io of stockholders\' equity to total assets; price-earnings ratio is a technol A
ID: 2584053 • Letter: I
Question
io of stockholders' equity to total assets; price-earnings ratio is a technol A8 ka technology company that designs, produces, and sells a variety of digial devices, Aople ing the iPod, iPhone, and iPad. The following data (in millions) were adapted from a ecent financial statement of Apple. Obj 9 Year 1 $116371 39,756 76,615 28.05 Year 2 Total assets Total liabilities Total stockholders' equity Earnings per share $176,064 57,854 18,210 44.64 . Compute the ratio of liabilities to total assets for Years 1 and 2. Round to one decimal placeExplanation / Answer
Total Liabilities
Total assets
This ratio tells the percentage of total assets that were financed by creditors, liabilities, debt.
Year 1
Return of Liabilities to Total Assets = 39756 / 116371
= 34.16%
Year 2
Return of Liabilities to Total Assets = 57854 / 176064
= 32.86%
Total Equity
Total assets
This ratio tells the percentage of total assets that were financed by owner’ equity..
Year 1
Return of Shareholder’s equity to Total Assets = 76615 / 116371
= 65.84%
Year 2
Return of Shareholder’s Equity to Total Assets = 118210 / 176064
= 67.14%
Total Liabilities
Total Equity
This ratio shows the percentage of company financing that comes from creditors and investors.
Year 1
Return of Liabilities to Shareholder’s equity = 39756 / 76615
= 51.89%
Year 2
Return of Liabilities to Shareholder’s Equity = 57854 / 118210
= 48.94%
Analysis of Point No. 4 and Point No. 5
Year 1
As Calculated in Point No. 3, around 52% company financing has been made by creditors than the investors. This high ratio is risky as it shows the investors have not funded the operations as much as creditors have.
Year 2
As Calculated in Point No. 3, around 49% company financing has been made by creditors than the investors. The Lower ratio usually implies a more financially stable business therefore creditors feel safe in this situation as the investors have funded more in the operations of Business than the outside creditors.
Market Value Price per Share
Earning Per Share
The price earnings ratio shows what the market is willing to pay for a stock based on its current earnings.
Year 2
Price earning Ratio = 444.38 / 44.64
= 9.95 times
Price earning Ratio = 459.68 / 28.05
= 16.38 times
Price Earning Ratio for Year 1 is higher than the Year 2. The higher P/E ratio usually indicates the positive future performance and investors are willing to pay more in the company’s share. On the other hand, the lower P/E ratio usually indicates the poor current and future performance. This could prove to be a poor investment.
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