Key ratios of the company's financial sustainability

Ratio	Value	Change (col.4-col.2)	Description of the ratio and its recommended value
31.12.2013	31.12.2014	31.12.2015
Debt-to-equity ratio (financial leverage)	0.67	1.07	1.43	+0.76	A debt-to-equity ratio is calculated by taking the total liabilities and dividing it by shareholders' equity. It is the key financial ratio and used as a standard for judging a company's financial standing. Normal value: 1.5 or less (optimum 0.43-1).
Debt ratio (debt to assets ratio)	0.40	0.51	0.58	+0.18	A debt ratio is calculated by dividing total liabilities (i.e. long-term and short-term liabilities) by total assets. It shows how much the company relies on debt to finance assets (similar to debt-to-equity ratio). Acceptable value: 0.6 or less (optimum 0.3-0.5).
Long-term debt to Equity	0.64	0.70	0.69	+0.05	This ratio is calculated by dividing long-term (non-current) liabilities by equity.
Non-current assets to Net worth	1.08	1.35	1.68	+0.6	This ratio is calculated by dividing long-term (non-current) liabilities by net worth (equity) and measures the extent of a company's investment in low-liquidity non-current assets. This ratio is important for comparison analysis because it's less dependent on industry (structure of company's assets) than debt ratio and debt-to-equity ratio. Normal value: 1.25 or less.
Capitalization ratio	0.24	0.33	0.43	+0.19	Calculated by dividing non-current liabilities by the sum of equity and non-current liabilities.
Fixed assets to Net worth	1.32	1.50	1.75	+0.43	This ratio indicates the extent to which the owners' cash is frozen in the form of fixed assets, such as property, plant, and equipment, investment property and non-current biological assets. Acceptable value: no more than 0.75.
Current liability ratio	1.95	1.39	1.22	-0.73	Current liability ratio is calculated by dividing non-current liabilities by total (i.e. current and non-current) liabilities.

First, attention should be drawn to the debt-to-equity ratio and debt ratio as the ratios describing the capital structure. Both ratios have similar meaning and indicate if there is not enough capital (equity) for stable work for the company. Debt-to-equity ratio is calculated as a relationship of the borrowed capital (liabilities) to the equity, while debt ratio is calculated as a relationship of the liabilities to the overall capital (i.e. the sum of equity and liabilities).

The debt-to-equity was equal to 0.58 on 31.12.2015. The debt ratio equaled 0.58 on 31.12.2015, at the same time the debt ratio equaled 0.40 on the first day of the period analysed (there was a growth of 0.18 found).

The debt ratio describes apple's financial condition as a good one on the last day of the period analysed (31.12.2015), the percentage of liabilities is 58.9%, while a maximum acceptable percentage is deemed to be 60%. During the whole of the period, the debt ratio kept a normal value.

In the chart below, the correlation of the company's equity and liabilities is demonstrated:

 

According to common rules, non-current investments should be made, in the first place, with the help of the most stable source of financing, i.e. with the help of own capital (equity). The non-current assets to Net worth ratio shows if this rule is followed. At the end of the period analysed, the ratio was 1.75. An alteration in the ratio ade +0.43during the period reviewed (31.12.13–31.12.15). The value of the ratio can be considered as an unacceptable one on 31.12.2015.

The value of the current liability ratio (0.47) shows that current and non-current liabilities of apple are almost equal (47.1% and 52.9%, respectively).

The change in the main ratios of financial stability of apple is demonstrated for the entire period analysed in the chart below.

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