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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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Advantages of Debt

Debt and deficits

A deficit is a difference between income and expenditure where spending is higher than income. Once you have a deficit, it means you have to borrow to cover it. This situation leads to debt. Governments borrow by selling securities to the public.



I believe that there is good debt and bad debt. There are many journals on this topic. One writer says debt is not the problem and the next predicts that debt will ruin civilization (Hanson, 2006). Common sense is you spend what you have and save the rest. However, this is not normally the case all the time. Many people who do well with money have something in common: they know what they want (Gerber, 2012).  It all matters with why you have a deficit and opting for a debt. Good debt is one that is a sensible investment in your future. It will leave you better financially in the long run. Taking a student loan, investing in business, getting a mortgage or buying a car that will bring income is good debt. Purchasing a luxurious house, purchase an extra car or borrowing to meet day to day expenses is bad debt.

 

 

 

References

Gerber, L. (2012). Top 10 Tips for Developing Money Management Skills. The Rosen Publishing Group.

Hanson, J. (2006). Good Debt, Bad Debt: Knowing the Difference Can Save Your Financial Life. Jon Hanson.

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Accounting Lessons Day 1 Experience

My first week in college was just a nightmare. It all started after admission to college. I had just completed my High School education and was on a high gear to keep the momentum of working hard in school.

Having performed well in High School, I knew accounting was my course since I always dreamed of being an accountant or an auditor since my lower grade classes. I was convinced that accounting was for focused and dedicated individuals from the examples of the bankers in our local town. And hence, I had to follow suit and pursue my dreams.

On my first day at school, I had a timetable for my first accounting class, Introduction to accounting, indicating the scheduled class was in AH 1 from 9 a.m- 11 a.m. By 8;30 a.m, I embarked on moving to the indicated venue to attend my first class. Upon arrival, I could see fresh faces of students, who looked new from their faces, books and uniform.

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I had to confirm from a few friends if I was in the right class, and there I was. After a couple of minutes, a tall, dark and slim man entered the class and greeted us. From the look of things, he appeared to be the tutor as he put his books on the teacher’s locker.

He welcomed us in a polite way, briefing us on some few tips of surviving in accounting classes and life around the campus. The tall man introduced himself as Mr. Jones, and was to take us through most of the units in accounting in the course of our study.

Mr. Jones appeared composed and even took us through some few tips of excelling in our accounting lessons. I was so much excited being in my dream class for my dream course. Abruptly, the teacher shouted, “Stop! Has anyone seen my car?” The whole class went silent since no one could comprehend what was going on and it was just our first class.

Mr. Jones perused through his books as he searched for something, though no one was sure what he was looking for. All of a sudden, he called the class off as he said he had forgotten his car at the restaurant, about twenty miles away.

There was a loud thunder as the class laughed at how our tutor had forgotten his car and had to rush back to collect it. We later learnt that Mr. Jones was mentally unstable and experienced such moments on many instances in the middle of his classes.

However, he was highly regarded by the rest of the school for his deep knowledge in accounting concepts and skills. That was how our first accounting class ended as the classed laughed off at Mr. Jones, our newest joke in campus.

 

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