Ratio Analysis

APPLE and BLACKBERRY

Class: 12(1+3)C

Name: 耿千惠

ID number: 120816108

1.Abstract..................................................................................................................... - 1 -

2.Introduction............................................................................................................... - 1 -

APPLE.................................................................................................................. - 1 -

BLACKBERRY...................................................................................................... - 1 -

3.Basic data.................................................................................................................. - 2 -

4.Ratio Analysis and Assessment...................................................................................... - 3 -

(1). Return on Equity.............................................................................................. - 3 -

APPLE........................................................................................................... - 3 -

BLACKBERRY............................................................................................... - 3 -

(2).Operating Profit %............................................................................................ - 3 -

APPLE........................................................................................................... - 3 -

BLACKBERRY............................................................................................... - 3 -

(3). Asset Turnover................................................................................................. - 4 -

APPLE........................................................................................................... - 4 -

BLACKBERRY............................................................................................... - 4 -

(4). Gross Profit %................................................................................................. - 4 -

APPLE........................................................................................................... - 4 -

BLACKBERRY............................................................................................... - 4 -

(5). Current Ratio................................................................................................... - 5 -

APPLE........................................................................................................... - 5 -

BLACKBERRY............................................................................................... - 5 -

(6)Quick Ratio....................................................................................................... - 5 -

APPLE........................................................................................................... - 5 -

BLACKBERRY............................................................................................... - 5 -

(7)Efficiency Ratios................................................................................................ - 5 -

APPLE........................................................................................................... - 5 -

BLACKBERRY............................................................................................... - 6 -

(8)Gearing............................................................................................................. - 6 -

APPLE........................................................................................................... - 6 -

BLACKBERRY............................................................................................... - 6 -

(9) Earnings per share............................................................................................. - 7 -

5.Assessment conclusions............................................................................................... - 7 -

6.Limitation.................................................................................................................. - 7 -

7.Reference................................................................................................................... - 8 -

1.Abstract

I used ratio analysis to analyse BLACKBERRY and APPLE’s financial performance and financial position in 2014. These two companies are both the electronic equipment manufacturing and  these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). The ratios are Capital employed, Operating profit, Asset turnover, Gross profit %, Current ratio, Quick ratio, Inventory days, Receivable days, Payable days, Gearing and Earnings per share .

2.Introduction

APPLE

Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company sells its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-added resellers. In addition, the Company sells a variety of third-party iPhone, iPad, Mac, and iPod compatible products, including application software, and various accessories through its online and retail stores. The Company sells to consumers; small and mid-sized businesses; and education, enterprise and government customers.

BLACKBERRY

BlackBerry Limited, formerly Research In Motion Limited, (the "Company") is a global leader in wireless innovation. Through the development of integrated hardware, software and services that support multiple wireless network standards, the Company provides platforms and solutions for seamless access to information, including email, voice, instant messaging, short message service, internet and intranet-based applications and browsing. The Company’s technology also enables a broad array of third party developers and manufacturers to enhance their products and services through software development kits, wireless connectivity to data and third-party support programs. The Company’s portfolio of award winning products, services and embedded technologies are used by thousands of organizations and millions of consumers around the world and include the BlackBerry® wireless solution, the

BlackBerry Wireless Handheld? product line, software development tools and other software and hardware. The Company’s sales and marketing efforts include collaboration with strategic partners and distribution channels, as well as its own supporting sales and marketing teams, to promote the sale of its products and services. The Company was incorporated on March 7, 1984 under the Ontario Business Corporations Act. The Company’s shares are traded on the Toronto Stock Exchange under the symbol “BB” and

on the NASDAQ Global Select Market under the symbol “BBRY”.

3.Basic data

4.Ratio Analysis and Assessment

(1). Return on Equity

APPLE

Capital employed =total assets –current liability =205989-43208=162781

ROCE=operating profit /CE=13593/162781=8.35%

BLACKBERRY

Capital employed =total assets –current liability =7552-2268=5284

ROCE=operating profit /CE=-7163/5284=-135.56%

Return on capital employed can show the profitability of the company. ROCE shows how well a company uses investment funds to generate earnings growth. APPLE’s ROCE is 8.35%, while BLACKBERRY’s is -135.56%, apparently, it got an operating loss. Shareholders are more likely invest in APPLE.

