Executive Summery

The Past – Steve Jobs, Steve Wozniak and Ronald Wayne established Apple on April 1, 1976 in order to sell the Apple 1 Computer Kit that was hand built by Steve Wozniak. The Apple 1 was sold as a motherboard (with CPU, RAM and basic textual video chips) – less than what is considered a personal computer today.

The Present – January 2007, Steve Jobs, the CEO and Co-Founder of Apple, announces that Apple Computer Incorporated would now be known as Apple Inc. In June 2008, he announces that the iPhone 3G would be released in July 2008, this newer version added support for 3G Networking and assisted GPS navigation, among other things.

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Research methodology

The data collected by me is secondary data. Due to lack of time. It is difficult to collect primary data cause my company is not in India. It is a Foreign company.

Objective of the study

Helpful in analysis of Financial Statements. Helpful in comparative Study. Helpful in locating the weak spots of the business. Helpful in Forecasting. Estimate about the trend of the business. Fixation of ideal Standards. Effective Control. Study of Financial Soundness.

Limitations of the study

Comparison not possible if different firms adopt different accounting

policies.

Ratio analysis becomes less effective due to price level changes.

Ratio may be misleading in the absence of absolute data.

Limited use of a single data.

Lack of proper standards.

False accounting data gives false ratio.

Ratios alone are not adequate for proper conclusions.

Effect of personal ability and bias of the analyst. 

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Ratios

What is Ratio Analysis?

DEFINITION of 'Ratio Analysis'

Ratio analysis is quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items in financial statements like the balance sheet, income statement and cash flow statement; the ratios of one item – or a combination of items - to another item or combination are then calculated. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is studied to check whether they are improving or deteriorating. Ratios are also compared across different companies in the same sector to see how they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis.

Meaning

Financial statements aim at providing financial information about a business enterprise to meet the information needs of the decision-makers. Financial statements prepared by a business enterprise in the corporate sector are published and are available to the decision-makers. These statements provide financial data which require analysis, comparison and interpretation for taking decision by the external as well as internal users of accounting information. This act is termed as financial statement analysis. It is regarded as an integral and important part of accounting. As indicated in the previous chapter, the most commonly used techniques of financial statements analysis are comparative statements, common size statements, trend analysis, accounting ratios and cash flow analysis. The first three have been discussed in detail in the previous chapter. This chapter covers the technique of accounting ratios for analyzing the information contained in financial statements for assessing the solvency, efficiency and profitability of the enterprises. 5.1 Meaning of Accounting Ratios As stated earlier, accounting ratios are an important tool of financial statements analysis. A ratio is a mathematical number calculated as a reference to relationship of two or more numbers and can be expressed as a fraction, proportion, percentage and a number of times. When the number is calculated by referring to two accounting numbers derived from the financial statements, it is termed as accounting ratio.

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Historical Background

In the past decade of economic tendency, Malaysia as one of the developing countries in Asia has confronted various changes and enlargement. Achievement of Malaysia industry deeply affects the economic status of Malaysia. The movement of foreign exchange will increase when investors involve in it. Investors will always invest in good conduct industry because they will earn revenue in the short time period. However, investors need to recognize or to analyze the performance of the company properly before invest and it is not an easy job for an outsider to understand.

By doing the financial statement analysis, it will help the analyst to understand the performance of any company. The analysis of financial statement is a study of establishing meaningful relationship between various financial facts and figure given in financial statement. The basic financial statement included balance sheet and income statement which is the indicating device of profitability and financial soundness of business concern. Simple and valuable elements have been dissected by complex figure that given in financial statement. In addition, significant relationships are established between the elements of the same dissection. Establishing relationships and interpretation thereof to understand the working and financial position of a firm is called analysis of financial statement. Thus, analysis of financial statement is the procedure of establishing and identifying the financial weakness and strengths of the company.

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What is Ratio?

DEFINITION of 'Accounting Ratio'

A way of expressing the relationship between one accounting result and another, which is intended to provide a useful comparison. Accounting ratios assist in measuring the efficiency and profitability of a company based on its financial reports. Accounting ratios form the basis of fundamental analysis.

