Equity Investments 530082

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Analyze the performance, financial health, and investment risks of selected companies: Apple Inc. and BlackBerry Limited. Discuss stock performance, financial ratios, and the impact of interest rates on investments. Include an evaluation of the companies’ liquidity, profitability, activity, leverage, and coverage ratios, supported by credible references.

Paper For Above instruction

Investments in equities and understanding their performance are critical components of financial analysis for investors and company management alike. Analyzing the financial health and stock performance of companies like Apple Inc. and BlackBerry Limited provides insights into their market positions and potential risks. This paper examines their stock performance, financial ratios—including liquidity, activity, profitability, leverage, and coverage ratios—and explores how interest rates influence investment decisions and risks associated with these companies.

Stock Performance and Market Analysis

Apple Inc., renowned for its innovative consumer electronics, has experienced fluctuations in its stock price, notably dropping from $129.67 to a lower value recently. Despite this decline, Apple continues to demonstrate strong market fundamentals, underpinned by robust revenues from iPhone sales and expanding services. The company's stock price reflects investor confidence, driven by future growth prospects and technological innovation (Siegel, 2008). Conversely, BlackBerry Limited's stock has declined from $10.27 to around $9.67, primarily due to shrinking revenues and increased competition in mobile technology (Sommer, 2013).

Financial Ratios and Company Health

Liquidity Ratios

Liquidity ratios measure a company's ability to meet short-term obligations. For BlackBerry, the current ratio is approximately 2.79, computed as current assets ($4,117 million) divided by current liabilities ($1,477 million), indicating a relatively healthy liquidity position (Milne & Walt Disney Company, 2015). The quick ratio, which excludes inventory, stands at about 1.33, suggesting sufficient liquid assets to cover immediate liabilities (O'Grady, 2015). Apple’s current ratio is significantly higher at 7.78, demonstrating superior liquidity, with a quick ratio of 5.04, further emphasizing its ability to fulfill short-term obligations with liquid assets.

Activity Ratios

Inventory turnover illustrates how effectively a company manages its inventory. Apple’s inventory turnover ratio of 14.34 indicates efficient inventory management, likely due to rapid product turnover and technological innovations, whereas BlackBerry’s ratio of 3.69 suggests slower inventory movement, reflective of its declining market share (Investopedia, 2015). Receivables turnover reflects the company's efficiency in collecting debts: Apple has a ratio of 0.73, implying slower collection or extensive credit terms, while BlackBerry’s ratio of 1.28 indicates marginally better collection efficiency, but still relatively low.

Days sales outstanding (DSO) further clarifies this, with Apple’s DSO of approximately 607 days, highlighting delayed collections, while BlackBerry’s DSO of around 32,380 days points to prolonged credit periods, possibly risking liquidity issues (Seabury, 2008). The fixed asset turnover ratios are low for both, around 0.30–0.33, suggesting underutilization or high fixed asset base relative to sales. Total assets turnover ratios show Apple at 0.22 and Blackberry at 0.12, signifying that Apple generates more sales per unit of assets (Milne & Walt Disney Company, 2015).

Profitability Ratios

Gross profit margins reveal profitability relative to sales; Apple’s margin of 1.69 outperforms BlackBerry’s 0.19, indicating superior cost control. Operating profit margins are similarly high for Apple at 7.24 compared to BlackBerry’s 0.18, reinforcing its operational efficiency (Tamari, 2014). Net profit margins mirror these findings, with Apple at 1.69 and BlackBerry at 0.42. Return on assets (ROA) confirms better asset utilization by Apple (0.005) versus BlackBerry (0.05), although both ratios are modest. Return on equity (ROE) similarly favors Apple (0.11) over BlackBerry (0.095), reflecting stronger shareholder returns (O'Grady, 2015).

Leverage and Coverage Ratios

Leverage ratios assess the extent of financial leverage and risk. Apple’s debt-to-equity ratio is 0.18, substantially lower than BlackBerry’s 0.06, indicating that Apple employs more debt relative to equity, which can amplify both gains and losses. Debt ratios for both companies hover around 0.49–0.51, suggesting balanced debt levels in relation to total assets. The times-interest-earned ratio highlights that BlackBerry’s EBIT coverage is 2.8 times its interest expenses, indicating moderate capacity to cover interest payments, with potential vulnerabilities if earnings decline (Milne & Walt Disney Company, 2015).

Impact of Interest Rates and Investment Risks

Interest rates significantly impact bond prices and fixed-income investments. When interest rates rise, bond prices tend to fall, inversely affecting their market value (Nielsen, 2015). For example, treasury bonds are considered nearly risk-free; however, their prices decrease with rate hikes, exemplifying interest rate risk. Certificates of Deposit (CDs), being fixed-income securities, are also sensitive to interest rate changes; decreasing demand and value occur as yields increase (Seabury, 2008).

Risk measurement varies across investment types, with stocks assessed through beta values, showing the volatility relative to the market. Apple’s beta of 0.91 indicates slightly less volatility than the overall market, but higher than BlackBerry’s 0.41, implying it is generally less risky but still susceptible to market fluctuations. Bonds and treasury securities are predominantly affected by interest rate risk and credit risk; they are relatively safer but still subject to inflation and rate changes (Investopedia, 2015).

Considering these dynamics, investors assessing Apple and BlackBerry must account for systematic and unsystematic risks, market conditions, and macroeconomic factors influencing interest rates and economic stability.

Conclusion

Overall, Apple Inc. demonstrates robust financial health, as evidenced by high liquidity, profitability, and efficient asset utilization, supported by strong stock performance and investor confidence. BlackBerry, on the other hand, struggles with liquidity, profitability, and market positioning, reflected in lower ratios and stock performance. The impact of interest rates on fixed-income investments underscores the importance of risk management in portfolio construction. Investors should consider the balance between risk and return, the companies’ financial fundamentals, and macroeconomic conditions when making investments in these firms.

References

• Investopedia. (2015). Systematic and Unsystematic risk. Retrieved from https://www.investopedia.com/terms/s/systematicrisk.asp
• Milne, A. A., & Walt Disney Company. (2015). Blackberry Annual Financial Report. Mouseworks.
• Nielsen, B. (2015). Understanding Interest Rates, Inflation and the Bond Market. Investopedia.
• O'Grady, J. D. (2015). Apple Inc. Annual Financial Report. Greenwood Press.
• Seabury, C. (2008, Nov 6). How Interest Rates Affect The U.S. Markets. Investopedia.
• Siegel, J. J. (2008). Stocks for the long run: The definitive guide to financial market returns and long-term investment strategies. McGraw-Hill.
• Sommer, C. (2013). Private equity investments: Drivers and performance implications of investment cycles. Springer Gabler.
• Tamari, M. (2014). Financial ratios: Analysis and prediction. P. El.