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Taking a Risk with Apple: Cost of Equity

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Taking a Risk with Apple: Cost of Equity
TUI University
Monessa Catuncan
Module 3 SLP
FIN501- Strategic Corporate Finance
Dr. William Anderson
26 March 2012

Debt Ratio and Debt to Equity Ratio Calculations for Apple Inc.
Total Liabilities (L) = 39.756B
Total Equity (E) = 76.615B
Short-term Liabilities (SL) = 0
Long-term Liabilities (LL) = 0

Debt Ratio =LL+E= 39.75639.756+76.615= 39.756116.371=0.342

Debt to Equity Ratio =LE= 39.75676.615=0.519

Short-term Debt Ratio =SLL+E= 039.756+76.615= 0116.371=0

Short-term Debt to Equity Ratio =SLE= 076.615=0

Long-term Debt Ratio =LLL+E= 039.756+76.615= 0116.371=0

Long-term Debt to Equity Ratio =LLE= 076.615=0

Analysis of Apple Inc. Ratios and Debt Throughout the past decade, Apple’s tremendous success has allowed the company to achieve record-breaking values in total revenue, market capitalization, and cash flows, among many other values. While the calculations above show a debt to equity ratio of almost 0.6, Apple Inc. has not endured debt since 1999; therefore this value can be a slightly misleading. The total liabilities number above represents a wide variety of items such as payrolls, inventory purchases, taxes, etc. If Apple’s debt value were used as the total liability value, this ratio would be zero. The short- and long-term debt to equity ratios also equate to zero. While Apple currently enjoys a debt-free environment, the company has not always seen prosperous times. In 1996, Apple allocated close to one billion dollars in debt after buying telecommunications company, NeXT, for almost $650 million. As Steve Jobs took over the reigns as CEO in 1997, Apple’s profitability and stock improved rapidly, and by the turn of the century, Apple was completely free of debt. Steve Jobs wrote a letter to each of his thousands employees stating,…...

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