Apple Inc. Financial Ratios and Financial Statements Analysis and Review

In "Apple Inc. 2018 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” that was written by, Paul Borosky, MBA., doctoral candidate, and owner of Quality Business Plan and Finance Homework Help, the author summarized Apple Inc.'s 2019 10k, Apple's 2018, 10k annual report, Apple's 2017 10k annual report, and Apple's 2016 10k annual reports as the basis for information gathering.  After all of Apple's 10k annual statements were collected, which included Apple's Income Statements and Apple's Balance Sheets, he then used proprietary financial templates to calculate different financial ratios such as Apple's ROE, ROA, and debt ratio.

Apple Inc. 2015 to 2018 Income Statement Summarized

Apple Inc.
Income Statement 2018
Column1 2018 2017 2016 2015 2014
Revenues           265,595           229,234           215,639       233,715       182,795
COGS           163,756           141,048           131,376       140,089       112,258
Gross Profit           101,839             88,186             84,263         93,626         70,537
SG&A             16,705             15,261             14,194         14,329         11,993
Depreciation                     -                     -                     -                -                -
R & D             14,236             11,581             10,045           8,067           6,041
Other                     -                     -                     -                -                -
Operating Expenses             30,941             26,842             24,239         22,396         18,034
EBIT             70,898             61,344             60,024         71,230         52,503
Other Income               2,005               2,745               1,348           1,285              980
Interest Expense                     -                     -                     -                -                -
EBT             72,903             64,089             61,372         72,515         53,483
Taxes             13,372             15,738             15,685         19,121         13,973
Net Income             59,531             48,351             45,687         53,394         39,510

Apple Inc. 2018 Revenues Analysis:

For Apple, the organization’s revenue started at $182 billion in 2014 and grew to $265 billion in 2018.  Average revenue growth was 10.6%.  In comparing this to the net income, which had an average revenue growth of 12.4%, this indicates that the company’s net income is growing faster as compared to the revenue.

This trend is unsustainable.  An organization cannot grow their net income at a faster pace than the revenues over a long period of time.  This is because, in order to grow net income fast than revenues, reductions in cost of goods sold, depreciation or other expenses must be continually achieved.  If this process continues, the organization will eventually become over optimized.  As a result, quality and other important organizational features will inevitably suffer.

Apple Inc. (Growth)
Income Statement 2018
Line Items 2018 2017 2016 2015 Average
Revenues 15.9% 6.3% -7.7% 27.9% 10.6%
COGS 16.1% 7.4% -6.2% 24.8% 10.5%
Gross Profit 15.5% 4.7% -10.0% 32.7% 10.7%
SG&A 9.5% 7.5% -0.9% 19.5% 8.9%
Depreciation
R & D 22.9% 15.3% 24.5% 33.5% 24.1%
Other
Operating Expenses 15.3% 10.7% 8.2% 24.2% 14.6%
EBIT 15.6% 2.2% -15.7% 35.7% 9.4%
Other Income -27.0% 103.6% 4.9% 31.1% 28.2%
Interest Expense
EBT 13.8% 4.4% -15.4% 35.6% 9.6%
Taxes -15.0% 0.3% -18.0% 36.8% 1.0%
Net Income 23.1% 5.8% -14.4% 35.1% 12.4%

Apple Inc. 2018 Cost of Goods Analysis:

In evaluating cost of goods sold, not only do I look for trends, year over year, but I also compare the cost of goods sold, as a percent of revenues.  In the situation, we can see that the cost of goods, as a percentage of revenues, is approximately 61% over the last five years.

From these calculations, we can make specific assumptions.  First, Apple’s management seems to be consistent in negotiating their prices paid for raw material.  Further, with such an extensive trend, any deviating from this in the future may indicate fluctuations with prices of raw material, as compared to Apple’s inability to negotiate purchase contracts.  In other words, if the cost of goods sold, as a percentage, decreases, then the cost of doing business for the company would inevitably be increasing (inverse relationship, confusing).  This can lead to increased prices for consumers and possibly lower sales due to the elevated prices.

Apple Inc. COGS as % of Revenues
Income Statement 2018
Column1 2018 2017 2016 2015 2014
Revenues           265,595           229,234           215,639       233,715       182,795
COGS           163,756           141,048           131,376       140,089       112,258
COGS %
Revenues
61.7% 61.5% 60.9% 59.9% 61.4%

Apple Inc. 2018 SG&A Analysis:

Apple Incorporated, again, seems to be incredibly consistent with their SG&A, similar to their COGS.  As noted above, the SG&A ranges from 6.1% to 6.7% of revenues.  This, in and of itself, indicates an important trend.  The trend is that management for the company is crazy disciplined with their costs.  This should give investors solitude in knowing that the company does an excellent job, overall, with the managerial aspect of running the business. In other words, not only is the company amazingly creative, with their products and designs, but they are also cognizant of the importance for practicing basic management techniques and implementation.

