Assignment 1

Question A
The table below presents three Ratios for Liquidity, Efficiency and Payable Ratios, for the years
2021, 2022 and 2023 for Apple Company.
Table 1 – Ratios and Calculation
Current Ratio = Quick Ratio = (Cash + Cash Ratio = (Cash +
Current Accounts Receivables + Marketable
Assets/Current Market Securities)/Current
Liabilities Securities)/Current Liabilities
Liabilities

Liquidity Ratios (2021) 1.04 0.78 0.59

Liquidity Ratios (2022) 2.06 0.90 0.58
Liquidity Ratios (2023) 1.12 0.96 0.76
Change percentage 21- 96.99 14.77 -1.42
22
Change percentage 22- -45.58 6.79 30.02
23
Inventory Accounts Payable to Asset Turnover Ratio =
Turnover Ratio = Sales Ratio = Net Sales/ Average Total
Net (Accounts Payable/Net Assets
Sales/Inventory Sales) x 100

Efficiency Ratio (2021) 11.87 0.19 1.72

Efficiency Ratio (2022) 10.45 0.19 1.67
Efficiency Ratio (2023) 11.87 0.17 1.39
Change percentage 21- -11.95 2.42 -2.97
22
Change percentage 22- 13.58 -8.86 -16.84
23
Accounts Payable Days payable Working capital
Turnover Ratio = outstanding ratio = turnover ratio = net
total purchase(total (Average Accounts sales/average working
goods Payable/Cost of goods capital (--average of
sold)/average sold) x no of days current assets – current
account payable liabilities)
Payable Ratio (2021) 4.14 94.50 71.89
Payable Ratio (2022) 3.47 114.81 56.57
Payable Ratio (2023) 3.91 104.28 35.20
Change percentage 21- -16.26 21.49 -21.31
22
Change percentage 22- 12.70 -9.18 -37.78
23
Interpretation and ways to improve ratio
The three Liquidity Ratio’s calculated for Apple’s financial statistics are Current Ratio, Quick
Ratio and Cash Ratio. The Current Ratio refers to the company’s ability to pay short term
liabilities using its short term assets. As the value is greater than 1, it shows the company has
more current assets than current liabilities. And hence it can cover its needs. But to improve this
ratio, the company should increase its assets and reduce its current liabilities. The company
should work on increasing their account receivables and manage their inventory effectively, as
well as control expenses for this purpose. The quick ratio measures the capacity the company
has to pay its current liabilities without selling its inventories or any additional financing. As the
quick ratio is less than 1, it doesn’t have enough assets to meet the need. To improve the
company’s quick ratio, it should increase its cash, either by increasing sales or reducing
expenses. Or it can reduce inventory, as it’s the least liquid asset. The cash Ratio shows how a
company can cover their short term debts through its cash. As in this case, the ratios are less than
1 hence it shows the company has liquidity issues and it cannot meet its obligations. To improve
this situation, by increasing cash through better financing projects and increasing profits.
The three Efficiency Ratios calculated for Apple’s financial statistics are Inventory Turnover
ratio, Accounts payable to Sales ratio and Asset Turnover Ratio. The Inventory Turnover Ratio
is a financial metric that measures how efficiently Apple manages its inventory and assets. As the
value is greater than 1 for Apple, it shows the company has strong sales and efficient inventory
management. But to further improve it, they need to increase the demand for inventory, introduce
an effective pricing strategy, reduce their costs and improve time management. The Accounts
Payable to Sales ratio is a financial statistics that presents how a company’s sales are supported
by its supplier’s money. As in this case, the value is less than 1 it shows that the company takes a
longer time to pay its bills, affecting its relationships. To resolve this issue, the company should
pay their invoices on time, take early payment discounts to its customers to promote it, avoid
multiple payments of the same invoice, keep reminders for payments, and form a workflow
system to keep the payments in track. The Asset turnover ratio measures how much a company
can use its assets to generate its sales. In this case the ratios are greater than 1, which means that
the company uses its assets efficiently to generate its revenues. But to even improve this ratio
more, Apple should increase its revenue further through sales and promotions. It should improve
its inventory management by managing it through latest technology and support of AI. It can also
sell its assets or lease assets rather than buying them.
The three Payable Ratios calculated for Apple’s financial statistics are Accounts Payable
Turnover ratio, Days payable outstanding ratio and Working capital turnover ratio. Accounts
Payable Ratio refers to the metric that shows how a company pays its short term debts. It
explains its creditworthiness and liquidity. In Apple’s case, the ratio is high which shows the
company is paying its suppliers on time, maintaining its relationships as well as credit terms. For
improving this ratio, the company can work on paying on time, negotiate better payment terms
with their suppliers and improve their cash flow system. Days payable outstanding ratio
measures the time the company takes to pay its creditors. In this case, the DPO is high and this
means the company has good cash flow, good relationship with suppliers, efficient workflow and
good credit terms. To improve DPO, the company needs to automate its processes, review its
payments to balance cash inflow and outflow, and centralize the invoicing system. Finally, the
Working capital turnover ratio is a metric that shows efficiency of a company towards using its
working capital to generate its sales. The higher ratio indicates that company is efficient and
generates more sales. To further improve it, the company can manage its inventory, cut down on
its expenses, monitor its account receivables and negotiate for better pricing with suppliers.
Question B
Follow tables below presents the forecasted Payable, Efficiency and Liquidity ratios for the next
3 years. These are calculated using the linear forecasting method, based on the previous year’s
ratios. Followed by each table of forecast is the graph to show how the forecasting has changed
or followed the change pattern. The following graphs show the comparison of forecasted and
actual figures.
Table 2 – Liquidity Ratio Forecasted

