StudentShare solutions
Triangle menu

Ratio analysis - Essay Example

Extract of sample
Ratio analysis

The former is used to compare the performance of the firm within itself in terms of aspects such as improvement in management skills and finance handling. The latter is used to compare the performance of the firm within its industry of operation. Such comparisons will consider fundamental aspects of operations like profitability. In profitability, an increase or decrease is established and the causes of each including what can be done to stabilize profitability and grow it further. The liquidity of the firm is also quite fundamental as this would enable management know how to plan operations and sources of financing. Therefore, ratio analysis is used in the determination of trends as it strives to expose the strengths and weaknesses of the company. Ratios can be either favorable or unfavorable depending on whether the increase or decrease is in the desired direction (Dess 2012). For our analysis of Apple Incorporation’s financial statement of the year 2012 compared to that of the year 2011, we will categorize ratios into the following - Profitability Ratios; Liquidity ratios; Efficiency Ratios and Capital structure ratios. Profitability Ratios They measure the ability of the company to generate profits from their asset investments. Such ratios include- Gross Profit margin, which is the profit before expenses generated by sales as a percentage. There is the Net Profit margin which are the earnings before depreciation and tax generated by sales; Then there is the Return on Equity(ROE)/Net Worth/ Shareholders funds/ Investments(ROI), this is the ratio of the earnings after tax plus preference dividends contributed by share capital and reserves. The fourth ration in this category is the Return on total assets (ROTA) which indicates how much the Fixed and Current Assets of a company contributes to the Earnings before Interest and Tax (EBIT). Return on Capital Employed is the next, it indicates how equity and Fixed interest capital contributes to the EBIT, and finally we have the Operating Expenses Ratio indicating the percentage of sales consumed by the operating expenses. An increase in these ratios from the previous period is considered favorable while a decrease in the last ratio is considered favorable. The ratios as shown by the financial data by Apple incorporation between the years 2011 and 2012 financial statements are as shown in the table below. RATIO FORMULA YEAR 2012($ in Millions) YEAR 2011($ in Millions) 1. Gross Profit Margin = (Gross Profit/Sales)*100 (66,662/156,508)*100 = 43.87% (43,818/108,249)*100 = 40.48% 2. Net Profit Margin =(EBIT/Sales)*100 (55,241/156,508)*100 = 35.30% (34,790/108,249)*100 = 32.14% 3. ROE/ROI =(EAT+ Pref. dividends/Owner’s Equity)*100 (41,733/118,210)*100 = 35.30% (25,922/76,615)*100 = 33.83% 4. ROTA =(EBIT/Total Assets)*100 (55,241/176,064)*100 = 31.38% (34,790/116,371)*100 = 29.90% 5. ROCE =(EBIT/Total Capital Employed)*100 (55,241/118,210)*100 = 46.73% (34,790/76,615)*100 = 45.41% 6. Operating Expenses Ratio =(Operating Expenses/Sales)*100 (13,421/156,508)*100 = 80.58% (10,028/108,249)*100 = 9.26% As indicated by the profitability ratios, there was a general increase in profitability of Apple Inc between the year 2011 and 2012. The gross profit margin shows a rise from 40.48% in 2011 to 43.87% in 2012. Such an increase was because of the increase in; sales from 108,249 in 2011 to 156,508 in 2012. An increase of the net profit margin from 32.14% to 35.3% is because of the i ...Show more


Date RATIO ANALYSIS FOR APPLE INC. Ratio analysis is a technique in finance analysis and it is very important. This is because it involves a conversion of financial statement quantities or figures to aid comparison in a meaningful manner (Dess 2012)…
Author : ioreilly
Ratio analysis essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Ratio analysis"
with a personal 20% discount.
Grab the best paper

Related Essays

Ratio Analysis
In the words of Gibson (1982, p. 18), “probably no tool is more effective in evaluating where a company has been financially and in projecting the financial future of a company than the proper use of financial ratios.” This work discusses the importance of ratio analysis and how it helps in assessing a firm and its prospects for recapitalization and continuity.
3 pages (750 words) Essay
Ratio Analysis
Financial reports are analyzed through complex tools like a closer look at the operational side or a rather simplistic approach comprising ratio analysis. This paper, however, aims at analyzing and assessing the financial performance of Go ahead Group Plc with the industry and its prior period annual reports using ratio analysis.
6 pages (1500 words) Essay
Financial Statement Ratio Analysis
We would try to keep the language as simple as possible so that we don't complicate things right from the start. First thing you realize is that you would need to bake cookies so as to be able to sell them. For which you would require flour, butter, sugar, etc.
14 pages (3500 words) Essay
Ratio Analysis Essay
Financial statements are the major means through which firms present their financial situation to stockholders, creditors, and the general public. The majority of firms include extensive financial statements in their annual reports, which receive wide distribution.
10 pages (2500 words) Essay
Ratio Analysis
Financial statements are the major means through which firms present their financial situation to stockholders, creditors, and the general public. The majority of firms include extensive financial statements in their annual reports, which receive wide distribution.
11 pages (2750 words) Essay
Ratio Analysis Case
From the ratio analysis, the company’s loan application for $ 500,000 should be approved since the company would be capable of meeting its liability. This is from the analysis of the
2 pages (500 words) Essay
Ratio Analysis
The paper uses Profitability, efficiency, liquidity and shareholder ratios as the basic tools. The more complex tools like IRR, WACC etc
6 pages (1500 words) Essay
Ratio Analysis
The analysis was made so that any external investors who might be interested in the company are able to utilize the calculated ratio results to determine Riordan Inc’s performance and its most updated financial position and strategy. The discussed liquidity ratios of the
1 pages (250 words) Essay
Ratio analysis
In the end, such ratios will give a trend of the company whether it is improving or deteriorating. Comparison of these ratios with other companies will give a hand in
1 pages (250 words) Essay
Financial ratio analysis
However, it offers the customers quality food at a reasonable price. The total market share of the company is about 16%. It also aims at selling more than 30,000 products (J Sainsbury Plc., 2015b). The home delivery facility is availed by 93% of the households in the UK
6 pages (1500 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation