Ratio Anayzes and Statement of Cash Flowfor Dell and Apple

2462 WordsJul 18, 200710 Pages
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…show more content…
The net profit margin is the proportion of revenue that finds its way back into profit, which is expressed as a percentage (Brealey, et al., 2004, p.457). To find the net profit margin, net income is divided by sales: Table 1 2005/2006 Net Profit Margin for Apple and Dell Net "profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs" (Investopedia, 2007c). Table 1 indicates that in 2005 and 2006 Apple had a much higher profit margin at 9.6% and 10.3%, while Dell on average was about three percentage points lower. The operating profit margin "is a measurement of what proportion of a company 's revenue is left over after paying for variable costs of production such as wages, raw materials, etc" (Investopedia, 2007a, ¶1). The operating profit margin can be found by calculating net income plus interest divided by sales: Table 2 2005/2006 Operating Profit Margin for Apple and Dell The operating profit margin shows how much a company makes per dollar of items sold. This margin needs to be compared over time and with other companies to determine if the company 's margin is increasing. For this ratio, a higher number is better. In Table 2, Apple shows a larger number both years, with an increase in 2006. Dell 's increase was only a tenth of a percentage point. The return on assets

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