Current Ratio Quick Ratio Cash Ratio

Year 1 1.48 1.05 0.81

Year 2 1.52 1.14 0.89
Year 3 1.55 1.23 0.97

Liquidity Ratio Forecasting

Year 3

Year 2

Year 1

Liquidity Ratios (2023)

Liquidity Ratios (2022)

Liquidity Ratios (2021)

0 0.5 1 1.5 2 2.5

Cash Ratio Quick Ratio Current Ratio

Table 3 – Efficiency Ratio Forecasted

Inventory Accounts Asset

Turnover Payable to Turnover
Ratio Sales Ratio Ratio
 Year 1 11.4 0.17 1.26

Year 2 11.4 0.16 1.093

Year 3 11.4 0.16 0.93

Efficiency Ratio Forecasting

14
12
10
8
6
4
2
0
1) 2) 3) 1 2 3
02 02 02 ar ar ar
( 2 ( 2 ( 2 Ye Ye Ye
o o o
R ati R ati R ati
ncy ncy ncy
cie cie cie
Effi Effi Effi

Inventory Turnover Ratio Accounts Payable to Sales Ratio

Asset Turnover Ratio

Table 2 – Payable Ratio Forecasted

Accounts Payable Days payable Working capital

Turnover Ratio outstanding ratio turnover ratio
Year 1 3.61 114.3 17.9
Year 2 3.49 119.2 -0.48
Year 3 3.37 124.1 -18.8
 Payable Ratio Forecasting
Year 3

Year 2

Year 1

Payable Ratio (2023)

Payable Ratio (2022)

Payable Ratio (2021)