Apple Inc. SG&A as % of Revenues
Income Statement 2018
Column1 2018 2017 2016 2015 2014
Revenues           265,595           229,234           215,639       233,715       182,795
SG&A             16,705             15,261             14,194         14,329         11,993
SG&A %
Revenues
6.3% 6.7% 6.6% 6.1% 6.6%

Apple Inc. 2015 to 2018 Balance Sheet Summarized

Apple
Balance Sheet
Column1 2018 2017 2016 2015 2014
Cash          25,913          20,289          20,484          21,120          13,844
Short Term Investment          40,388          53,892          46,671          20,481          11,233
Account Receivable          23,186          17,874          15,754          16,849          17,460
Inventory            3,956            4,855            2,132            2,349            2,111
Other          37,896          31,735          21,828          28,579          23,883
Current Assets        131,339        128,645        106,869          89,378          68,531
Net PPE          41,304          33,783          27,010          22,471          20,624
Goodwill                  -                  -            5,414            5,116            4,616
Other        324,421        324,421        289,262        262,758        206,599
Total Assets        365,725        375,319        321,686        290,345        231,839
Accounts Payable          55,888          44,242          37,294          35,490          30,196
Accrued Expense          32,687          30,551          22,027          25,181          18,453
Accrued Taxes                  -                  -                  -                  -                  -
Notes Payable          11,964          11,977            8,105            8,499            6,308
LT Debt - Current            8,784            6,496            3,500            2,500                  -
Other            7,543            7,548            8,080            8,940            8,491
Total Current Liabilities        116,866        100,814          79,006          80,610          63,448
LT Debt          93,735          97,207          75,427          53,329          28,987
Other        164,843        144,065        118,010        117,661          91,305
Total Liabilities        258,578        241,272        193,437        170,990        120,292
Common Stock          40,201          35,867          31,251          27,416          23,313
Treasury                  -                  -                  -                  -                  -
Retained Earnings          70,400          98,330          96,364          92,284          87,152
Other          (3,454)             (150)               634             (345)                  -
Total Equity        107,147        134,047        128,249        119,355        110,465
Total Equity & Liability        365,725        375,319        321,686        290,345        231,839

Apple Inc. 2018 Cash Analysis:

For Apple, this company seems to align their cash position more with sales as compared to total assets.  This is evident because, for the last four years, their cash position has been approximately 9% to 9.5% of sales.  Whereas their percentage to total assets relationship has fluctuated between 5.4% to 7.1%.

By noting this relationship, investors are able to monitor future financial statements to seek out deviations from the practice.  If deviations occur, then further analysis needs to be conducted to determine why.

Overall, Apple seems to be in an excellent cast position.  Not only does the firm have a strategy for maintaining cash, which is alignment with sales, they also have enough funds available to invest in short-term securities, as well as long-term securities.

Apple: Cash as a % of Sales and Total Assets
Balance Sheet
Column1 2018 2017 2016 2015 2014
Cash          25,913          20,289          20,484          21,120          13,844
% of Sales 9.8% 8.9% 9.5% 9.0% 7.6%
% of Total Assets 7.1% 5.4% 6.4% 7.3% 6.0%

Apple Inc. 2018 Accounts Receivable Analysis:

In 2014, Apple’s accounts receivable was 9.6% of sales.  This indicated that the firm had a lenient repayment policy for retailers.  In other words, retailers seem to have taken a bit longer, as compared to other years, to make payments to Apple for their products.  Between 2015 and 2017, the company seemed to have a tight credit policy.  In other words, the organization was requiring suppliers to pay them a bit quicker.  However, in 2018, their collections for receivables seem to have tapered off, which has resulted in Accounts Receivable being 8.7% of sales.

A loose credit policy may indicate lessening demand for the company’s products or elevated competition in the marketplace.  For Apple, both of these circumstances may be true.  If this lenient credit policy continues, then the organization may be preparing for a revenue decrease in the midterm.

Apple: Accounts Receivable as a % of Sales
Balance Sheet
Column1 2018 2017 2016 2015 2014
Accounts Receivables          23,186          17,874          15,754          16,849          17,460
% of Sales 8.7% 7.8% 7.3% 7.2% 9.6%

Apple Inc. 2018 Inventory Analysis:

Inventory seems to best align with percent of total assets.  In 2014, inventory was approximately .9% of total assets.  As for 2018, this relationship was approximately 1.1%.  Such a low amount of inventory indicates that the company has streamlined their distribution channels to ensure that excessive inventory is not an issue.  In doing this, if there is an issue with their supply line, and this is entirely possible when receiving products from overseas, such as China, product sell outs would probably be a continuous issue for the firm.  This may lead to truncated sales and profits.

