Apple Inc is the chosen company. It is a technology company that was started in 1976 with the aim of changing the way people perceive computers and ensures that they are portable enough for people to use them in their homes. Apple Inc designs produce and market mobile and media devices, computers and digital music players from across the globe. It is a very unique company that one would like to understand the format it uses when preparing the balance sheet, the largest current asset, and liability for the year ending 2017. Its financial performance in terms of liquidity can only be gained through the computation of its current ratio to know its ability to meet its financial obligations when they become due.
Apple Inc is a US based company that prepares and produces financial reports at the end of every year. It presents its balance sheet elements vertically although it can present assets, liabilities and owners' equity in account format (Apple Inc, 2017). Apple Inc does not divide its balance sheet into right and left side but presents its balance sheet items vertically without itemizing liabilities and owners' equity on the right side of the balance sheet (Nodes, 2014). The balance sheet elements are arranged from the top to the bottom. Assets appear at the top where they are divided into three different sections namely, fixed assets, intangible assets and current assets before finding total assets. The second section of the balance sheet represents liabilities and owner's equity. This section is divided into long term liabilities, current liabilities, and owners' equity. The total assets and liabilities and owner's equity should be equal to each other.
The largest current assets of Apple Inc is marketable securities with a monetary value of $53.89B and it is followed by account receivable of 35.67B in 2017 (Apple Inc, 2017). Account payable is also the largest current liabilities ($49.05B) of Apple Inc. This is a significant sign that Apple has a weaker credit policy because it takes a very long time to pay its suppliers.
The current ratio is one of the most important liquidity ratios which shows the ability of the business organization to meet its financial obligations when they become due (Tomczak, 2014). It is computed by dividing total current assets by total current liabilities. Total current assets of Apple Inc for the financial year ending 2017 is $128.65B while total current liabilities of the same financial year are $100. 81B.Therefore current ratio is ($128.65B/$100.81B) =1.28. Based on the result of the current ratio of Apple Inc, it is capable of meeting its financial obligations when they fall due. In order to know whether there is an improvement or worsening in current ratio, it is essential to compute current ratios in previous years such as 2016 and 2015. The current ratio for 2016 is ($106.87B/$79.01B) =1.35 (Apple Inc, 2017). The current ratio for Apple Inc is steady because it does not either increase or decrease significantly. It remains within the acceptable standards for the last three consecutive years.
The current ratio for Apple Inc shows that it has an efficient operating cycle or has a higher potential of converting its products into cash. It does not have excess cash or account receivable that can make it has a higher liquidity position. It keeps sufficient cash that it can use to pay its trade creditors and also meet other financial obligations. Because Apple has a higher ratio above 1, it means that it is capable of meeting its financial obligations. Therefore, it has a very good financial health. It usually uses excess cash financing other long-term investments to help it generate more profits and has a good credit policy that ensures that it collects its account receivable within a short period.
Nodes, C. (2014). Financial reports of listed companies. Very Short Introductions.doi:10.1093/qctrqde/9780199684311.003.0004.
Tomczak, S. (2014). Comparative analysis of liquidity ratios of bankrupt manufacturingcompanies. Business and Economic Horizons, 10(3), 151-164. doi:10.15208/beh.2014.13
Apple Inc, (2017).Financial report for the year ending 2017:https://amigobulls.com/stocks/AAPL/balance-sheet/annual
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