When looking at the financial performance of a company, it is important to examine the financial ratios. There are several different classifications of financial ratios. Profitability ratios show the profitability of the company. Liquidity ratios deal with the current assets and current liabilities of the company, and they determine how the company is performing with their liquid finances. Leverage ratios deal with the company’s debt, and how they affect performance. Activity ratios deal with a company’s inventory and collection period, determining how well a company is able to turn over inventory and collect debts. The other important measures of financial performance include information on dividends, common stock, and cash flows (**Use …show more content…
Larger amounts are better, and the trend should be increasing (**Book). For Apple, working capital was $20,956 billion in 2010, $17,018 billion in 2011, and $19,111 billion in 2012 (Apple financials). While working capital decreased between 2010 and 2011, it increased in 2012. The trend suggests that work is needed, but the value of the working capital suggests that the company is doing very well. Therefore, overall, working capital shows positive growth. Leverage Ratios Total-debt-to-assets shows the extent to which borrowed funds have been used to finance the company’s activities. A low ratio is better, as a higher ratio indicates that the company relies heavily on debt to finance activities. Long-term debt-to-capital shows the amount of capital investment that has been financed by both debt and equity. A ratio below .25 is desirable, since this suggests that 75% of activities have been financed with equity. Debt-to-equity shows the balance between debt and equity, and a desirable ratio is below one. The farther the ratio is below one, the more likely that a firm will be able to borrow funds in the future. Ratios above one are undesirable. Long-term debt-to-equity shows the balance between long-term debt and long-term equity. Low ratios are desirable as they show the ability to borrow more capital in the future. Times-interest-earned shows the ability to pay annual