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Introduction
Accurate analysis is an indispensable component of quality investment, which promises great returns. It is essential to have a complete understanding of the current state and value of a company’s shares and assets. Generally, the Information Technology market appears attractive to investors, and major players, such as Microsoft and Apple, naturally seem like an obvious choice of profitable investment. However, in the world of finance, actual outcomes often differ from the initial perception of a matter, which is why one must begin by studying the two companies’ financial statements mentioned above. The purpose of this report is to evaluate the positions of Microsoft and Apple in the stock market based on their public financial statements, stock prices, and current ratios.
Stock Type and Par Value of Microsoft and Apple
The financial statements of both companies can provide potential investors with a better understanding of the organizations’ performance. Both companies remain on the front line of innovation in their sphere, spending considerable resources on new advancements and technology. According to Apple’s (n.d.) data, it holds common stock with a par value of $0.00001, and there are 12,600,000 shares authorized. At the same time, Microsoft (n.d.) trades its common stock in the NASDAQ Market with a par value of $0.00000625 per share. According to Weygandt et al. (2018), the purpose of par value is to protect the interests of a company’s creditors.
In other words, the par value specified above sets the threshold, beyond which the capital and assets of either company cannot descend. However, as it can be observed in the case of Microsoft and Apple, the numbers are often formal and insignificant as compared to the overall turnover of a company. Weygandt et al. (2018) confirm the questionable nature of par value as a protective mechanism for creditors. Therefore, it is required to consider other aspects of the organizations’ financial performance in order to draw a conclusion.
Last Financial Statement Audit of Microsoft and Apple
While major companies are expected to include credible information in their financial statements, external audit remains an important instrument, providing potential investors and stakeholders with evidence-based data. As far as Apple is concerned, the team’s research indicated that the company’s financial statement was audited by Ernst & Young LLP. This organization has an exceptional reputation in the market, and it follows its principle of a transparent, convenient, and reliable functioning of the stock market (Who we are, n.d.). Therefore, potential investors can trust the presented numbers in terms of their accuracy and validity.
As for Microsoft, research revealed that it had its financial statement audited by Deloitte & Touche LLP. This organization operates on a worldwide level, providing its clients with international expertise. The company’s philosophy relies on transparency and integrity demonstrated by every employee (About Deloitte, n.d.). Overall, both organizations, which are being examined, utilize reliable CPA firms, which can be expected from the leaders of the Information Technology industry.
Earnings per Share for Microsoft and Apple
When one considers large-scale investment in a company, the list of relevant aspects must also include the earnings per share (EPS). While these numbers are usually reviewed in financial statements, some opponents argue that the concept of EPS is outdated. According to Almeida (2018), empirical evidence suggests that the figures per share are relevant for short-term investors, and chasing them could lead to underperformance in the long run.
Nevertheless, EPS figures appear relevant in the present context, as it is possible to use them in the overall evaluation without pursuing it as a key indicator. The team’s analysis of financial statements published by Apple demonstrates basing EPS at the level of $8.35, and the diluted earnings are $8.31. Simultaneously, basic and diluted EPS for Microsoft are $2.12 and $2.10, respectively. These numbers indicate that Apple shows better performance as per one-share profits. Such a tendency can be explained by the company’s greater presence across IT market segments, in which Microsoft has not had as much success. However, as stated above, EPS cannot serve as the sole factor upon which one should make an investment decision.
Dividends and Current Ratio of Microsoft and Apple
Dividend payments are another factor, which is carefully analyzed by potential investors. In the majority of cases, the existence of a company’s stock dividends is viewed positively, as it implies that the organization has seen a stable cash flow and revenue growth. He et al. (2016) conducted a case study analysis, which revealed that older firms with a higher level of profits and retained earnings are more likely to issue dividend payments. Overall, according to the Consolidated Statements of Shareholders’ Equity, Apple (n.d.) reported $12,188 million in dividends and their equivalents. A similar number for Microsoft (n.d.) amounted to $11,329 million within the same period. Therefore, Apple appears to spend more on dividend payments to shareholders, which positively affects its investment potential.
However, the current ratio will be the final decision-making factor. In order to calculate it, one must divide a company’s current assets by its current liabilities. The team has conducted research and reported the respective numbers for Apple: $106,869 million and $79,006 million. Accordingly, the computed ratio for Apple is 1.35:1 as per the examined fiscal data. In the case of Microsoft, the company’s total current assets are $139,660 million, with total liabilities amounting to $59,570 million. Calculations suggest a better current ratio for this organization, which is equal to 2.34:1.
Conclusion and Recommendations
In conclusion, both Microsoft and Apple stand as giants in the IT industry, have introduced a range of revolutionary products. Therefore, these organizations remain popular choices in terms of investment opportunities. While Apple and Microsoft appear similar in nature, each company demonstrates a range of particular features, making them distinct. For example, Engel et al. (2016) state that dividend payments have been a recent practice for Apple, as the organization avoided this practice under the previous CEO, Steve Jobs. In addition, while both companies actively promote innovations, their primary spheres of activity differ. Apple is well known for its mobile devices, such as iPhone or iPad, whereas Microsoft failed in this segment, now focusing on desktop computers and laptop software, namely the Windows operating system.
Based on the presented analysis, it appears that each of the investment opportunities is inherently different. Therefore, one must begin by determining their own priorities in terms of the investment period and the desired level of return. Both Apple and Microsoft are well-established companies with decades of history demonstrating steady performance. As discussed above, such organizations are more likely to issue dividends, and, furthermore, their position in the market is relatively secure. While such investment opportunities imply reduced risks, potential growth will equally not be as staggering as one might hope. Out of the two options discussed within the framework of the present report, Microsoft appears to be the more stable one. Even though Apple performs better in terms of EPS and stock value, Microsoft has a better current ratio of 2.34:1, making it a safer investment choice in the long term.
References
About Deloitte. (n.d.). Deloitte. Web.
Almeida, H. (2018). Is it time to get rid of earnings-per-share (EPS)?The Review of Corporate Finance Studies, 8(1), 174–206. Web.
Engel, R. P., Lyons, B., & Pannese, D. (2016). Liberating trapped cash: A case study of Apple and Microsoft. The Accounting Educators’ Journal, 26, 119–133. Web.
He, X., Li, M., Shi, J., & Twite, G. (2016). Why do firms pay stock dividends: Is it just a stock split?Australian Journal of Management, 41(3), 508–537. Web.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting principles. John Wiley & Sons.
Who we are. (n.d.). EY. Web.
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