Activity Description: Financial Ratio Analysis
Imagine that you are an analyst who has been asked to produce a report on Apple’s financial performance, including its ability to attain its objectives, over the last three (3) years. You are to report your findings to your boss. You should assume that your boss has no prior knowledge of Apple’s specific strategy. Your task is to shed light on the company’s results, thoroughly explaining any deviations from projections. This means that it is not sufficient to describe the ratios you have calculated. Rather, you are to provide an overall analysis with an assessment of whether these financial ratios and analyses are supportive of Apple’s strategy or whether Apple may be required to modify its strategy because of any financial constraints indicated. A major part of this report involves projections or forecasting.
Before beginning your work on this Activity, you should carefully study and understand the information in the Required Readings. You should further familiarize yourself with Apple by researching recent articles and reports and by assessing the company’s competitive position in a manner that is consistent with previous analyses. Your Activity responses should be both grammatically and mechanically correct, and formatted in the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document in a bibliography using APA style. (100 points) (A table and a 3-page response are required.)
Part A Access Apple’s balance sheets and income statements for the last 3 years from the Apple web site (http://investor.apple.com/financials.cfm). From those statements, calculate the financial ratios for Apple for each of the past 3 years, as noted below. 1. Liquidity Ratio: For each of the indicated three (3) years, you need address only the Current Ratio. 2. Profitability Ratio: For each of the three (3) indicated years, you need address only the Return on Investment. 3. Activity Ratio: For each of the three (3) indicated years, you need address only the Asset Turnover. 4. Leverage Ratio: For each of the three (3) indicated years, you need only address the Debt to Asset Ratio. 5. Other Ratios: For each of the three (3) indicated years, you need only the Dividend Yield on Common Stock.
Present your findings in a table, titling each row with one of the five ratios, as follows: 1) Liquidity Ratios, 2) Profitability Ratios, 3) Activity Ratios, 4) Leverage Ratios, and 5) Other Ratios. Your table should have six columns, each labeled for one year, plus a column for the mean value for the entire period. (60 points) (A table is required.)
Part B Part B Next, review Apple’s stated strategy for each of these years and analyze each Apple ratio from one year to the next during this time period. Be sure to explain what the ratio indicates in general, as well as with respect to the specific period. Discuss whether the ratios support Apple’s strategies or if changes are indicated. Identify any trends that you detect from one year to the next. As an example, let us state, hypothetically, that Apple’s Current Ratio has been declining over several periods. You will want to assess its implications for Apple’s stated strategy. (40 points) (A 3-page response is required.)