Meaning

Ratio analysis is a process of determining and interpreting relationships between the items of financial statements to provide a meaningful understanding of the performance and financial position of an enterprise. Ratio analysis is an accounting tool to present accounting variables in a simple, concise, intelligible and understandable form.

Different modes of expressing an accounting ratio

Ratio may be expressed In different ways. They are as follows:

a) Simple or Pure Ratios,

b) Percentages,

c) Rate.

Comparison by Ratios

There are some simple balance sheet comparisons you can make to assess the strength or performance of your business against earlier periods, or against direct competitors. The figures you study will vary according to the nature of the business. Some comparisons draw on figures from the profit and loss (P&L) account.

Internal comparisons: If inventory (stock) levels are rising from one period to the next, but sales in your P&L are not, some of your stock might be out of date. You may also have a cashflow problem developing - see cashflow management: the basics. If the amount trade debtors owe you is growing faster than sales, it could indicate poor internal credit controls. Find out whether any of your customers are having problems with cashflow, which could pose a threat to your business. A positive relationship with your trade creditors is essential. Key to this

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is managing your cashflow effectively, so that payments can be made on time. For example, trade creditors are more likely to be flexible about extending terms of credit if you have built up a good payment record. Making early payments may qualify you for a discount. However, early payment for the sake of it will have a negative impact on your cashflow. Good payment controls will help prevent imbalances in what you owe suppliers and in levels of stock and inventory.

Borrowing as a percentage of overall financing (gearing) is important - the lower the figure, the stronger your business is financially. It's common for start-up businesses to have high borrowing requirements, but if the gearing figure reaches 50 per cent you may have difficulty getting further loans.

External comparisons: You can also compare the above balance sheet figures with those of direct or successful competitors to see how you measure up. This exercise will highlight weaknesses in your business operation that may need attention. It will also confirm strong business performance. See use accounting ratios to assess business performance.

Objectives of Financial Ratio Analysis

The objective of ratio analysis is to judge the earning capacity, financial soundness and operating efficiency of a business organization. The use of ratio in accounting and financial management analysis helps the management to know the profitability, financial position and operating efficiency of an enterprise. Advantages of Ratio Analysis The advantages derived by an enterprise by the use of accounting ratios are:

1) Useful in analysis of financial statements: Bankers, investors, creditors, etc analysis balance sheets and profit and loss accounts by means of ratios.

2) Useful in simplifying accounting figures: Accounting ratio simplifies summarizes and systematizes a long array of accounting figures to make them understandable. In the words of Biramn and Dribin, “ Financial ratios are useful because they summarize briefly the results of detailed and complicated computation”

3) Useful in judging the operating efficiency of business: Accounting Ratio are also useful for diagnosis of the financial health of the enterprise. This is done by evaluating liquidity, solvency, profitability etc. Such a evaluation enables management to access financial requirements and the capabilities of various business units.

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4) Useful for forecasting: Helpful in business planning, forecasting. What should be the course of action in the immediate future is decided on the basis of trend ratios, i.e., ratio calculated for number of years.

5) Useful in locating the weak spots: Locating the weak spots in the business even though the overall performance may quite good. Management cab then pay attention to the weakness and take remedial action. For example if the firm finds that the increase in distribution expense is more than proportionate to the results achieved, these can be examined in detail and depth to remove any wastage that may be there.

6) Useful in Inter-firm and Intra-firm comparison: A firm would like to compare its performance with that of other firms and of industry in general. The comparison is called inter-firm comparison. If the performance of different units belonging to the same firm is to be compared, it is called intra-firm comparison. Such comparison is almost impossible without accounting ratios. Even the progress of a firm from year to year cannot be measured without the help of financial ratios. The accounting language simplified through ratios are the best tool to compare the firms and divisions of the firm.

The Advantages of Financial Ratios

Financial ratios are tools used to assess the relative strength of companies by

performing simple calculations on items on income statements, balance sheets and

cash flow statements. Ratios measure companies & operational efficiency,

liquidity, stability and profitability, giving investors more relevant information

than raw financial data. Investors and analysts can gain profitable advantages in

the stock market by using the widely popular, and arguably indispensable,

technique of ratio analysis.