(2).Operating Profit %

APPLE

Operating profit %=operating profit /sales revenue =13593/45646=29.78%

BLACKBERRY

Operating profit %=operating profit /sales revenue =-7163/6813=-104.14%

This index reflects how many operating profit can be gained by each monetary unit. It is directly proportional to operating profit and inversely proportional to sales revenue. Company should gain more profit when increase its sales revenue, so that it can keep the net profit margin remain unchanged or increase.Operating profit ratio in APPLE is 29.78%, but in BLACKBERRY is -104.14%. BLACKBERRY got operating loss, there might be something wrong with its expense distribution .

(3). Asset Turnover

APPLE

Asset turnover =sales revenue /CE=45646/162781=0.28

BLACKBERRY

Asset turnover =sales revenue /CE=6813/5284=1.29

Asset turnover is a measure of how much sales are generated by the capital asset base of the company. Asset Turnover shows a company’s asset current speed from input to output, company asset’s manage quality and utilization efficiency. The higher the number, the faster the asset turnover speed. If the marketing capacity strong, the asset utilization efficiency will be high. If one company’s asset turnover is negative, the number is meaningless because the company is deficit. We can see that asset turnover in APPLE is 0.28 times and in BLACKBERRY is 1.29 times. BLACKBERRY is higher than APPLE. It means BLACKBERRY’s marketing capacity is stronger and keep higher asset utilization efficiency than APPLE’s.

(4). Gross Profit %

APPLE

Gross profit %=gross profit /sales revenue =17947/45646=39.32%

BLACKBERRY

Gross profit %=gross profit /sales revenue =-43/6813=-0.63%

Gross profit ratio is important to assess the type of business and the ‘normal’ margins expected. The higher index, the more effective in price policy and product policy than same industry. Company can not gain profit without number big enough. APPLE’s ratio is 39.42%, BLACKBERRY’s is -0.63%, that means APPLE has more effective in price policy and product policy than same industry. BLACKBERRY didn’t gain profit but gain loss .

(5). Current Ratio

APPLE

Current ratio =current asset /current liability =70541/43208=1.63

BLACKBERRY

Current ratio =current asset /current liability =5057/2268=2.23

Current ratio looks at the short term liquidity of the company. Generally speaking, high current ratio means company asset’s cashability strong and short term liquidity repaying capability is also strong. Current ratio should over 2 : 1, but different industry has different current ratio. If current ratio too high, which means current assets is too much than current liabilities, it might be large stock unsold or too much cash, or both these two situations. BLACKBERRY’s cashability is stronger than APPLE, which ratio is 2.23 to APPLE‘s 1.63.

(6)Quick Ratio

APPLE

Quick ratio =(current asset –inventory )/current liability =68712/43208=1.59

BLACKBERRY

Quick ratio =(current asset –inventory )/current liability =4813/2268=2.12

The quick ratio (also known as the acid test) – provides the acid test of whether the company has sufficient resources (debtors and cash, but excluding stocks) to settle its liabilities. It is also worth considering the availability of further finance and how close the company is in exceeding its borrowing limits/overdraft facilities. We can see that the quick ratio in BLACKBERRY is 2.12， it is higher than that in APPLE, which is 1.59. BLACKBERRY has more sufficient resources to settle its liabilities than APPLE.

(7)Efficiency Ratios

APPLE

Inventory days =inventory /COGS*365=(1829/27699)*365=24

Receivable days =trade receivable /sales revenue *365=(9700/45646)*365=78

Payable days =trade payable /COGS*365=(18914/27699)*365=249

BLACKBERRY

Inventory days =inventory /COGS*365=(244/6856)*365=13

Receivable days =trade receivable /sales revenue *365=(972/6813)*365=52

Payable days =trade payable /COGS*365=(474/6856)*365=25

The above ratios give us the average number of days to collect from our customers (and average number of days to pay our suppliers). Distortions may arise if there are a few abnormally high debtors or creditors. Again, the normal expected figures will depend upon the nature of business and the typical levels of terms for payment within the industry.

Inventory days of APPLE is 24 days, and in BLACKBERRY it is 13 days. BLACKBERRY has more efficiency in inventory turnover than APPLE.

