Introduction
This report presents a detailed financial statement analysis of Apple Inc. and Microsoft Corporation over the five-year period from 2019 to 2023. By examining key financial indicators such as revenue, profit, liquidity, investment ratios, and efficiency, this study aims to provide insights into each company's fiscal health and operational efficiency. The analysis further includes horizontal analysis, Z-score calculations, and comparative performance evaluations with key competitors. The goal is to understand how these tech giants manage their financial strategies in dynamic market conditions and how they position themselves for sustained growth.
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Apple Inc
Financial Statement Analysis
The reader through the analysis of financial statements (Afnan, 2021) can gain an understanding of a company’s current financial situation. In addition to performing a horizontal analysis and a thorough ratio analysis, this section will offer an analysis of the major financial statement’s items and trends.
Revenue & Profit
Apple Inc. has 10% CAGR in the revenue in the period between 2019 and 2023 and expected the revenue of $383,285 million in 2023 (Lu, 2024). Net profit also saw an increase by 15.11% CAGR though it is projected to decline in 2023. These trends explain new products and state market conditions. But, Samsung Electronics maintained a revenue CAGR of 3%, although operating profit had a -30% CAGR, a clear index of lowness.
Cash Management
Cash flow from operation of Apple Inc reveals that it has been decreased to 9.50% to $110,543 million in 2023. Cash flow from operation decreased by 9.50%. From $74,543 million in 2018 to a 50% increase in 2023 reaching $110,543 million (Zhang, 2024). Investing cash flow also became positive with a growth of 116.57% of which 44% is due to sale and maturity of investments. There were continuous cash outflows when it came to financing activities.
Statement of Financial position
This has been found that the financial position of the company is in good position. Apple has brand value in this world and this could be said in the last five years the company has evolved globally.
Ratio Analysis
Investment Ratios
For EPS, there was a steady rising starting from $2.97 in 2019 with a comparative amount of $6. 13 calculated for the year 2023 was also an increase showing higher profitability per share. Nevertheless, the Price-Earnings (P/E) Ratio of Apple wavered, touching a high of 36. In 2020, it rose to only nine and it was fixed at 30.7 in 2023, This indicates that the market is positive at the attainment of earnings targets.
Gearing Ratios
Debt to Equity ratio increased from 1. It was 508 in 2019 to 3.645 to 9.57 in 2023 which signifies that the leverage is growing (Yie et al. 2021). The Interest Coverage Ratio showed an increase and leveled at 41.191 in 2023, and indicates the company’s good capacity to meet interest burden. The Borrowing Ratio is low, which pointed out that the use of borrowing facilities in relation to equity was not very high.
Profitability Ratios
ROE increased from 0 to a significantly higher figure during the same period from a minuscule amount. The basic age rose from 283 in 2019 to 1. Return on Assets (ROA) indicates an improvement for asset management. Total Operating margin was recorded at 32%, and Gross Profit margin improved to 44%.
Liquidity Ratio
Both the ratios were in a good position as both the ratios are more than 1 at the starting period (Lin et al. 2023). But as of now this has been slightly decreased in the recent year which is a big concern for the company.
Efficiency Ratios
The Asset Turnover Ratio remained constant at 1 that shows high efficiency in managing the assets of the company. Whereas the Inventory Turnover Ratio has slightly improved to 34. Receivables Days was analyzed to be 28 on average, less than it was in the prior year. 10 up from 9, indicating quicker collection period, and Payables Days’ figure moving up from 2 to 3.42 suggesting longer periods of payment.
Z-score
The Z-score is 2.5 which suggests that the company is in good financial health and there is no chance for bankruptcy for the company.
Microsoft Corporation
Financial Statement Analysis
Here's the horizontal analysis for Microsoft Corp.'s income statement from 2019 to 2023:
Revenue & Profit
From the analyzed data, Microsoft and Alphabet (Google)’s revenues have increased over the years “2019-2023”. The CAGR of Microsoft is 14%, and the CAGR of Alphabet is even higher “17%”. This goes further to show that Alphabet's overall revenue growth rate has been slightly higher than that of Microsoft. Despite this growth, Microsoft’s ascent has been much less erratic than Alphabet’s (Butarbutar et al. 2023). Microsoft has grown slightly higher and more consistently within the range of 14 to 18 per cent, while Alphabet has up to 41% in 2020, and as low as 9 percent in 2022. One possible reason that led to this difference is that Alphabet Inc.’s revenue sources majorly come from advertisements which are vulnerable to economic changes.
Cash Management
The cash position of the company needs to be considered as it has been found that the company is investing at many parts and for that reason the company investing is in negative values (Amin and Munsi, 2020). Plan of the company is to get a huge amount of returns by investing in many innovative projects. Overall the company's cash management is in a good position.