Comparison

Financial ratios provide a standardized method with which to compare companies

and industries. Using ratios puts all companies on a relatively equal playing field

in the eyes of analysts; companies are judged on their performance rather than

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their size, sales volume or market share. Comparing the raw financial data of two

companies in the same industry offers only limited insight. Ratios go beyond the

numbers to reveal how good a company is at making a profit, funding the

business, growing through sales rather than debt and a wide range of other factors.

An older company, for example, might boast 50 times the revenue of a new small

business, which would make the older company seem stronger at first glance.

Analyzing the two companies with ratios such as return on equity (ROE), return

on assets (ROA) and net profit margin may reveal that the smaller company

operates much more efficiently, generating substantially more profit per dollar of

assets employed.

Industry Analysis

Ratios can reveal trends in particular industries, creating benchmarks against

which the performance of all industry players can be measured. Small businesses

can use industry benchmarks to craft organizational strategy and clearly measure

their own performance against the industry as a whole. As an example, analysis

may reveal that the average debt-to-equity ratio in the widget industry is .85; a

company with a debt-to-equity ratio of 1.3 would be much more heavily

leveraged than other widget manufacturers, even though its total debt may be

vastly smaller than larger debt.

Stock Valuation

The common language and understanding of ratios helps investors and analysts to

evaluate and communicate the strengths and weaknesses of individual companies

or industries. Fundamental analysis is the term given to the use of financial ratios

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in determining the relative strength of companies for investing purposes. A

careful analysis of a company’s ratios can reveal which companies have the

fundamental strength to increase their stock value over time ;a potentially

profitable opportunity while pointing out the weaker players in the market as well.

Planning and Performance

Ratios can provide guidance to entrepreneurs when creating business plans or

preparing presentations for lenders and investors. Using industry trends as a

baseline, small-business owners can set time-bound performance goals in terms of

specific ratios to give investors a glimpse into the potential of the new company.

Ratios can also serve as an impetus for strategic change within an organization,

providing management with relevant guidance and feedback as ratio valuations

shift in response to organizational changes. Ratios keep managers on their toes by

revealing financial weaknesses and opportunities.

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Limitations of Ratio Analysis

Since the ratios are derived from the financial statements, any weakness in the original financial statements will also creep in the derived analysis in the form of Accounting Ratios 205 ratio analysis. Thus, the limitations of financial statements also form the limitations of the ratio analysis. Hence, to interpret the ratios, the user should be aware of the rules followed in the preparation of financial statements and also their nature and limitations. The limitations of ratio analysis which arise primarily from the nature of financial statements are as under:

1. Limitations of Accounting Data: Accounting data give an unwarranted impression of precision and finality. In fact, accounting data “reflect a combination of recorded facts, accounting conventions and personal judgments which affect them materially. For example, profit of the business is not a precise and final figure. It is merely an opinion of the accountant based on application of accounting policies. The soundness of the judgment necessarily depends on the competence and integrity of those who make them and on their adherence to Generally Accepted Accounting Principles and Conventions”. Thus, the financial statements may not reveal the true state of affairs of the enterprises and so the ratios will also not give the true picture.

2. Ignores Price-level Changes: The financial accounting is based on stable money measurement principle. It implicitly assumes that price level changes are either non-existent or minimal. But the truth is otherwise. We are normally living in inflationary economies where the power of money declines constantly. A change in the price-level makes analysis of financial statement of different accounting years meaningless because accounting records ignore changes in value of money.

3. Ignore Qualitative or Non-monetary Aspects: Accounting provides information about quantitative (or monetary) aspects of business. Hence, the ratios also reflect only the monetary aspects, ignoring completely the non-monetary (qualitative) factors.

4. Variations in Accounting Practices: There are differing accounting policies for valuation of inventory, calculation of depreciation, treatment of intangibles Assets definition of certain financial variables etc. available for various aspects of business transactions. These variations leave a big question mark on the cross-sectional analysis. As there are variations in accounting practices followed by different business enterprises, a valid comparison of their financial statements is not possible.

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5. Forecasting: Forecasting of future trends based only on historical analysis is not feasible. Proper forecasting requires consideration of non-financial factors as well.

