Introduction
Apple with ticker APPL and General Motors with Ticker GM; both are listed on the stock exchange in the USA. Apple is listed in NASDAQ while GM is listed in NYSE. Apple is a multinational tech company which produces and sells tech products in which iPhone is the most famous product. While GM is also an American Multinational Company that designs,manufactures,markets vehicle and vehicle parts. GM produces vehicles in more than 37 countries under different brand name.
The comprehensive financial analysis consists of ratios analysis dated from the year 2011 to 2014. Apple and GM ratios are analyzed under sub heading of valuation ratios, profitability ratios and financial strength ratios.
Financial Analysis
Price to Earnings Ratio
P/E is a valuation ratio of the company’s current share price that is compared with earnings of the company. Price to earnings ratio shows in how many years investor will receive its principal amount through annual EPS. Through P/E ratio, investors can value how whether share trade in market is overvalued or undervalued. Apple Industry P/E is 45.24 while the Apple average P/E ratio in four years is 14.48 and in current year P/E ratio is 17.11 which can be interpreted that Apple is under value as compared to industry averages. While time series analysis depicts that Apple P/E is increasing year on year basis, this means that Apple is moving toward its true fair value.
Market to Book Value
Apple industry market to book value is 2.63 while Apple own market to book value is higher than its industry averages. Market to Book Value interpretsat how many multiples share trading as compared to book value. Higher ratio means shares are trading more than its book value which is positive ad investors have high confidence and put more value to Apple share.
Apple’s market to book value in the year 2014 is 5.80 while its industry average is 2.63 which means that Apple share investors has more confidence than companies in Industry in which Apple operates.
EV to EBITDA
EV to EBITDA is increasing on yearly basis. Industry average is 10.41 while Apple’s EV to EBITDA in year 2014 is 10.93 which can be interpreted as still Apple is undervalued as compare to other peers in industry.
Profitability Ratios
Operating Profit Margin
Apple’sindustry average operating profit margin is 9.95%, while Apple four year average operating profit is 30.98% and in year 2015 operating profit margin is 28.72%, which is higher than the industry average and which is considered as good as Apple was able to generate more than double of operating profit than peers in the industry..
Likewise operating profit margin, the net profit margin of Apple is also higher than industry averages and it is also increasing on a year on year basis. Net Profit Margin of Apple’s industry average is 7.12%, while Apple own four years average is 23.47% due to high operating margin.
Higher operating net profit marginmeans Apple is able to generate profits due to economy of scale and also due to customer brand loyalty and quality of Apple products. Apple also charges a premium for its quality products which also contributed in increased profit margin.
Return on Equity
Apple is generating more return than its industry peer for their shareholder, as industry averages of Apple ROE are 16.32%, while Apple owns five year industry averages that is33.63%. Higher returns are generated through strong sales of Apple product and high profit margins from an Apple product sales.
Financial Strength Ratios
Current Ratio
Apple’s four year average current ratio is 1.47 while industry average is 1.56 which means that Apple is more liquid than its Industry peers. Overall, current ratio is above one means Apple has no liquidity issue as in year 2014 it hold $13.844 Million of cash and cash equivalents. Apple also has short term investment of $11.233 which means a total cash holding of $25.077 Million in year 2014.
Book Debt to Equity Ratio
Book debt to equity ratio can be interpreted as that how much Apple has debt as compared to its equity, higher ratio means more debt as compared to equity. Apple’s debt to equity ratio is25.99% in the current year, while in previous year it was 13.73%. Industry averages are 32.72%.Apple is a liquid company and does not relieson debt, but in last two it issue debt in order to reduce over all cost of capital and reduce WACC............................
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