Microsoft vs Apple financial ratios

Topics: Financial ratios, Balance sheet, Financial ratio Pages: 15 (2862 words) Published: April 20, 2015


Apple Incorporated vs. Microsoft Corporation
A Financial Analysis of Competitors
Alex Trenchovska
Columbia College

Figure 1

Figure 2

Figure 3

Apple Incorporated vs. Microsoft Corporation
A Financial Analysis of Competitors

In modern society, electronics are used on a daily basis. Virtually everyone has a smartphone that they carry with them at all times, and most individuals have a personal computer for home use. In this electronic age, it is primarily two companies that are competing over the market share in order to be recognized as the best performing tech company: Apple Incorporated and Microsoft Corporation. Most individuals, when asked, have strong preferences towards either Apple or Microsoft products and are passionate about which company’s products are the best to use. These biases towards products often carry over into how individuals view the company’s performance as a whole, and can create unfounded beliefs as to which company is performing the best. This, in turn, could lead potential investors to buy stock in a company solely on personal opinion instead of factual evidence that one company is performing better than the other. Unbiased financial analysis of these two companies is the only way to truly compare the two companies and determine which one is performing the best and should be invested in. Financial Analysis of Apple Incorporated and Microsoft Corporation

Apple Incorporated and Microsoft Corporation, like all large companies, produce income statements, balance sheets, and statements of cash flow at the end of their fiscal year. While reviewing these financial statements can give you a good impression of a company’s current financial standing, it is difficult to compare one company to another company based off of these statements alone. Preparing financial ratios, like those in Figure 1 and Figure 2, not only allows you to compare one company across years to see how it is performing relative to itself, but it allows you to compare two or more companies to determine which one is performing best. In the case of Apple Incorporated and Microsoft Corporation, financial ratios allow us to analyze the companies’ performance in 2012, 2013, and 2014 in order to ascertain whether they are improving or declining relative to themselves, as well as which company is performing best overall. The financial ratios used to analyze these companies are profitability ratios, asset utilization ratios, liquidity ratios, and debt utilization ratios. Profitability Ratios

Profitability ratios are exactly what their name implies; they measure the overall profitability of a company. More specifically, profitability ratios are a measurement of the amount of return on sales, total assets, and equity of a company. Analysis of profitability ratios indicates whether or not a firm is effectively and efficiently using its resources in pursuit of returns on sales, total assets, and equity. While it is best to compare these ratios to an industry standard to see how well the company is doing relative to the industry as a whole, comparing these ratios across years or to another company is indicative of how well the company is doing relative to past performance and the other company.

Apple Incorporated’s profitability ratios: Figure 1. From 2012 to 2014, Apple Incorporated’s profit margin decreased roughly 5%, meaning they were making roughly 5% less profit on their sales in 2014 than they were in 2012. This decrease in profit margin is partially due to a considerably higher rate of increase in cost of revenues than in sales. It was costing more, per dollar of sales, to make the products to sell. Their return on assets decreased over 6.5%, indicating they were making less profit relative to the amount of assets they had. From reviewing the balance sheet, the return on assets decreased due to a significant increase in the amount of inventory being held by the company....

References: Yahoo! Finance. Balance Sheet. Apple Inc. (AAPL).
Retrieved February 20, 2015, from
Yahoo! Finance. Income Statement. Apple Inc. (AAPL).
Retrieved February 20, 2015, from
Yahoo! Finance. Balance Sheet. Microsoft Corporation (MSFT).
Retrieved February 20, 2015, from
Yahoo! Finance. Income Statement. Microsoft Corporation (MSFT).
Retrieved February 20, 2015, from
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