concentrating on innovation

(Library of Congress, n.d.). They had set out to make personal computing better through their

risky investment henceforth Steve Jobs and Steve Wozniak are now associated with Apple Inc

which is a global technological giant that fuses modern hardware, software and services so well

that it is adored across the globe (Apple Inc, 2024). From Apple I and II computers to iPhone,

iPad and MacBook lines among other inventions like no other leading manufacturer before them;

they have kept on setting new standards for others to follow –this is what characterizes Apple’s

products (Pan, 2023).

 The secret behind Apple’s success lies in their financial performance which has remained

higher than industry benchmarks throughout its meteoric growth. Whether through making

calculated investments, operating more efficiently or consistently delivering superior user

experiences, this company always shows how much profit it earns annually and how plentifully

liquid assets it possesses (Lu, 2023). Their financial ability has enabled the company maintain a

competitive position while attracting various investors as well as researchers who analyze stock

prices for different firms in the market today.

FINDINGS AND DISCUSSION

LIQUIDITY RATIO ANALYSIS

Liquidity analysis is an assessment of the ability of a company to meet its immediate

financial obligations as they arise. This entails evaluating whether a business can convert its

current assets into cash or cash equivalents to clear the current debts. The main aim of this form

of analysis is to help establish whether or not a firm has enough liquid resources that would keep

it running and avoid becoming distressed financially.

Liquidity Ratios

Sep 30, 2023 Sep 24, 2022 Sep 25, 2021

Current ratio 0.99 0.88 1.07
Quick ratio 0.84 0.71 0.91
Cash ratio 0.42 0.31 0.50
Table 1: Source: https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Liquidity

The current ratio reflecting a company’s ability to cover liabilities due within one year. It

is gotten by dividing the current assets by the current liabilities of the company.
 Current Ratio
1.20

1.00

0.80

0.60

0.40

0.20

—
1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3
202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202 202
1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1,
p ct v c n b r r y n ul g p ct v c n b r r y n ul g p
Se O No De Ja Fe Ma Ap Ma Ju J Au Se O No De Ja Fe Ma Ap Ma Ju J Au Se

Figure 1:(Data Sourced from https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/

Liquidity#Ratios-Summary) (Stock Analysis On Net, n.d.)

The diagram in figure 1 indicates that Apple’s current ratio since September 2021 to

September 2023. As such, Apple’s current asset could not pay off its current liabilities in the

period covered 2022 as the ratio was less than 1:1. However, the situation changed after

September 2023 when the ration became greater than one. This can be attributed to an increase in

current assets compared to current assets and the company has sustained the same since then.

The quick ratio is another liquidity ratio that measures the ability of a company to pay off

its short-term obligations using its most liquid assets excluding inventories. When the quick ratio

is below 1.0, it could be a sign of possible liquidity problems whereas a higher ratio shows

stronger position of liquidity of a company. Apple’s quick ratio also followed the same pattern

with current ratio in that it declined from 0.91 in 2021 to 0.71 in 2022 before rising to 0.84 in

2023.While the quick ratio was less than ideal at 1.0, it suggested that Apple had enough liquid

assets other than inventories so that they can stand on their own regarding their obligations.
 Quick ratio
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
—
21 21 21 21 22 22 22 22 22 22 22 22 22 22 22 22 23 23 23 23 23 23 23 23 23
, 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
p ct v c n b r r y n ul g p ct v c n b r r y n ul g p
Se O No De Ja Fe Ma Ap Ma Ju J Au Se O No De Ja Fe Ma Ap Ma Ju J Au Se

Quick ratio

Figure 2: :(Data Sourced from https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/

Liquidity#Ratios-Summary) (Stock Analysis On Net, n.d.)

The cash ratio is considered the strictest liquidity measure as it only regards cash and

cash equivalents as liquid assets. The cash buffer to cover current liabilities by Apple fell from

0.50 in 2021 to 0.31 in 2022 meaning lower cash reserves for this purpose. It, however, increased

to 0.42 in FY2023 indicating stronger cash position.

 Cash ratio
0.60

0.50

0.40

0.30

0.20

0.10

—
21 21 21 21 22 22 22 22 22 22 22 22 22 22 22 22 23 23 23 23 23 23 23 23 23
, 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
p ct v c n b r r y n ul g p ct v c n b r r y n ul g p
Se O No De Ja Fe Ma Ap Ma Ju J Au Se O No De Ja Fe Ma Ap Ma Ju J Au Se

Cash ratio

Figure 3: :(Data Sourced from https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/

Liquidity#Ratios-Summary) (Stock Analysis On Net, n.d.)

All in all, while there was a decline in Apple’s liquidity ratios during one year but they

began showing improvement signs during another year; nevertheless, not at an optimal level but

still manageable hence Apple having enough liquid resources for fulfilling short-term

commitments even though it shown some tightness regarding its liquidity position.