-40.0 -20.0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0

Working capital turnover ratio Days payable outstanding ratio

Accounts Payable Turnover Ratio

The new income statement and Balance sheet are attached in appendix, with forecasted figures.
The Straight in line forecasting is used, which involves the method of multiply the growth rate
with previous financial statistics to predict future figures. The Straight in line forecast involves
the calculation of change percentage per year, for finding the growth or decrease of the statistic
over the single year. This allows to forecast the later year’s statistics and ratios using linear
method. It involves several assumptions, for forecast purpose.
Assumptions
Listed below are the assumptions involved in forecasting:
1) Inflation remains constant
2) Interest rates in the country Apple is operating remains constant
3) New external factors that can influence the business donot arise
4) The growth or decrease in statistics is linear, following the pattern of the previous 3 years
presented in financial statements
Limitations
Listed below are the limitations involved in forecasting:
1) The method of straight line does not account depreciation of assets
2) It ignores the loss of interest for the amount invested in an asset
3) Not all figures/statistics in a business follow the linear regression path. It can take a
change after 3 years of time
4) Ignoring important factors like inflation, interest rate, and other external factors make the
forecasting limited.
Question C
Rising Inflation and Lowering Interest Rates will affect Apple’s Financial Statements
Financial statements are the significant tools used to present the quantitative information
regarding a business’s performance and financial health. It presents the company’s operations,
decisions related to sales, costs, debts, management and investments. Under the financial
statements, there is Cash Flow Statement, which presents statistics about the business cash
inflow and outflow for the specific period. The second is Income Statement, which is also known
as Profit and Loss Statement which highlights the revenues, costs and expenses for the time
period. And finally the Balance Sheet presents the company’s Assets, Liabilities and Shareholder
Equity. A significant change in the economy will influence the company’s financial health, and
statistics which are represented on the statements. Two of the key elements that can influence
Apple’s financial statements include Inflation and Interest Rate (Chen, 2023).
Inflation is referred to as a significant economic indicator which influences businesses and
economies. It is defined as the general increase in the prices of goods and services over an
extended time period. Increasing inflation is a matter of concern because price increase and
falling purchasing power can lead to a falling economy (Höflmayr, 2022).
The World Economic Forum has shared that the inflation rates have doubled around the world in
37-44 economies since the past few years. The rising inflation has serious impact on financial
performance and the positioning of businesses. The most influenced financial statistics include
Profit margins, Prices, cash flows, debts and investments. The most concern for Apple due to the
rising inflation rates are the profitability and cash flows. This issue will persist if the company
does not increase the price of their products to pass the increasing cost towards the customers.
Due to operating in a highly competitive market, the company has less chances to increase their
price. Inflation will also impact Apple’s long term contracts which has fixed priced. The cost of
completing their projects will increase, and hence it will be an unprofitable project. With
inflation on the rise, the purchasing power of customers decrease. For a company like Apple,
which sells premium and highly priced products, the sales is affected (Savva, 2024).
The increasing inflationary trends also influence the assumptions made for financial statements.
Firstly, multinational companies use Generally Accepted Accounting Principles (GAAP) for
estimation of good will. With increasing inflation, a company like Apple need to revise their
assumptions to achieve accurate estimations. Along with this, the increasing inflation are
controlled by Federal Reserve by increasing interest rates, which increases the interest costs. Due
to inflation, there is increased volatility in the public market, which can lead to losses for the
investment. And hence investment strategies can be influenced by investors or stakeholders. It
also leads to increase in rent overheads and increasing cost associated with other vendors and
service providers (Stringer, 2022).
This is similar in the case of lowered interest rates, because these both act similarly as external
factors influencing the assumptions and principles of Accounting under the financial statements.
Interest rate has a significant influence on financial tools and functioning. It impacts the financial
market activities, investment decisions, prices of asset and the cost of borrowing. The
fluctuations in interest rate affect businesses as well as policy makers and investors. Central
banks from around the world adjust the interest rate given the global economic conditions
(Yuvaan Jhunjhunwala, 2024).

Decrease in the interest rates will change the value of financial assets and liabilities, significantly
those that have fixed interest rates associated. The decreasing interest rates decrease borrowing
costs, resulting in higher profits and providing opportunities for new debts to Apple. With the
lower interest rate, borrowing decisions are promoted, allow the business to invest towards
technology, expansion and working on research for better opportunities. These lead to improved
statistics like sales, expenses and investments. The difference in the interest rate influences the
exchange rates, which impacts the international trade for the company. The rate will also impact
the company’s working capital influencing their sales. Through the lower rate of interest,
economic activity improves for Apple and hence the statements show better financial health
(Jakub Ojczenasz, 2023).
Reference:

Chen, K. (2023) ‘Analysis of Apples Financial statements’, Advances in Economics,

Management and Political Sciences, 43(1), pp. 225–231. doi:10.54254/2754-
1169/43/20232168.

Höflmayr, M. (2022) Inflation explained: What lies behind and what is ahead? rep. European
Parliamentary Research Service.

Yuvaan Jhunjhunwala (2024) ‘The impact of interest rate changes on financial markets: A
mathematical study’, International Journal of Scientific Research in Science and
Technology, 11(5), pp. 157–169. doi:10.32628/ijsrst2411591.

