Ratio Analysis and Statement of Cash Flows Paper
Dell Incorporated (Inc.) and Apple Inc. are two of the biggest names in the computer industry. From laptops to accessories, both companies offer a wide range of products. In order to differentiate between the two companies and review the current financial health of their organizations, the financial statements will be analyzed. Dell and Apple will be compared based on operating profitability, asset utilization and risk management. Ten ratios comparing Dell and Apple during 2005 and 2006 will be defined, calculated and evaluated. Finally, an interpretation of these ratios as they are applied to Dell and Apple will be presented.
Operating Profitability
Operating profit is "a measure of a company's earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes, also called EBIT (earnings before interest and taxes) or operating income" (Inverstorwords.com, 2007). The formula for operating profit is: operating profit = operating revenue ? operating expenses.
In January of 2005, Dell reported that EBIT was $4,445 million and in 2006 it was $4,574 million, a 2.9% increase (Forbes.com LLC, 2007b). Alternatively, in 2005 Apple reported on EBIT of $1,815 million and in 2006, $2,818 million, a 55.26% increase (Forbes.com LLC, 2007a). These results indicate that Dell is more successful; however, Apple is rapidly and dramatically increasing their operating profitability. Tables 1 through 4 display the four most commonly used ratios for operating profitability.
Asset Utilization
Asset utilization is vital to the success of an organization, and Dell and Apple both utilize capital equipment to manage their manufacturing and distribu ...