Research Report: Ratio Analysis, Stock Price Analysis (Research Paper Sample)

Financial Research Report
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Financial Research Report
Introduction
As the financial manager, I have a responsibility to conduct a thorough research on an investment venture that would align to my client investment goal. For this reason, I would be conducting a research on one of the U.S publicly traded organization which would fit my client’s profile and the one that will be in line with the client’s investment goals. Basically, the U.S publicly traded organization chosen for my client will be Apple Inc. With these considerations, the paper will start with background of the company. It will then be followed by rationale for selecting this company and supporting recommendations based on the company financial analysis. In essence, based on the financial review of the company I will have to take into account of the client’s risk level while deciding on the company the client will be investing his cash.
Background of Apple Inc
Apple Inc is usually a multinational organization that deals with production of personal computers, computer software, consumer electronics and servers. Basically, Apple Inc is multinational technology organization with its headquarter California. It hardware products comprises of iPad tablet computers, iPod, Apple watch smart-watch, Apple TV, as well as iPhone smartphone (Apple Inc Investors Relations, 2015). The company was founded in the year 1976 with the aim of developing and selling personal computers and by January 1977, Apple was integrated as Apple Computer Inc and was renamed Apple Inc. In essence, Apple Inc is the global leading information technology organization by revenue, global biggest technology organization by total assets as well as the global second-biggest mobile phone producer. It is also the world largest publicly traded organization in terms of market capitalization valued at over $700 billion in the year 2014. It employees over 115,000 staffs and maintains around 478 retail stores across 17 nations. Currently, Apple Inc designs and produces mobile communication devices and personal computers, and sells a wide range of associated services, accessories, software, networking solutions, applications as well as third-party digital contents. It also distributes and trades digital applications and items through Mac App Stores, the iTunes Store, iBook Store as well as App Store (Apple Inc Investors Relations, 2016).
Rationale for Apple Inc Stock
The choice to invest in Apple Inc stock for my client is driven by numerous aspects such as Apple Inc past financial success, its commitment to innovation, its stock prices as well as the consumer loyalty in this firm. To start with, since the establishment of the iPod in the year 2007, the company has experienced significant growth and is now the most successful organization in the globe. For instance, it has been ranked as the global leading information technology organization by revenue as well as global leading technology organization by the total assets. It is also ranked as the world largest publicly traded organization in terms of market capitalization valued at over $700 billion as of 2014 as well as the most valuable branding in the globe. Its annual revenue has experienced significant increase over the past decades with annual revenue as of 2010 being $65 which has grown significantly to around $127.8 billion in the year 2011 to around $233 in the year 2015 (Morningstar, 2017). This trend is expected to increase by the end of this year and in future. Actually, Apple global annual revenue by the fiscal year 2015 was approximately $233 (Apple Inc Investors Relations, 2015). This amount accounted for around 1.25% of the U.S total GDP. Further, I chose Apple Inc due to its worldwide brand loyalty. Basically, Apple Inc enjoys high level of the brand loyalty and it has the global most valuable brand for around four years consistently with a valuation in the year 2016 of approximately $178.1 billion.
Further, Apple Inc stock would be the best for my client since its stock prices has shown significant increase between the year 2001 and 2014 where the price rose as from $1.47 to around 110.38 and has also continued to show an increasing trend in 2015 and 2016 (Morningstar, 2017). In addition, its price to earnings was also ahead of the market share which was as a result of product innovation as well as the expected brand loyalty. Besides, innovation, Apple Inc is also well-known for its reinvestment in the current product line such as production of iPod Mini, iPod Nano, iPod Shuffle, iPod Touch as well as iPod Classic to the current iPad.
Generally, Apple Inc stock would be a greater investment for the client since the company is still developing some innovative products such as the Apple Pay which is expected to result in extra growth in future.
Reasons Why Apple Inc Stock is A Suitable Investment for My Client Based on the Client’s Profile
Prior to selecting the stock for the client, one had to determine the client’s profile and then align it with the stock which would help meet his or her goals. Thus, before making any recommendation on the best stock to invest in, one should understand his or her investors better. For instance, some investors usually like to purchase stock and then hold them in order to get some increase in value over some long period while other investors like to purchase stock and then quickly sell them to get quick profit. Based careful analysis of the firm and the type of investors that would be greatly interesting in investing in such a firm, I feel that to invest in Apple Inc stock, the client’s profile would be the one that is balanced with a medium risk. With these facts, my client would fit this profile. The client has huge capital and thus is interested in investing in long-term gains instead of buying stock and then selling them quickly to get quick return and is therefore willing to experience some mild market fluctuations. In fact, the client does not care about the time it would take to sell the stock, but instead, he is interested in a logical investment which would increase in value with time. Ideally, this stock would be suitable for my client since given the fact that Apple is a multinational corporation and that is very innovative, there is a high probability that the stock in this company would experience higher growth in future which would be advantageous for my client. Thus, to get significant gains in this company, I would encourage my client to purchase good amount of the stocks and then hold them for some period before selling them in order to develop some capital. With such strategy, Apple Inc stock would be ideal for the client as will enable the client to invest in its growth stock and be able to develop some returns in future.
Financial Ratio Analysis of Apple Inc
In determining whether Apple Inc stock is the best for my client, a financial ratio analysis would be of greater help. Financial ratio analysis would assist in determining financial health of Apple Inc. This would be achieved by analyzing the past three years of the company financial statements. In essence, financial ratio analyses are helpful since they would assist in assessing the organization’s current financial health and stability and its financial prospective. From my client’s profile, following financial ratios would be of greater help in analyzing Apple Inc; quick ratio, debt-to-equity ratio, current ratio, basic earning power as well as earning per share.
Current ratio
This is usually a financial ratio used in assessing an organization’s liquidity level over time. It usually shows proportion of the current assets of an organization in relation to the current liabilities (Penman & Penman, 2007). This ratio is usually computed by dividing an entity’s current assets with its current liabilities. With these considerations, Apple Inc current ratio for the past three years would be as follows;
2014 = 68,531/63,448 = 1.08
2015 = 89,378/80,610 = 1.11
2016 = 106,869/79,006 = 1.35
The results above show that for the last three years, Apple Inc current ratio has been increasing over time. In addition, based on the above results, it is evident that for the last three years, Apple Inc current assets outweigh its current liabilities. This is a clear indication that Apple Inc is not struggling to settle its current obligations using its short-term assets and therefore it means that Apple Inc is financially healthy.
Quick ratio
Quick ratio is a financial ratio used in measuring organization’s level of liquidity. It usually shows whether an organization has sufficient funds and liquid assets in settling its current obligations, without liquidating its inventory (Penman & Penman, 2007). In determining quick ratio of an organization, inventories are subtracted from the current assets and the balance is then divided by the current liabilities. With these considerations, Apple Inc quick ratio for the past three years would be as follows;
2014 = (68,531 - 2,111)/63,448 = 1.04
2015 = (89,378 – 2,349)/80,610= 1.08
2016 = (106,869 – 2,132)/79,006 = 1.33
Based on the above results, it is evident that the last three years since 2014, Apple Inc had an easy time in settling its current obligations using its liquid assets without liquidating its inventories. This means that Apple Inc is financial healthy and stable; thus, a good company to invest in for any potential investor.
Earnings per Share
This ratio helps in determining success as well as profitability of an organization. It usually measures or determines how much of an organization’s net profit every common shareholder earned. In determining EPS of an organization, one divides organization’s net income by its common shares outstanding...