Nature of Ratio Analysis:

Ratios are designed to show how one number is related to another. It is worked out by dividing one number by another. Ratios are customarily presented either in the form of a coefficient or a percentage or as a proportion. For example, the current assets and current liabilities of a business on a particular date are Rs.2 lakhs and Rs.1 lakh respectively. The resulting ratio of Current Assets and Current Liabilities could be expressed as 2 (i.e., 2, 00,000/1, 00,000) or as 200 per cent. Alternatively in the form of a proportion the same ratio may be expressed as 2:1, i.e., the current assets are two times the current liabilities. Ratios are invaluable aids to management and others who are interested in the analysis and interpretation of financial statements. Absolute figures may be misleading unless compared, one with another. Ratios provide the means of showing the relationship that exists between figures. Though there is no special magic in ratio analysis, many prefer to base conclusions on ratios as they find them highly useful for making judgments more easily. However, the numerical relationships of the kind expressed by ratio analysis are not an end in themselves but are a means for understanding the financial position of a business. Generally, simple ratios or ratios compiled from a single year’s financial statements of a business concern may not serve the real purpose. Hence, ratios are to be worked out from the financial statements of a number of years. Ratios, by themselves, are meaningless. They derive their status partly from the ingenuity and experience of the analyst who uses the available data in a systematic manner. Besides, in order to reach valid conclusions, ratios have to be compared with some standards that are established with a view to represent the financial position of the business under review. However, it should be borne in mind that after computing the ratios one cannot categorically say whether a particular ratio is good or bad as the conclusions may vary from business to business. A single ideal ratio cannot be applied for all types of business. Speedy compiling of ratios and their presentation in the appropriate manner is essential. A complete record of ratios employed is advisable; and explanation of each and actual ratios year by year should be included. This record may be treated as a part of an Account Manual or a special Ratio Register may be maintained.

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Classification of Ratios

Traditional Classification of Ratios

Balance Sheet Ratios or Financial Ratios: Balance Sheet Ratios are those ratios the components of which are taken from Balance Sheet values/figures as appeared in a published annual statement of a firm, i.e. assets and liabilities. Practically, these ratios measure the relationship between various assets and liabilities and present very useful information to the users of financial statement.

Some of the important Balance Sheet ratios are:

Current Ratio;

Liquid Ratio;

Proprietary Ratio;

Debt-Equity Ratio;

Capital Gearing Ratio, etc.

Revenue Statement Ratios or Operational Ratios:

Revenue Statement Ratios are those the components of which are taken from

Profit and Loss Account/Revenue Statement which appeared in a published

annual statement. These ratios measure the relationship between the operating

expenses and operating incomes. That is why they are also called Operational

Ratios. These ratios also present very useful information about the profit abilities

and otherwise of the enterprise.

Some of the important ratios are:

Operating Ratio;

Gross Profit Ratio;

Net Profit Ratio;

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Operating Net Profit Ratio, etc.

Composite Ratios:

Composite ratios are those the components of which are taken from Revenue

Statement and Balance Sheet. In other words, one variable is taken from values of

Revenue Statement and the other from the Balance Sheet. They also supply

significant information to the users of financial statements. These ratios measure

the relationship between the operating expenses and the assets/liabilities of a firm.

Some of the important ratios are:

Stock-Turnover Ratio;

Debtors’ Turnover Ratio;

Creditors’ Turnover Ratio;

Return on Capital Employed, etc.

Functional Classification of Ratios:

According to the needs of the users of Financial Statements, the ratios are

also classified as: (a) Liquidity Ratios/Short-term Liquidity Ratios:

Liquidity ratios are those which measure the short-term liquidity position of a

firm. In short, it measures the relationship between short-term or current liabilities

and current assets, i.e., short-term paying capacity of the firm, or to meet current

obligation or to meet current liabilities as soon as they mature for payment. Some

of the important liquidity ratios are: Current Ratio, Liquid Ratio, Absolute Liquid

Ratio, etc. In addition to the above, Debtors’ Turnover Ratio and Creditors’

Turnover Ratio should also be given due importance. They are also very

important for measuring the liquidity position.