Jakub Ojczenasz (2023) Understanding interest rates and their impact on business operations,
LinkedIn. Available at: https://www.linkedin.com/pulse/understanding-interest-rates-
impact-business-jakub/ (Accessed: 11 December 2024).

Stringer, D. (2022) The impacts of rising inflation: The effect on financial statements, HW
Fisher. Available at: https://hwfisher.co.uk/the-impacts-of-rising-inflation-hw-fisher-
examines-the-effect-on-financial-statements/#:~:text=Certain%20items%20such%20as
%20cash,industries%20with%20long%20credit%20terms. (Accessed: 11 December 2024).

Savva, M. (2024) How rising inflation is impacting the financial statements, European Institute
of Management and Finance. Available at: https://eimf.eu/how-rising-inflation-is-
impacting-the-financial-statements/ (Accessed: 11 December 2024).
Appendix
Table 5 – Income Statement with Forecast

2021 2022 2023 Forecaste percentag percentag

d e change e change
from 21- from 21-
22 22

Net product Sales 94,665 79,268 70,080 58,682 -16 -12

Net service Sales 41,322 27,738 18,908 12,692 -33 -32
Total net sales 135,98 107,00 88,988 71,374 -21 -17
7 6
Operating expenses
Cost of sales 88,265 72,651 62,752 51,651 -18 -14
Fulfillment 17,619 13,410 10,766 8,194 -24 -20
Marketing 7,233 5,254 4,332 3,147 -27 -18
Technology and content 16,085 12,540 9,275 7,231 -22 -26
General and admin 2,432 1,747 1,552 1,115 -28 -11
Other operating expense 167 171 133 136 2 -22
Total operating expense 131,80 104,77 88,810 71,474 -21 -15
1 3
Operating income 4,186 2,233 178 95 -47 -92
Interest income 100 50 39 20 -50 -22
Interest expense -484 -459 -210 -199 -5 -54
Other income (expense) 90 -256 -118 336 -384 -54
Total non-operating income -294 -665 -289 251 126 -57
Income (loss) before income 3,892 1,568 -111 -100 -60 -107
taxes
Provision for Income taxes -1,425 -950 -167 -111 -33 -82
Equity method investment -96 -22 37 8 -77 -268
activity
Net income (loss) 2,371 596 -241 48 -75 -140

Table 6 – Balance Sheet Forecasted

2021 2022 2023 Forecasted percentage percentage

change from 21- change from
22 21-22

Current assets
 Cash and cash 19,334 15,890 14,557 11,964 -18 -8
equivalents
Marketable securities 6,647 3,918 6,859 4,043 -41 75
Inventories 11,461 10,243 8,299 7,417 -11 -19
Accounts Receivable 8,339 10,654 5,612 7,170 28 -47
Total current Assets 45,781 35,705 31,327 30,594 -22 -12
PP&E 29,114 21,838 16,967 12,727 -25 -22
Good Will 3,784 3,759 3,319 3,297 -1 -12
Other Assets 9,723 3,445 2,892 1,025 -65 -16
Total Assets 88,402 69,747 58,505 47,642 -21 -16
Current liabilities
Accounts payable 25,309 20,397 15,459 12,459 -19 -24
Accrued expenses 13,739 10,372 9,807 7,404 -25 -5
Unearned revenue 4,768 3,118 1,823 1,192 -35 -42
Total current liabilities 43,816 33,887 28,089 21,054 -23 -17
Long Term debt 7,694 8,227 8,265 8,838 7 0
Other long-term liabilities 12,607 9,249 7,410 5,436 -27 -20
Stockholders’ equity
Common stock 5 5 5 5 0 0
Treasury stock -1,837 -1,837 -1,837 -1,837 0 0
Additional paid-in capital 23,186 17,394 15,135 11,354 -25 -13
Other comprehensive loss -985 -723 -511 -375 -27 -29
Retained earnings 4,916 2,545 1,949 1,009 -48 -23
Total stockholder equity 19,285 13,384 10,741 10,156 -31 -20
Total liabilities and equity 88,402 69,747 58,505 45,484 -21 -16