Apple's Financial Position Analysis

Apple's Financial Position Analysis

The analysis given below on apple's financial state and activity efficiency is made for the period from 01.01.2014 to 31.12.2015 based on the financial statements data prepared according to International Financial Reporting Standards (IFRS).

Structure of the Assets and Liabilities

Indicator	Value	Change for the period analysed
in million USD	% of the balance total	million USD (col.4-col.2)	± % ((col.4-col.2): col.2)
31.12.2013	31.12.2014	31.12.2015	at the beginning of the period analysed (31.12.2013)	at the end of the period analysed (31.12.2015)
Assets
1. Non-current assets	133,714	163,308	201,101	64.6	69.2	+67,387	+50.4
2. Current assets, total	73,286	68,531	89,378	35.4	30.8	+16,092	+22
Inventories	1,764	2,111	2,349	0.9	0.8	+585	+33.2
Trade and other current receivables	24,094	31,537	35,889	11.6	12.4	+11,795	+49
Cash and cash equivalents	14,259	13,844	21,120	6.9	7.3	+6,861	+48.1
Equity and Liabilities
1. Equity	123,549	111,547	119,355	59.7	41.1	-4,194	-3.4
2. Non-current liabilities	39,793	56,844	90,514	19.2	31.2	+50,721	+127.5
3. Current liabilities	43,658	63,448	80,610	21.1	27.8	+36,952	+84.6
Assets; Equity and Liabilities	207,000	231,839	290,479			+83,479	+40.3

According to the data given in the table, non-current assets were about two thirds of apple's assets (69.2%) on the last day of the period analysed (31.12.2015), while current assets took one third. For the entire period reviewed, it was seen that there was a notable growth in the assets from USD 207,000 million to USD 290,479 million (USD +83,479 million). Despite assets growth, the equity of apple reduced by 3.4% and showed USD 119,355 million (or 41.1% of the total balance) on 31 December, 2015.

The total growth of apple's assets value is mainly connected with the growth value of the following assets (amount of change and percentage of this change relative to the total assets growth are shown below):

· Investment property – USD 57,850 million (66.6%)

· Trade and other current receivables – USD 11,795 million (13.6%)

· Cash and cash equivalents – USD 6,861 million (7.9%)

· Property, plant and equipment – USD 5,874 million (6.8%)

The most significant growth of sources of finance ("Equity and Liabilities") is seen on the following rates (the percentage from total equity and liabilities change is shown in brackets):

· Trade and other non-current payables – USD 36,503 million (38.2%)

· Trade and other current payables – USD 24,448 million (25.6%)

· Other long-term financial liabilities – USD 13,219 million (13.8%)

· Other current financial liabilities – USD 12,504 million (13.1%)

Total assets of the company did not grow to a greater degree due to a negative change in items such as "Other current financial assets" in assets and "Retained earnings" in the company's sources of finance, which were USD -3,149 million and USD -11,972 million respectively for the entire period analysed.

Correlation of basic asset groups is demonstrated in the chart below.

The inventories amounted to USD 2,349 million at the end of the period reviewed. The increase in the inventories was USD 585 million during the period reviewed (31.12.13–31.12.15).

During the two years, the current receivables significantly spiked (by USD 11,795 million).

 

Net Assets (Net Worth)

Indicator	Value	Change
in million USD	% of the balance total	million USD (col.3-col.2),	%, ((col.3 -col.2): col.2)
at the beginning of the period analysed (31.12.2013)	at the end of the period analysed (31.12.2015)	31.12.2013	31.12.2014	31.12.2015
1. Net tangible assets	117,793	110,346	56.9	44.3		-7,447	-6.3
2. Net assets (Net worth)	123,549	119,355	59.7	48.1	41.1	-4,194	-3.4
3. Issued (share) capital	–	–	–	–	–	–	–
4. Difference between net assets and Issued (share) capital (line 2 - line 3)	123,549	119,355	59.7	48.1	41.1	-4,194	-3.4

The net tangible assets appreciably fell to USD 117,793 million (by USD 7,447 million, or by 3.4%) for the period analysed (from 31 December, 2013 to 31 December, 2015). On 31.12.2015, the intangible assets were USD 110,346 million. This value shows the difference between the value of net tangible assets and all net worth.

The positive net worth indicates at least a satisfactory financial condition of the company. It means that some property will belong to their owners even after meeting of all its liabilities. The net worth (net assets) value is used as one of the tools to estimate the company's value (used together with other methods, such as discounted cash flow method, or an estimation based on shareholder's value etc.). But it is a key value in the estimation of the company's financial condition.

Financial Sustainability Analysis

Working capital analysis

Indicator	Value	Change for the period analysed
31.12.2013	31.12.2014	31.12.2015	(col.4-col.2)	% ((col.4-col.2): col.2)
1. Working capital (net working capital), million USD	+29,628	+5,083	+8,768	-20,860	-70.4
2. Inventories, million USD	+1,764	+2,111	+2,349	+585	+33.2
3. Working capital sufficiency (1-2), million USD	+27,864	+2,972	+6,419	-21,445	-77
4. Inventory to working capital ratio (2:1) Normal value: no more than 1.	0.06	0.42	0.27	+0.21	x

On 31.12.2015, the working capital equaled USD 8,768 million. The working capital significantly decreased (USD -20,860 million) for the period analysed (31.12.13–31.12.15). The table above shows that working capital exceeds the company's inventories by USD 6,419 million. At the end of the period reviewed, the inventory to working capital ratio equaled 0.27. Such a correlation is deemed to be normal, although it can be achieved through warehouse inventories that are too low, but not through enough of long-term resources of financing in some cases.