Receivable days of APPLE is 78 days, and in BLACKBERRY it is 52 days. The less of the debtor collection period, the shorter of the resumed period. BLACKBERRY is 26 days less than APPLE.  So BLACKBERRY can take back its trade receivables faster than APPLE. It also shows BLACKBERRY has better cashability.

Payable days measure how many time will a company need to pay up the trade payables. Payable days of APPLE is 249 days, and in BLACKBERRY it is only 25 days.

(8)Gearing

APPLE

Gearing =long term borrowing /equity =16962/205989=8.23%

BLACKBERRY

Gearing =long term borrowing /equity =1627/7552=21.54%

The main issues here are the degree of risk the company is facing in terms of external debt financing, whether or not the company has access to sufficient finance to enable it to meet its commitments, and whether the finance is structured in an appropriate way.

Gearing is the relationship between the company’s debt and equity, Gearing is a measure of the amount of debt a company has. High gearing is risky if profits are declining – the company must pay its lenders irrespective of whether it makes a profit or a loss. BLACKBERRY’s gearing is much more than that in APPLE. In BLACKBERRY, it is 21.54%, and in APPLE it is 8.23%. It means that BLACKBERRY is more risky than APPLE.

(9) Earnings per share

AAPLE’s basic earnings per share is 11.69.

BLACKBERRY’s basic earnings(loss) per share is -11.8.

This represents the amount of profit, in pence, the company has earned during the year for each ordinary share. The EPS figure is required to be shown by all companies listed on the Stock Exchange, and therefore is seen to be very important indicator of performance. However, the use of creative accounting can make a mockery of this. AAPLE’s basic earnings per share is 11.69.

BLACKBERRY’s basic earnings(loss) per share is -11.8. Apparently APPLE’s basic earnings per share is much higher than BLACKBERRY.

5.Assessment conclusions

From ratio analysis, we can know that BLACKBERRY had operating loss in 2014. And it is still carries the debt status, which total equity is hard to return. Its net profit(loss) was the lowest in 2014. Combining all data, APPLE has absolute predominance to BLACKBERRY.. During these period, APPLE is keeping earning status. it has far more total asset than BLACKBERRY. Although BLACKBERRY’s asset return period is shorter and cashability is strong. APPLE’s smaller gearing may influence the earnings-generating capacity in some extend, it still can make sure that shareholders’ will gain satisfying economic income. Both financial performance and financial position are good.

6.Limitation

1.The financial statements given are for one period only and are not necessarily covering the same 12 month period. The information provided may cover a period that is not typical of the trend of performance over a longer period of time and may be affected by non-recurring items

2.Despite the increasing levels of accounting guidance/regulations, companies still have considerable discretion in judgement in the way financial transactions are recorded. Adopting different accounting policies can affect comparability, e.g. equity of one entity could include revaluation of fixed assets and the other may hold non-current assets at depreciated historic cost. This would affect ratios such as return on capital employed and non-current asset turnover.

The above analysis does not take into account non-financial factors - it is important to consider the non-financial factors. Other very important non-financial information such as the quality of management/staff, markets in which the companies are trading. 

3.The data of these two companies are historical information. So we shouldn’t totally believe the data and use it to evaluate BLACKBERRY and APPLE future operating situation.

4.BLACKBERRY has heavy loss and make many calculate results show negative number. It disturb the veracity of my analysis about APPLE and BLACKBERRY.

7.Reference

1. http://stock.sina.com.cn/usstock/quotes/BBRY.html?sudaref=www.baidu.com&retcode=0[Online]

2. http://wenku.baidu.com/link?url=GrttXwJQ6hAQwyqdgTRGwnHaRNBPM4E_1jiQkEYQ-_UZVYwuLzRglykjmYC4X_3tZg25-ze6tH07XvdW7rXiqPhMsSXJFCkrPrnQT8BD8Om[Online]

3. http://cn.blackberry.com[Online]

4. http://www.apple.com/cn/[Online]

5. http://wenku.baidu.com/link?url=UC-4pDM6AlrVfh0Dg5hiuOBs7R2N_CpZSjxpQZcsMQiKnhH248FgJ5wYzn4_IyvSbzUUz2HVQPiFquQn3dchfznPYMw04olx_dsWiSSi6se[Online]

INCOME STATEMENT

SOPF