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(b) Profitability Ratios:

These ratios measure the relationship between operating profit to sales and

operating profit to investments. They measure also the rate of earning or rate of

return on Capital Employed for the various users of Financial Statement. These

ratios help the users or the financial analyst to know the rate of return and reasons

of such occurrences. Some of the important profitability ratios in relation to sales

are: Gross Profit Ratio, Net Profit Ratio, Operating Ratio, Operating Profit Ratio,

Expenses Ratio, etc. Whereas, in relation to investment: Rate of Return on Capital

Employed, Return on Shareholders’ Equity, Price Earnings Ratio, Earning Per

Share (EPS), etc.

(c) Activity Ratios/Turnover Ratios:

These ratios are also known as Turnover Ratios as they measure the efficiency by

which the resources of the firm are being utilized, i.e. whether the assets have

been properly used or not. They inform us the speed at which assets have been

turned over into sales. Some of the important activity ratios are Debtors’ Turnover

Ratio; Creditors’ Turnover Ratio, Stock-Turnover Ratio, Capital Turnover Ratio,

Total Assets Turnover Ratio, Fixed Assets Turnover Ratio, etc.

(d) Leverage Ratios/Long-Term Solvency Ratios:

Leverage Ratios or Long-term Solvency Ratios measure the ability of the firm to

meet the cost of interest and repayment capacity of its long-term loans, e.g. Debt-

Equity Ratios, Interest Coverage Ratios, Proprietary Ratio, Debt Service Ratio,

etc. In short, these ratios measure the relationship between debt financing and

equity financing or contributions made by outsiders and equity shareholders.

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Leverage ratios are further classified as:

Financial Leverage,

Operating Leverage,

Composite Leverage.

These leverage ratios help the financial analyst to obtain some important

information about the financial health of an enterprise.

(e) Market Evaluation Basis:

For understanding the market conditions, ratio analysis helps a lot to the analyst

for assessing market condition, e.g., EPS, Market Price per share, PIE Ratio,

Dividend Yield, etc.

Balance sheet Ratios:

Current Ratios. The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

Current Ratio = Total Current Assets ____________________ Total Current Liabilities

Quick Ratios. The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below:

Quick Ratio = Cash + Government Securities + Receivables ______________________________________  Total Current Liabilities

Working Capital: Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:

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Working Capital = Total Current Assets - Total Current Liabilities

Leverage Ratio: This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity):

Debt/Worth Ratio = Total Liabilities  _______________  Net Worth

Income Statement Ratio Analysis

Gross Margin Ratio: Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows:

Gross Margin Ratio = Gross Profit _______________ Net Sales

(Gross Profit = Net Sales - Cost of Goods Sold)

Net Profit Margin Ratio This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare your company's "return on sales" with the performance of other companies in your industry. It is calculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows:

Net Profit Margin Ratio = Net Profit Before Tax _____________________ Net Sales

Management Ratios

Other important ratios, often referred to as Management Ratios, are also derived from Balance Sheet and Statement of Income information.

Inventory Turnover Ratio: This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover Ratio is calculated as follows:

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Inventory Turnover Ratio = Net Sales ___________________________ Average Inventory at Cost

Accounts Receivable Turnover Ratio: This ratio indicates how well accounts receivable are being collected. If receivables are not collected reasonably in accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely impaired. The Accounts Receivable Turnover Ratio is calculated as follows:

Net Credit Sales/Year__________________ = Daily Credit Sales365 Days/Year

Accounts Receivable Turnover (in days) = Accounts Receivable _________________________ Daily Credit Sales

Return on Assets Ratio This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows:

Return on Assets = Net Profit Before Tax ________________________ Total Assets

Return on Investment (ROI) Ratio. The ROI is perhaps the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. If the ROI is less than the rate of return on an alternative, risk-free investment such as a bank savings account, the owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles of small business management. The ROI is calculated as follows:

Return on Investment = Net Profit before Tax ____________________ Net Worth

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Company’s Profile

APPLE INC.

Apple Inc. (commonly known as Apple) is an American multinational technology company headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and online services. Its best-known hardware products are the Mac personal computers, the iPod portable media player, the iPhone Smartphone, the iPad tablet computer, and the Apple Watch smartwatch. Apple's consumer software includes the OS X and iOS operating systems, the iTunes media player, the Safari web browser, and the iLife and iWork creativity and productivity suites. Its online services include the iTunes Store, the iOS App Store and Mac App Store, and iCloud.

Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne on April 1, 1976, to develop and sell personal computers. It was incorporated as Apple Computer, Inc. on January 3, 1977, and was renamed as Apple Inc. on January 9, 2007, to reflect its shifted focus towards consumer electronics. Apple (NASDAQ: AAPL) joined the Dow Jones Industrial Average on March 19, 2015. Apple is the world's second-largest information technology company by revenue after Samsung Electronics, the world's largest technology company by total assets, and the world's third-largest mobile phone manufacturer. On November 25, 2014, in addition to being the largest publicly traded corporation in the world by market capitalization, Apple became the first U.S. company to be valued at over US$700 billion. As of March 2015, Apple employs 98,000 permanent full-time employees; maintains 453 retail stores in sixteen countries and operates the online Apple Store and iTunes Store, the latter of which is the world's largest music retailer. Apple's worldwide annual revenue in 2014 totaled $182 billion for the fiscal year ending in October 2014. The company enjoys a high level of brand loyalty and, according to the 2014 edition of the Interbrand Best Global Brands report, is the world's most valuable brand with a valuation of $118.9 billion.[9] By the end of 2014, the corporation continued to receive significant criticism regarding the labor practices of its contractors and its environmental and business practices, including the origins of source materials.

Steve Jobs' inventions and innovations of the computer technology industry have changed it forever. Steve changed the computer industry by making personal computers that are sleek and easy to use. He developed breakthrough technology that is user friendly and high quality like the iPhone, iPod, iPad, and operating

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systems like Mac OS and Mac OS X. Steve supervised the production of "Toy Story" which was the first completely animated movie. Animated movies are now a huge market in the movie industry.

Customer loyalty combined with expanding closed ecosystem. While at first Apple’s closed ecosystem was a weakness for the business, this has now changed. First, Apple now has a full range of apps, software and products that are interlinked and support each other. Second, new products and supplements will be released soon (iTV), hence expanding the ecosystem. Third, Apple has a strong customer loyalty, which increases due to Apple’s closed ecosystem, which, in turn, is supported by customer loyalty. So the combination of Apple’s expanding closed ecosystem and customers’ loyalty increases firm’s competitive advantage.

Apple is a leading innovator in mobile device technology. Apple has been chosen as the most innovative business in the world for the 3rd time in 2012. Company’s core competency of producing innovative products is the strength the company builds upon and is able to bring the most innovative products to the market. (The Times of India, 2012) Strong financial performance ($10,000,000,000 cash, gross profit margin 43.9% and no debt). Apple’s financial performance is one of the best among many companies. Company currently (end of 2012) holds about $10,000,000,000 in cash, which can be used for acquisitions, buying back company shares and other matters. It also has higher gross profit margin than its main competitors, which is equal to 43.9%. Company has no debt and is not directly affected by interest rates or credit markets. Brand reputation. Apple has a reputation of highly innovative, well designed, and well-functioning products and sound business performance. Apple brand is valued at $76.5 billion and was the second most valuable brand in the world.

High price. Apple’s products cost much more than its competitors devices. Some critics argue that the price is not justified. When there’s such a fierce competition, Apple products price becomes a weakness because consumers can easily opt for similar quality but lower price products. Incompatibility with different OS. The iOS and OS X are quite different from other OS and uses software that is unlike the software used in Microsoft OS. Due to such differences, both in software and hardware, users often choose to stay with their accustomed software and hardware (Microsoft OS and Intel hardware). Decreasing market share. The less market share Apple has, the less it can influence its potential customers and persuade them to jump into using Apple’s closed ecosystem products. (CNN Money , 2012) Patent infringements. The firm is often accused of infringing other companies’

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patents and has even lost some trials. This damages Apple brand and its financial situation. OPPORTUNITIES High demand of iPad mini and iPhone 5. IPad mini sales will increase Apple’s market share in the tablet market and, will strengthen firm’s competitive advantage. iTV launch. iTV launch will support Apple TV sales and the products’ ecosystem. Emergence of the new provider of application processors. Samsung, the main Apple’s competitor, is also the only provider of application processors for Apple’s products. Apple has to find a new source for the component but could not find a suitable one yet. Nonetheless, new manufacturers with superior engineering capabilities are arising and it’s just a matter of time, when Apple will seize upon the opportunity of being less dependent on its direct competitors. Growth of tablet and smartphone markets. Growth of tablet and smartphone markets is a good opportunity to expand firm’s share in these markets.