Liquidity Analysis

Liquidity related ratios are one of the most widespread indicators of a company's solvency. The current ratio shows the capacity of a company to meet current liabilities with all available current assets. Quick ratio describes solvency in the near future. Cash ratio shows if there is enough means for uninterrupted execution of current transactions. The table below demonstrates all three liquidity ratios for apple.

Liquidity ratio	Value	Change (col.4 - col.2)	Description of the ratio and its recommended value
31.12.2013	31.12.2014	31.12.2015
1.Current ratio (working capital ratio)	1.67	1.08	1.10	-0.57	The current ratio is calculated by dividing current assets by current liabilities. It indicates a company's ability to meet short-term debt obligations. Acceptable value: 2 or more.
2. Quick ratio (acid-test ratio)	1.48	0.89	0.96	-0.52	The quick ratio is calculated by dividing liquid assets (cash and cash equivalents, trade and other current receivables, other current financial assets) by current liabilities. It is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Acceptable value: no less than 1.
3. Cash ratio	0.32	0.21	0.26	-0.06	Cash ratio is calculated by dividing absolute liquid assets (cash and cash equivalents) by current liabilities. Normal value: no less than 0.2.

On 31.12.2015, the current ratio was equal to1.10, at the same time the current ratio amounted to 1.67 (i.e. the rate went down by-0.57). The value of the ratio is unacceptable on 31.12.2015. The current ratio kept an atypical value during the whole of the period.

On the last day of the period analysed, the quick ratio amounted to1.48. During the entire period analysed, the quick ratio dropped by-0.52. The value of the quick ratio can be characterised as normal on 31 December, 2015. It means that apple has enough liquid assets (cash and other assets which can be rapidly sold) to meet all their current liabilities.

At the end of the period reviewed, the value of the cash ratio equal to 0.26is very good. The cash ratio significantly decreased to 0.32 (by-0.06) during the two years.

Financial Performance

Profitability Ratios

Profitability ratios	Value in %	Change (col.3 - col.2)
1. Gross margin.	38.6	40.1	+1.5
2. Return on sales (operating margin).	29.3		+1.7
3. Profit margin.	21.6	22.8	+1.2
Reference: Interest coverage ratio (ICR). Normal value: 1.5 or more.	–	–	–

The profitability ratios given in the table have positive values as a result of the profitability of apple's activities during the last year. The gross margin amounted to 40.1% for the year 2015. That is 38.6% higher than the level for the year 2014.

The profitability calculated by earnings before interest and taxes (Return on sales) is more important from a comparative analyses point of view. The return on sales was 0.31 or 31% per annum for the period 01.01–31.12.2015, while the profit margin was 22.8% per annum.

Profitability ratios	Value, %	Change (col.3 - col.2)	Description of the ratio and its reference value
Return on equity (ROE)			+9	ROE is calculated by taking a year's worth of earnings (net profit) and dividing them by the average shareholder equity for that period, and is expressed as a percentage. It is one of the most important financial ratios and profitability metrics. Acceptable value: 12% or more.
Return on assets (ROA)			+1	ROA is calculated by dividing net income by total assets, and displayed as a percentage. Normal value: 6% or more.
Return on capital employed (ROCE)			+3	ROCE is calculated by dividing EBIT by capital employed (equity plus non-current liabilities). It indicates the efficiency and profitability of a company's capital investments.

During the period 01.01–31.12.2015, the return on assets was equal to 44%. During the last two years, it was seen that there was a significant increase in the return on assets of 35%.

The most important ratio of business profitability is the return on equity (ROE), which reflects the profitability of investments by the owners. For the year 2015, a return on equity was 46.2% per annum. It is a high rate, but it is influenced not only with factors inside the company, but also the economic environment where the company is located (inflation rate, interest rates, etc).

The chart below shows changes of the main rates of return on assets and equity of the company for the entire period reviewed.

Conclusion

Key Ratios Summary

The most important indicators of apple's financial state and activity results are summarized below by using a qualitative assessment for the period analysed (from 31 December, 2013 to 31 December, 2015).

The following indicators describe the apple's financial state from only a good point of view:

· the cash ratio is 0.26 at the end of the period (a high cash at hand required for current payments);

· high return on equity (46.2% per annum);

· return on total assets was during the last year 20.4% per annum;

· long-term resources of the financing of the company's activity are enough to form a normal amount of working capital which would cover the available inventories;

· During the period from 01.01.2015 to 31.12.2015, earnings before interest and taxes (EBIT) showed USD 72,515 million, at the same time, a positive dynamics compared with the data for the year 2014 (USD +19,032 million) was observed;

· the income from financial and operational activities (comprehensive income) was USD 53,394 million during the period 01.01–31.12.2015.

The following indicators describe the financial condition of apple relative a positive standard:

· the percentage of liabilities in the total balance of apple is 58.9% which is normal for stable activity;

· a good relationship between liquid assets (current assets minus inventories) and current liabilities (quick ratio is 1.08);

· the company has equity (positive net worth) of USD 119,355 million.

The analysis discovered the following negative financial characteristics:

· the value of the non-current assets to net worth ratio equal to X.XX can be considered as an unsatisfactory one;

· the current ratio (1.11) does not correspond to the normal criteria for this rate (2);

· equity reduced during the whole period analysed, while the company's total assets grew.

Appendix

Apple's Financial Position Analysis

The analysis given below on apple's financial state and activity efficiency is made for the period from 01.01.2014 to 31.12.2015 based on the financial statements data prepared according to International Financial Reporting Standards (IFRS).