For those who have invested in Apple, they have definitely received their return on equity (or ROE). But how much did hose investors receive in return from their investment? Let’s use the DuPont Identity formula. This formula uses all aspects of a company ownership; Balance Sheet items e. G. Assets & Liabilities and Income Statement items. This formula produces the ROE by the Net Profit Margin times Asset Turnover times Equity Multiplier (Beer 44).
This may seem confusing so lets break it down further: Net Profit Margin (PM) Net Income/ Sales Asset Turnover (AT) = Sales/ Total Assets Equity Multiplier (ME) = Total Assets/ Book Value of Equity Then, you multiply the Net Profit Margin by the Asset Turnover by the Equity Multiplier and that ivies you the DuPont Identity’s ROE. Using the 2014 fiscal year, ending September 27th, the ROE consists of the following (in millions of US Dollars): PM= 39,510/ 182,795 0. 21614377 182,795/ 231 ,839 = 0. 78845664 E-M- 231 ,839/ 1 11,547 = 2. 7839745 When multiplying each result, the DuPont Identity shows that for the fiscal year 2014, Apple stockholders have earned 35% return. In theory, just looking at the numbers is great but it has no real value as a stand alone percentage. In order to make an analysis, there must be a minimum of two things being compared. To give Apple’s 2014 ROE more meaning, it will be presented against Apple’s 2013 ROE. PM= 37,037/ 170,910 = 0. 2167047 170,91 0/ 207,000 = 0. 82565217 C-M= 207,000/ 1 23,549 = 1. 67544861 The result is 0. 997758 or almost 30%. Now that we have the data, we can make comparisons. In just one year alone, there is a 5% difference in return from 2013 to 2014. Everything in the equation is higher in the 2014 calculations than the 2013 calculations, which means that Apple was better at making sales, having higher assets and in return, having higher equity. ROE however does not mean that the company is more efficient. That is why there re other ratios to shed light onto how well a company is performing, within itself and against the competition.
Sony Corporation is another company that is in the technology industry. They have their own computer, phone and camera lines as well as their gaming line, famously known as Palpitation. Sony often competes directly with Apple with their computer and phone lines. It is important to see how Apple is performing within its industry because Apple’s financial statement values within itself does not tell how well Apple is ranked in the technology market. Sonny’s global consolidated financial tenements are in Japanese Yen while Apple’s statements are in United States Dollars.
Despite comparing incompatible forms of currency, am just comparing the values that the ratios imply when entering the currency into the ratios. The outcome of the ratios is more important than converting the Yen into SAID. Sonny’s 2013 ROE is calculated via the DuPont Identity as follows (in millions of Yen): PM = 43,034/ 0. 00756148 AT = 5,691. 216/ 0. 40061235 ME = 14,206,292/ 2,681, 1 5. 29852624 is 0. 01 605041 or 1. 6% for 2013. Seeing as Apple’s ROE for 2013 is 30%, Apple is definitely having the advantage being that it had 30%. We can evaluate this as Sony was having a bad year in the market for 2013 compared to Apple.
Sony performed lower in all categories of the DuPont identity except for in the Equity Multiplier, which means that Sony has at least 3. 16 times leverage than Apple. Other than that, Apple completely outperformed Sony. Apple had much higher Sales and Net Income than Sony. Also Apple has a much higher Asset Turnover rate, which means that Apple made better use of its assets during the 201 3 fiscal year. Compared to Apple, Sony was having a tough year in 2013. Is there anyway to see exactly how besides using the DuPont Identity? Yes. There are many other formulas to calculate how well Sonny’s performance was in 2013.
We already know that Sony was not profitable in 201 3, just based on its PM barely reaching 1%. Another ratio to check if Sony was profitable is the Gross Margin ratio (Gross Profit/ Sales). Sonny’s GM is (15,691 ,216- 0. 21 1 86878 or 21. 2%. It’S okay but compared to Apple’s 37. 6% (64,304/ 1 70,910), Sony fell short by 16. 4%. Sony did not have a good year with managing their costs, compared to Apple. Sony needs to cut back on the costs associating with making the sales because that s what hindered them the most from having a better Net Income for 2013.
Also, it is better to look at the Inventory Turnover to see how well Sony is getting rid of their merchandise. If Inventory may be the cause of Sonny’s high assets, maybe it can lower them by selling them and having a higher Net Sales. Inventory Turnover (Annual Cost of Sales/ Inventory) for 2013 is 6. 317. This means that Sony only sold their inventory only 6. 3 times out of the year in 2013 or roughly every 58 days. Apple sold their Inventory 60. 43 times (106,606/ 1 , 764) throughout 2013. This means hat Apple sold their inventory every 6. 04 days.
Apple has almost a tenfold handle on better selling their inventory over Sony. Apple is in good standing in the technology industry. They have a better management team than Sony based on the ratios that have been calculated previously. Sonny’s management clearly has a problem with selling their inventory; which is directly correlated to the amount of Sales they are making during the year. For the 201 3 fiscal year, Sony is positive in Net Income versus Net Losses in 2011 and 2012. Apple is maintaining positive Net Income and higher Net Sales than ever.