Statement of Financial position
The Alphabet Inc financial position is in good form as the company is earning gross and net profit at positive numbers. The last five years indicate that the company has good form and could get a better position globally.
Ratio Analysis
Investment and Profitability Ratios
Based on the figures, it can be observed that there is an increasing trend in the aspect of profitability of the firm (Curtis et al. 2020). The P/E ratio has been emerged that it has been developed in recent years but has been decreased in 2023. The company should focus on the development for their business strategy. SPE is the earnings per share of the company that has increased from 2019 to 2023 implying increased profit per each share outstanding (Maksyshko and Vasylieva, 2021). This means that the company is increasing its levels of efficiency in the provision of goods and services that would yield profits.
Liquidity Ratios
The Current Ratio relates to the firm’s capacity to service short-term undertakings while the Quick Ratio gives a related outlook (Theophilus, 2022). Both ratios have reduced from 2019 to 2023 though not drastically, we can just view it as a slight reduction. While, the ‘current ratio’ currently stands more than 1.75, and the ‘quick ratio’ is more than 1.70, it’s preferable if both figures are 2 or more.
Gearing Ratios:
The Debt-to-Equity Ratio presents some volatility but it is always under 2. This indicates that the firm relies to some extent on debt financing more than shareholder equity (Yang, 2024). A decrease in this ratio shows that the company hardly uses debts to fund its activities and this may be viewed as a strong signal of financial strength (Chiang et al. 2023). The Interest Coverage Ratio, although computed on the same basis, is not available for all the years yet it offers insightful information.
Efficiency Ratios
However, information concerning Asset Turnover Ratio and Inventory Turnover Ratio was missing for most of the years in the analysis (Moeller, 2020). These ratios would be useful in ascertaining how well the Company is in its use of assets and management of inventories. Receivables Days give a measure of the scale and some understanding of the nature of the collection procedure.
Z-score
The Z-score is 1.87 which suggests that the company is in good financial health and there is no chance for bankruptcy for the company.
Reference
Journals
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Amin, M.R. and Munsi, M., 2020. Motivational Techniques for Business Organization–A Case Study of Apple Inc.
Butarbutar, I.P., Purnamasari, N. and Safitri, K., 2023. AN ANALYSIS ON FIVE FORCES DAN BCG MATRIX FOR APPLE INC. COMPANY. Maker: Jurnal Manajemen, 9(2), pp.229-240.
Chiang, M., Xu, J., Law, Y. and Yang, R., 2023. Option Pricing and Risk Hedging for High-Tech Company: The Case for Apple.
Curtis, S.L. and Lahav, Y., 2020. Forensic Approaches to Transfer Pricing Enforcement Could Restore Billions in Lost US Federal and State Tax Losses: A Case Study Approach. Journal of Forensic & Investigative Accounting, 12(2).
Lin, Q., Xiaoyu, L. and Jianqiang, Z., 2023. The Apple Company's Foreign Expansion and Market Entry Strategy. International Journal on Recent Trends in Business and Tourism (IJRTBT), 7(3), pp.47-60.
Lu, Y., 2024. Financial statement analysis and revenue forecast for Apple Inc. In SHS Web of Conferences (Vol. 181, p. 02020). EDP Sciences.
Maksyshko, N. and Vasylieva, O., 2021. Comparative analysis of the stock quotes dynamics for IT-sector and the entertainment industry companies based on the characteristics of memory depth. In SHS Web of Conferences (Vol. 107, p. 01003). EDP Sciences.
Moeller, K., 2020. Accounting for the corporate: An analytic framework for understanding corporations in education. Educational Researcher, 49(4), pp.232-240.
Redpath, I.J. and Vogel, T.J., 2020. ACCOUNTING STANDARDS FOR STOCKBASED COMPENSATION–A CASE STUDY OF APPLE, INC. Journal of Business and Accounting, 13(1), pp.176-189.
Theophilus, C., 2022. Problems and Challenges Encountered in International Marketing (On the basis of “APPLE Inc”) (Doctoral dissertation, Private Higher Educational Establishment-Institute “Ukrainian-American Concordia University”).
Yang, T., 2024. Analysis and Suggestions on the Issuance of Green Bond-Taking Apple as an Example. In SHS Web of Conferences (Vol. 181, p. 02026). EDP Sciences.
Yie, C.E., Zhi, C.E. and Ping, N.T.S., 2021. A Critical Analysis of Internal and External Environment: Case Study of Apple Inc. Journal of International Business and Management, 4(10), pp.01-14.
Zhang, J., 2024. Analysis on the Implementation Effect of Microsoft Corporation's Financial Strategy. Highlights in Business, Economics and Management, 24, pp.1667-1675.