Rapid technological change. One of the most severe threats Apple and the other tech companies are facing is rapid technological change. Companies are under the pressure to release new products faster and faster. The one that cannot keep up with the competition soon fails. This is especially hard when a business wants to introduce something new, innovative and successful. Apple was able to bring very innovative products to the market so far but for the moment, even Apple hasn’t unveiled any plans for the new products (except iTV) and may lack new introductions to keep up with competition. Rising pay levels for Foxconn workers. Pay levels for Foxconn’s workers already rose 3 times from 2010 to 2012. Foxconn is the main manufacturer of Apple products and the rising pay level for Foxconn’s workers will likely raise the prices for Apple products. (The Telegraph, 2012) Price pressure from Samsung over key components. Samsung has already asked Apple to pay higher price for its application processors. Due to intense competition and no viable substitutes, Apple may be asked to pay even more.

History of Apple Inc.

Apple Inc. formerly Apple Computer, Inc. is a multinational corporation that creates consumer electronics, personal computers, computer software, and commercial servers, and is a digital distributor of media content. The company also has a chain of retail stores known as Apple Stores. Apple's core product lines are the iPhone smart phone, iPad tablet computer, iPod portable media players, and Macintosh computer line. Founders Steve Jobs and Steve Wozniak created Apple Computer on April 1,1976,  and incorporated the company on January 3, 1977, in Cupertino, California. For more than three

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decades, Apple Computer was predominantly a manufacturer of personal computers, including the Apple II, Macintosh, and Power Mac lines, but it faced rocky sales and low market share during the 1990s. Jobs, who had been ousted from the company in 1985, returned to Apple in 1996 after his company NeXT was bought by Apple. The following year he became the company's interim CEO, which later became permanent. Jobs subsequently instilled a new corporate philosophy of recognizable products and simple design, starting with the original iMac in 1998.

With the introduction of the successful iPod music player in 2001 and iTunes Music Store in 2003, Apple established itself as a leader in the consumer electronics and media sales industries, leading it to drop "Computer" from the company's name in 2007. The company is now also known for its iOS range of smart phone, media player, and tablet computer products that began with the iPhone, followed by the iPod Touch and then iPad. As of 2012, Apple is the largest publicly traded corporation in the world by market capitalization, with an estimated value of US$626 billion as of September 2012. Apple Inc's market cap is larger than that of Google and Microsoft combined. Apple's worldwide annual revenue in 2010 totaled US$65 billion, growing to US$127.8 billion in 2011 and $156 billion in 2012.

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Balance sheet of asset:

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Balance sheet of Liabilities:

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Income statement:

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1. Liquidity Ratios:

Current Ration

In 2013

Current assets

−−−−−−−−−−− = 73,286 / 43,658= 1.67

Current liabilities

In 2012 = 1.49611

Interpretation: Measures ability to meet current debts with it current assets.

2. Acid-Test (Quick)

In 2013

Current Assets - Inv = 73,286 - (1,764)

43,658 Current Liabilities

= 1.63

In 2012 = 1.24825

Interpretation: Measures ability to meet current liabilities with most liquid current asset.

3. Financial Leverage Ratios

Debt-to-Equity In 2013

Total debt = $16,960 Share

holder’s Equity $123,549

= 0.13

In 2012

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Total debt = 0.00 Shareholder’s fund

Interpretation: Indicates the extent to which debt financing is used relative to equity financing.

4. Debt-to-Total-Assets

In 2013

Total debt = $16,960 Total asset

$207,000

=0.08

In 2012 = 0.00

Interpretation: Shows the relative extent to which the firm is using borrowing money

5. Total Capitalization

In 2003

Total debt = $16,960,000 Total Capitalization

$140509000

= 0.12

In 2012 = 0.00

Interpretation: Shows the relative importance of long-term debt to the long-term financing of the firm.