Apple: Inventory as a % of Sales and Total Assets
Balance Sheet
Column1 2018 2017 2016 2015 2014
Inventory            3,956            4,855            2,132            2,349            2,111
% of Sales 1.5% 2.1% 1.0% 1.0% 1.2%
% of Total Assets 1.1% 1.3% 0.7% 0.8% 0.9%

Apple Inc. 2018 Financial Ratios

2018 Apple Liquidity Ratios
Ratios 2018 2017 2016 2015 2014
Current Ratio                  1.12             1.28             1.35             1.11             1.08
Cash Ratio                  0.22             0.20             0.26             0.26             0.22
Quick Ratio                  1.09             1.23             1.33             1.08             1.05
2018 Apple Inc. Asset Utilization
Ratios 2018 2017 2016 2015 2014
Total Asset Turnover                0.726           0.61           0.67           0.80           0.78
Fixed Asset Turnover                6.430           6.78           7.98         10.40           8.86
Days Sales Outstanding              31.86         28.46         26.66         26.31         34.86
Apple 2018 - Profitability Ratios
Ratios 2018 2017 2016 2015 2014
Return on Assets 16.28% 12.88% 14.20% 18.39% 17.04%
Return on Equity 55.56% 36.07% 35.62% 44.74% 35.77%
Net Profit Margin 22.41% 21.09% 21.19% 22.85% 21.61%

Apple Inc. Current Ratio Analysis:

In reference to Apple Incorporated, the company had a current ratio in 2014 of 1.08.  As of 2018, the organization had a current ratio of 1.12.  In other words, Apple definitely plays by the rules in reference to liquidity.  Because their current ratio is above one, we can definitely assume that Apple is able to meet their short-term obligations.

Apple Inc. 2018 Cash Ratio Analysis:

For Apple, the company started 2014 with a .22 cash ratio.  Further, they ended 2018 at the same position.  This indicates that the organization maintains a consistent balance of cash with their current liabilities.

Apple Inc. 2018 Fixed Asset Turnover Analysis:

Apple ended 2018 with a total fixed asset turnover of 6.43.  They started 2015 with a 10.46 asset turnover ratio.  This indicates that the company is becoming less efficient with their fixed assets.  To mitigate this issue, the organization may choose to sell off excess property or equipment.  By doing this, not only will they improve their fixed asset utilization but they were also improving their cash position.

Apple Inc. 2018 Days Sales Outstanding Analysis:

Apple ended 2014 with days sales outstanding at approximately 34.8 days.  The company ended 2018 with days sales outstanding of 31.86.  This indicates that the company either tightens their credit policy.  If the organization did tighten their credit policy, then retailers have less time to remit payment to Apple.  This could also mean that Apple’s collection department has become more efficient.  Efficiency improvements may be in the line of reminding retailers to remit payment or even picking up the phone and calling retailers to remind about payments.  If the improvement in the ratio was because of improved efficiency, then excellent job Apple management.  In contrast, if the improvement was because of tightened credit policy, then this may indicate that the company is cash-strapped.  Because Apple is flush with cash, this is the unlikely of the two scenarios.

Apple Inc. 2018 Return of Assets Analysis:

Apple started 2014 with a return on assets of 17.04%.  This ratio increased lately in 2015 to 18.39%.  However, in 2016 and 2017, the ratio fell to 14.2% and 12.88% respectively.  Fortunately, the company did rebound in 2018 with a 16.28% return on assets.  The fluctuation with return on assets may indicate that the company’s net income fell substantially in 2016 and 17 but rebounded in 2018.  Further, the organization may have divested or sold assets and 2018, which allowed for an increased ratio.

In going forward, investors should keep a close eye on return on assets.  If the organization continues to increase this ratio, then this indicates that the firm is optimally using their assets.  However, if this fluctuation continues, then investors should include additional risk premiums when considering the stock.

Apple Inc. 2018 Return of Equity Analysis:

In relations to Apple, the company ended 2014 with the return on equity of 35.77%.  After five years, the company has reached a return on equity of 55.56%.  This means that the organization is returning to investors significant profits, based on equity provided.  This ratio alone may substantiate a significant price for the company’s stock.

Apple Inc. 2018 Profit Margin Analysis:

In relations to Apple, the company’s net profit was 21.61% in 2014.  As of 2018, their net profit remained steady at 22.41%.  This indicates that the company is not taking significant cost-cutting actions currently.  Further, by maintaining a steady profit margin, the organization shows quality management skills.  This is because the company is able to maintain profits and relations to cost over long-term.