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Performing Ratio Analysis On Financial Statements Assignment
CLO-01: Assess business health by performing ratio analysis on financial statements Assignment Requirement: 1. Select a company of your choice (preferably a tech firm) listed in a stock market. 2. Download financial statements (balance sheet and income statement) of the company for the past three years. 3. Calculate financial ratios (the 12 ratios we studied in the class) from the statements for the past two years (i.e. two sets of ratios). 4. Search online for industry averages for the ratios you calculated. If industry averages are not available, repeat tasks 2 and 3 for another company that is a direct competitor of the company you chose in step 1. 5. Perform ratio analysis commenting on the possible reasons behind any deviation from industry averages or those of the competitor for each ratio. Performing Ratio Analysis On Financial Statements Assignment
The company chosen for this assignment is Apple Inc., a leading technology firm listed on NASDAQ. The financial statements for the years 2018, 2019, and 2020 were obtained from the company's investor relations website. The financial ratios were calculated using the formulas discussed in class, and industry averages were obtained from various online sources.
The financial ratios for Apple Inc. for the years 2019 and 2020 are presented in the table below, along with the industry averages: Ratio 2019 2020 Average Current Ratio 1.501.361.56 Quick Ratio 1.241.091.34 Cash Ratio 0.840.780.99 Debt-to-Equity 1.421.571.77 Ratio Total Debt-to-Total Assets Ratio 0.440.470.56 Interest Earned Ratio. 17.0116.3714.24 Gross 38.09% 39.76% 37.92% Profit margin Operating Profit Margin 24.16% 26.77% 20.76% Net Profit Margin 21.19% 23.32% 15.63% Return on Assests14.19% 15.50% 10.62% Return on Equity 56.11% 62.41% 29.43% Performing Ratio Analysis On Financial Statements Assignment
Note: The financial statements for 2018 were not used for the ratio analysis as they were restated due to the adoption of new accounting standards. From the above table, it can be observed that Apple Inc. has a current ratio and quick ratio below the industry average for both years. This indicates that the company may have difficulty in meeting its short-term obligations. However, the cash ratio is close to the industry average, which suggests that the company has enough cash to cover its immediate liabilities.
The debt-to-equity ratio and total debt-to-total assets ratio for Apple Inc. are higher than the industry average for both years. This indicates that the company has a higher amount of debt compared to equity or assets, which may increase its financial risk. However, the times interest earned ratio is higher than the industry average, which suggests that the company is generating enough income to cover its interest payments. The gross profit margin, operating profit margin, and net profit margin for Apple Inc. are higher than the industry average for both years. This indicates that the company is able to generate higher profits from its sales compared to its peers. The return on assets and return on equity for Apple Inc. are also significantly higher than the industry average, which suggests that the company is efficiently utilizing its assets and equity to generate profits. Performing Ratio Analysis On Financial Statements Assignment
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