6. Coverage Ratio

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In 2013

EBIT = $50,155 = 368.7 time

Interest Charge $136

In 2012 $55,763

7. Activity Ratios

Receivable Turnover In 2013

Annual Net Credit Sales = $10,830,000

Receivables $1,949,000 = 5.5 times

In 2012= 2.1 time

Interpretation: Measures how many times a receivable have been turnover into cash during the year provide insight into quality of the receivable.

8. Average Collection Period

In 2013

Days in the year = 365 = 66days Receivable Turnover 5.5

In 2012= 173 days

Interpretation: Measures how many times the receivable have been turnover into cash during the year provide insight into quality of the receivable.

9. Inventory Turnover

In 2013

Cost of goods sold = 106,606000 = 60 Inventory

1,764000

In 2012 = 50

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Interpretation: measures how many times the inventory has been turned over (sold) during the year; provides insight into liquidity of inventory and tendency to overstock .

10. Average collection

Collection average for 2012=7.3 Collection average for 2013= days

Inventory turnover Ratio= 365 = 6

60

Interpretation: measures relative efficiency of total assets to generate sale

11. Total Assets Turnover Ratio

• Total assets turnover ratio for 2012 = 26.67

• Total assets turnover ratio for 2013 = net sales

Total assets

= $170,910,00

20,7000

= 52.3

Interpretation: measures relative efficiency of total assets to generate sale.

12. Average collection

Average collection for 2012 = 13.6

Average collection for 2013 = Days / total asset turnover ratio = 365 /52.3 = 6.97

Interpretation: measure profitability with respect to sales generated net income per dollar of sales

13. Return on investment

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Return on investment in 2012= 0.2

Return on investment in 2013= Net profit after taxes

Total assets

= $37,037,000

$207,000,000

= 0.1

$207,000,000

Interpretation: : measure profitability with respect to sales generated net income per dollar of sales.

14. Return on Equity

Return on equity in 2012=0.35

Return on equity in 2013= Net profit after taxes

share holder’s equity

= $37,037,000

$19,764,000

= 1.8

15. Du Pont approach

• Du Pont approach for 2012 = 1o9.3

• Du Pont approach for 2013 = net profit margin*total asset turnover ratio 3.4*52.3 = 177.82

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16.

Conclusion

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Apple must focus on several key aspects to continue to grow and succeed. They must continue a stable commitment to licensing, push for economies of scope between media and computers, and become a learning organization. Although it should continue, Apple may want to consider other forms of strategic alliances. An equity strategic alliance may offer Apple the opportunity to obtain additional competencies. An effective way for a company like Apple to accomplish this would be in the form of a joint venture. Apple should continue pushing the new line of media-centric products. Meanwhile, Apple should not lose focus on its computers. Macintosh computers were 59% of Apple’s sales in 2012. (Burrows)This very innovative company exploits its second-mover position. In the future, they will need to continue innovating to expand the boundaries of both media and computers. Apple apparently made a commitment to licensing. Although it should continue, Apple may want to consider other forms of strategic alliances. An equity strategic alliance may offer Apple the opportunity to obtain additional competencies. An effective way for a company like Apple to accomplish this would be in the form of a joint venture. Apple should continue push for economies of scope between media and computers, and become a learning organization, pushing the new line of media-centric products. This very innovative company exploits its second-mover position. In the future, they will need to continue innovating to expand the boundaries of both media and computers. This will allow the company to withstand a departure by Jobs.

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Bibliography:

http://www.investopedia.com/terms/r/ratioanalysis.asp http://www.ncert.nic.in/ncerts/l/leac205.pdf http://www.ukessays.co.uk/essays/accounting/ratio-analysis.php http://www.ncert.nic.in/ncerts/l/leac205.pdf https://www.nibusinessinfo.co.uk/content/compare-balance-sheets-assess-

business-performance http://www.yourarticlelibrary.com/accounting/ratio-analysis/ratio-

analysis-meaning-nature-and-approaches/61746/ http://www.yourarticlelibrary.com/accounting/accounting-ratios/

classification-of-ratios-3-categories/59820/

http://www.bizmove.com/finance/m3b3.htm

https://en.wikipedia.org/wiki/History_of_Apple_Inc http://www.slideshare.net/aj2204/financial-report-of-apple-inc-2014

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