SOLVENCY RATIOS ANALYSIS

The solvency ratios of a company will help you understand its long-term financial

obligation and debt management capacity level. These figures give us an idea about the

company’s capital structure, leverage and overall financial risk.

Sep 30, 2023 Sep 24, 2022 Sep 25, 2021

Debt to equity 1.80 2.39 1.99
Debt to assets 0.32 0.34 0.36
Debt to capital 0.64 0.70 0.67
Table 2:(Data Sourced from https://finance.yahoo.com/quote/AAPL/key-statistics/) (Yahoo Finance , 2024)
 The ratio of a corporation’s debt-to-equity is a vital measure in finding out how much it

owes compared to what shareholders have invested (Liu, 2024). Apple’s debt-to-equity ratio rose

from 1.99 in 2021 to 2.39 in 2022, showing greater amounts of debts in comparison to equity.

However, it reduced to 1.80 in 2023 indicating a slight recovery of these capital structures for

this organization. This could be a strong indication that the company debt was being managed

well through policies implemented by the management and executives.

The debt to asset ratio looks at how much of the company’s assets are financed using

funds borrowed. A high debt to asset ratio would indicate that the company is exposed to the risk

of missing debt repayment due to the high amounts borrowed to acquire assets (Hasanuh &

Shahfira, 2022). Debt The debt to asset ratio of Apple has been on the decline over the period in

question. It began at 0.36 in 2021, then declined to 0.34 in 2022 and finally to 0.32 in 2023. This

is trend is owed to the fact that the amount debt reduced during the period as the value of assets

increased. This is a strong indication that the debt is being managed and the assets are sufficient

to support its operations.

Debt to capital ratio measures the extent that a firm's capitalization consists of borrowed

funds (Yu & Kim, 2023). Apple’s debt-to-capital ratio followed similar trend increasing from

0.67 in 2021 to reach a peak of 0.70 during year 2022; then down again 0.64 as indicated

towards year 2023 as shown in table 1. This indicates that apple has relied heavily on borrowing

and financed its operations and growth plans.

In general terms, this implies that solvency ratios indicate Apple has highly leveraged

capital structure with an extensive dependency on debt for funding growth initiatives and

operations however; having strong net profitability position and sizable operating income has

enabled the Apple Inc. maintain a solid capacity for dealing with liabilities arising from
borrowed funds and even servicing them as well as paying other costs associated with fixed

commitments.

PROFITABILITY RATIOS ANALYSIS

Profitability ratios offer insights into a firm’s capability to create profits from its business

undertakings and investments. These are very essential in appraising corporate financial

performance as well as the extent of dividends that can be distributed to shareholders (Sari &

Daryanto, 2021).

Sep 30, 2023 Sep 24, 2022 Sep 25, 2021

Net profit margin 25.31% 25.31% 25.88%
Return on equity (ROE) 156.08% 196.96% 150.07%
Return on assets (ROA) 27.51% 28.29% 26.97%
Table 3:(Data Sourced from: https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Profitability)

It is expressed as Net Profit Margin (NPM) which shows how much of every dollar

earned by Apple is converted to actual profit after all expenses have been met. For this period,

Apple’s net profit margins remained consistently high at 25.31% in 2023 and 2022 and then

increased though it was a decrease slight from 25.88% in 2021 hence reflecting a remarkable

ability by the company to produce sizable earnings from its operations.

Return on investment (ROI) is a profitability ratio measuring the effectiveness of

investment activities undertaken by an organization. Whereas there were no specific figures

given for ROI, it is important to use this measure to assess the effects of Apple’s investment

decisions on profitability.

This ratio measures how profitable a company is relative to its shareholders’ equity or

assets. From above, Apple’s ROE has demonstrated an impressive trend with rates ranging

between 150.07% during 2021 and peaking at 196.96%. However, it declined slightly before
reaching156.08% in 2023, but this may be due to other factors beyond poor management

managements control such as change in government policy or technological advancement.

CONCLUSION

In conclusion, Apple’s financial performance is excellent, this can be seen through the

liquidity ratios, solvency ratios and profitability ratios which show a company with great strength

and a well-managed financial position. Despite facing temporary liquidity challenges in 2022,

Apple improved its liquidity ratios by 2023 showing that it has enough buffer to meet its short-

term obligations.

Solvency ratio analysis points out at Apple’s aggressive capital structure characterized by

a heavy dependence on debt financing. Nevertheless, the company has been servicing excellently

its debt obligations due to significant operating profits as well as adequate profitability hence

covering fixed charges and thus minimizing the associated financial risks.

The profitability ratios of Apple are superb; they have impressive net profit margins,

returns on equity and returns on assets that are exceeding the industry averages. These figures

mirror high earnings from operations by the firm itself, efficient utilization of shareholders’

equity and effective management of assets.

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Pan, H. (2023). Analysis of the Product Evolution and Marketing Strategy of Apple Company. Advances in
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