Apple vs. Microsoft Financial Ratio Analysis 2021
This paper presents a comparative financial ratio analysis of Apple Inc. and Microsoft Corporation based on their 2021 fiscal year annual reports. Using sixteen key ratios — including earnings per share, current ratio, gross profit margin, return on assets, debt-to-assets ratio, and price-earnings ratio — the paper evaluates each company's liquidity, profitability, efficiency, and leverage. The analysis reveals that while Microsoft generally outperforms Apple in profitability margins, asset turnover, and dividend yield, Apple leads in inventory efficiency, return on assets, return on equity, free cash flow, and times interest earned. The paper concludes with an investment recommendation based on the overall comparative performance of both firms.
- Introduction: Overview of Apple and Microsoft as competitors
- Financial Ratio Summary Table: Sixteen ratios compared side by side
- Profitability Ratios: EPS, gross profit, profit margin, ROA, ROE analysis
- Liquidity and Efficiency Ratios: Current ratio, inventory, receivables, asset turnover
- Leverage and Investor Ratios: Debt ratio, interest coverage, dividends, P/E, cash flow
- Conclusion: Investment recommendation favoring Microsoft
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What makes this paper effective
- Each ratio is defined before its values are presented, giving readers context before interpretation — a strong pedagogical and analytical habit.
- The paper maintains a consistent comparative structure throughout: formula, Apple's value, Microsoft's value, then interpretation — making it easy to follow across sixteen different metrics.
- Interpretations go beyond restating numbers; they draw meaningful conclusions about which company performs better on each dimension and why this matters for investors.
Key academic technique demonstrated
The paper demonstrates systematic comparative ratio analysis — a foundational technique in corporate finance and accounting. By calculating and interpreting each ratio side by side for two real companies using publicly available annual reports, the paper models how financial statements translate into actionable investment insights. This approach reflects standard practice in equity research and financial statement analysis coursework.
Structure breakdown
The paper opens with brief company introductions, presents a consolidated ratio table for quick reference, then devotes a dedicated paragraph to each of the sixteen ratios — defining it, stating both companies' computed values, and drawing a comparative conclusion. A short investment recommendation closes the paper. This ratio-by-ratio architecture is highly modular and mirrors the structure of professional financial analysis reports.
Introduction
Apple Inc. and Microsoft Corporation are among the largest companies in the United States and globally. Apple Inc. is a multinational corporation specializing in software, consumer electronics, and online services. Microsoft, a major competitor to Apple Inc., is involved in the production of consumer electronics, computer software, and personal computers. This paper presents a comparative financial ratio analysis of both companies based on their 2021 fiscal year annual reports.
Financial Ratio Summary Table
The table below summarizes the sixteen financial ratios computed for Apple Inc. and Microsoft Corporation, along with the formulas used to derive each figure.
Profitability Ratios
Earnings per share (EPS) is a ratio indicative of a firm's profitability by demonstrating the income generated for every share of common stock. The EPS for Apple was $5.67, whereas Microsoft's EPS was $8.12. This indicates that Microsoft was the more profitable firm of the two, generating a higher return for each share of its common stock.
The gross profit margin signifies the proportion of revenue that surpasses the cost of goods sold (Tracy, 2012). Microsoft had a higher gross profit margin at 68.93% compared to 41.78% for Apple Inc., indicating that Microsoft was more profitable than Apple in the 2021 fiscal year.
Commonly referred to as the net profit margin, this financial ratio indicates a company's overall profitability. Specifically, it expresses the proportion of net income relative to the revenues generated by the company (Tracy, 2012). Apple Inc. had a profit margin of 25.88%, whereas Microsoft had a margin of 36.45%. This implies that Apple generated a net return of 25.88 cents for every dollar of revenue, while Microsoft generated a higher net return of 36.45 cents for every dollar of revenue, indicating that Microsoft was more profitable.
The return on assets ratio is defined as an efficiency ratio depicting a company's effectiveness in utilizing its assets to generate returns (Tracy, 2012). Microsoft Corporation had a return on assets of 18.36%, implying that for every dollar of total assets, the company generated a return of 18.36 cents. Apple Inc., on the other hand, had an ROA of 26.97%, indicating that the firm generated a higher return of 26.97 cents for every dollar of total assets. This demonstrates that Apple was more efficient in capitalizing on its total assets to generate returns.
The ROE is a metric that depicts profitability in terms of shareholders' equity. Microsoft had an ROE of 43.15%, implying that the company generated a return of 43.15 cents for every dollar of shareholders' equity. Apple, however, demonstrated greater financial performance with an ROE of 150.07%, which translates to a return of $1.50 for every dollar of shareholder equity invested. This demonstrates that Apple Inc. was more effective in capitalizing on its shareholder equity to generate returns.
Conclusion
In examining the financial ratios of both companies based on the 2021 financial year, the analysis reveals a nuanced picture. Microsoft outperformed Apple in earnings per share, gross profit margin, net profit margin, current ratio, asset turnover, and dividend yield. Apple, however, led in return on assets, return on equity, inventory turnover, days in inventory, average collection period, times interest earned, free cash flow, and price-earnings ratio. On balance, given Microsoft's stronger profitability margins and liquidity position, Microsoft would be deemed the better company suitable for investment overall.
References
Tracy, A. (2012). Ratio analysis fundamentals: How 17 financial ratios can allow you to analyze any business on the planet. RatioAnalysis.net.
Raiyani, J. R., Raiyani, J. R., & Bhatasna, R. B. (2011). Financial ratios and financial statement analysis. New Century Publications.
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