Explain the ratios of both companies. How are they performing? How do they compa

Question

Explain the ratios of both companies. How are they performing? How do they compare? If you have to loan money to one of them, which one would it be? Why? APPLE In millions of dollars 2017 2016 2015 27,831.00 27,863.00 8,768.00 Working Capital Current Ratio Acid-test ratio Accounts receivable turnover Average collection period Inventory turnover Average sale period Times earned interest Debt-to-equity ratio 1.11 0.73 14.40 25.35 61.29 5.95 3.79 1.43 1.35 1.05 13.23 27.59 1.28 0.91 13.63 27.59 40.37 9.04 4.07 1.80 58.64 6.22 3.91 1.51

Explanation / Answer

Comparing Working Capital, Current Ratio and Acid test ratio ,

SAMSUNG is performing well and has a greater capability of paying off its short term liabilities. i.e. Liquidity position of SAMSUNG is better than that of APPLE.

Comparing Accounts Receivable Turnover Ratio and Average Collection Period,

APPLE is ahead of SAMSUNG which means that Receivables of APPLE pay much faster than the Receivables of SAMSUNG.

Comparing Inventory Turnover indicates how many times company has sold and replaced the inventory during the year.

APPLE in way ahead of SAMSUNG on this front.

Comparing Times Interest Earned indicates how capable the company is to meet its interest obligations.

Both are companies are more or less same in this analysis.

Comparing Debt to Equity Ratio indicates proportion of Total Liabilities to the Shareholders Funds.

SAMSUNG is ahead of APPLE in this analysis.

Loan to which Company -

The ratios that need to be considered for providing loan are

1. Times Earned Interest Ratio

2. Debt to Equity Ratio

Times Interest Ratio indicates how capable is the company to pay Interest on its Long term liabilities.

Both the companies have almost the same Times Earned Interest Ratio. So the decision shall be taken on the basis of Debt to Equity Ratio.

Debt to Equity Ratio indicates the proportion of Borrowed Funds to the Shareholders Funds. While giving loan to a company, a company with low Debt to Equity Ratio shall be preferred because after giving the loan, the ratio is going to increase and it is ideal to have Debt to Equity Ratio as low as possible.

So, loan shall be provided to SAMSUNG due to a lower Debt Equity Ratio.

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