Financial Analyst Memorandum

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Executive Summary
Date:
To:
From:
Subject:
April 5, 2022
Financial Analysts
EM
Apple Inc. Executive Summary – Ratio Analysis
Ratio Analysis
Liquidity: Liquidity analysis assesses the ability of the firm to meet short-term obligations. The trends
for the current, quick, and cash flow ratios have been mixed since 2018. The current ratio and quick ratio
have ranged from 1.12x and 0.77x, respectively at 2018 year-end to 1.07x and 0.71x, respectively at 2021
year-end. The liquidity position is below industry averages for the current ratio and above the industry
averages for the quick ratio. Overall, the company appears to have adequate liquidity.
Asset Utilization: Asset utilization ratios assess how efficiently the firm is using its assets. The trend for
the cash conversion cycle (CCC) has ranged from a high of -53 days to a low of -79 days, and is currently
at -53 days. The current year compares favorably to the industry average of 102 days. The change in the
CCC in the current year is largely a result of a decrease in days payables outstanding (DPO). The DSO,
DOH, and DPO turnover ratios all compare favorably to industry average. The company has consistently
maintained strong DOH and DPO over time when compared to the industry averages.
The trend for the PP&E turnover ratio has been mixed, and the total asset turnover ratio has increased
over the years. The PP&E turnover is currently at 9.60x, while the total asset turnover ratio is 1.08x. Both
ratios compare unfavorably to the industry average.
Capital Structure & Solvency: An analysis of capital structure and solvency evaluates firm risk by
assessing the amount and proportion of debt held, as well as a company’s ability to service the debt. Debt
implies risk because debt involves the payment of fixed financial obligations. The trend has been
increasing with overall increased levels of debt. The long-term debt to equity and debt to equity ratios
have increased since 2018 year-end, and are currently at 172.94% and 197.68%, respectively.
The times interest earned ratio (TIE) measures the adequacy of operating earnings as related to debt
repayment. The trend for the TIE ratio has been mixed over time with an increase during the current year
to 42.29x.
Operating Performance & Profitability: Operating performance and profitability can be assessed by
using both margin analysis from the income statement, as well as ROA and ROE. The net profit margin
has ranged from a high of 25.88% to a low of 20.91% over the time period presented. The net profit
margin has been mixed since 2018 year-end and is currently at the high of 25.88%. The trends for the
gross profit margin and operating profit margin have been mixed over this time period. The net profit
margin ratios compare favorably to the industry average.
The trend for ROA is mixed, but has increased from 16.07% in 2018 to 28.06% during the current year.
ROE has increased each year over the time period presented. ROE ranges from a low of 49.36% at 2018
year-end, to a high of 147.44% at 2021 year-end. Both ratios compare favorably to industry averages.
While the company has reported mixed results, overall profitability has been strong over the years, with
the current year reporting ratios which are significantly higher than the industry averages.
Memorandum
Date:
To:
From:
Subject:
April 5, 2022
Financial Analysts
EM
Apple Inc. Executive Summary – Ratio Analysis
Project
We have been applying our academic framework to a thorough analysis of Apple Inc. The steps involve
included: (1) a company profile, (2) an industry profile, (3) an economic commentary, (4) an accounting
analysis, (5) a financial forecast, (6) a company valuation, and (7) an executive summary of findings.
At this point, we have developed an accounting model designed to identify trends, strengths and
challenges for our company. The accounting analysis will require an Executive Summary with four
memorandums focused on:
1. Operating Results
2. Financial Condition and Cash Flows
3. Ratio Analysis
4. Forecast & Valuation and Observations & Conclusions
Our overall goal is twofold – (1) to assess the company’s earnings and level of risk, and, (2) to
determining whether the current price of the stock reflects firm value.
Assignment Guidelines
Executive Summary details:
1. Executive Summary Memorandum Part 1 – Operating Results
a. Already completed this part for the Week 10 Assignment
2. Executive Summary Memorandum Part 2 – Financial Condition and Cash Flows
a. Already completed this part for the Week 11 Assignment
3. Executive Summary Memorandum Part 3 – Ratio Analysis
a. Instructions for this assignment (Week 12) are described below
Instructions:
• Read the completed Ratios Analysis memo provided (ES Memo Part 3_Ratio Analysis).
• Complete the Executive Summary Memo Part 3 Template word document (ES Memo Part
3_Template).
• Your responses should be thought out and throughout. All work must be submitted in
memorandum format and must follow the guidelines presented in the “Written Communication
Tips” presented in the course materials. As you write, please be concise yet thorough.
Memorandum
Date:
To:
From:
Subject:
April 5, 2022
Eric Mlynarczyk
Student Name
Apple Inc. – Ratio Analysis
As the Financial Analyst, complete the questions below in this template.
1. Read the memo provided on Apple’s ratios. As the analyst, what are the three (3) most
important items contained in the Ratio Analysis Memorandum? List the item and the
ratio/calculated amount.
Here is an example if the analyst was using the Operating Results memorandum: 1. 2021 Net Income of
$97.7 billion
Enter your three items here:
1.
2.
3.
2. Using the Ratios tab of your excel model, what do you believe is the most important item
missing from the Ratio Analysis Memorandum provided? List the item and the
ratio/calculated amount and then explain why you believe it is important.
Enter the most important ratio/comment you believe is missing from the memo here:
Enter your reason why here:

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Apples ratios

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