Apple Inc. Verses Microsoft Inc Financial analysis – 2014 & 2015

  1. Will Apple be able to meet its obligations as they become due? How does Apples liquidity compare with that of Microsoft? 

Liquidity ratios are used to measure a company’s ability to pay off its short-term debt obligations. This is achieved by comparing a company’s most liquid assets (or, those that can be easily converted to cash), and its short-term liabilities.

  CURRENT RATIO   QUICK RATIO
  APPLE MICROSOFT   APPLE MICROSOFT
2014 1.08 2.5 0.67:1 0.6777:1
2015 1.11 2.5 0.725:1 0.53:1

 

A current ratio below 1 suggests that the company is unable to pay off its obligations if they came due at that point. This situation does not necessarily mean that it will go bankrupt. On the other hand, a current ratio (over 3) does not necessarily indicate that a company is in a state of financial well-being either. This depends on how its assets are allocated. A high cash ratio could also indicate that company is not using its current assets efficiently, is not securing financing well or is not managing its working capital well. Using Current ration Apple will be able to meet its short term obligations.


The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. This ratio measures the dollar amount of liquid assets equivalent for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company’s liquidity position. As per this ratio both companies do not show strength however as discussed under current ratio this should not raise an alarm. Apples liquidity seems to be becoming stronger as compared to Microsoft which is diminishing.

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  1. What is the capital structure of Apple (i.e., what percentage of the total assets of the company are financed through liabilities and what percentage through stockholders’ equity)?

A capital structure is a mix of a company’s long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
As at 2015 41% of Apples assets were financed by shareholders equity while 59% was funded through liabilities.

  1. 3. Is the capital structure of Microsoft significantly different from that of Apple?  Explain your answer.

As per the above, Applesuse of shareholders equity to total assets has been on a downward trend. That of Microsoft has also been on the same path but not drastic as that of Apple. To drive deeper into this lets see how their debt to income ratios look like.


DTI is a measure that compares an individual’s/business debt payment to its overall income. A low debt-to-income ratio demonstrates a good balance between debt and income. Conversely, a high DTI can signal that an individual/business has too much debt for the amount of income he or she has.

DEBT-INCOME RATIO
  APPLE MICROSOFT
2014 1.08 0.92
2015 1.43 1.2

DTI ratio also paints the same picture as shown by the above percentages. Both companies seem to have borrowed a lot as they move to 2015. This has led to decrease in shareholders equity in both. Both companies have a similar capital structur


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