Stock Analysis of Apple

...

Also, the portfolio risk-adjusted return is higher than the benchmark’s. It indicates that the return of funds included in the portfolio is more risky, than the benchmark’s return. The Sharpe ratio is an indicator used to evaluate the fund’s risk-adjusted return. It is calculated by subtracting the risk-free rate from the expected portfolio’s return, dividing the received result to the portfolio’s standard deviation. Therefore, the portfolio’s Sharpe ratio is 0.75, while the benchmark’s ratio is 0.47. It means that the funds included in the portfolio are more risky. Sterling ratio is another tool to measure the fund’s risk-adjusted return. This ratio is used to determine of which funds are most profitable with the least volatility. The higher ratio is better, since it means that the fund has higher return related to its risk. That is why the fund’s included in the portfolio is more risky due to the higher value of Sterling ratio, but they have the higher expected level of return. The Treynor ratio is “a ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk” (Treynor ratio n.d.). This ratio also measures the risk-adjusted return of the portfolio’s funds and it is similar to the Sharpe ratio. Thus, the portfolio’s Treynor ratio is 10.63, while the benchmark’s value of this ratio is 6.41. That is why the previously made conclusion about the higher riskiness of the portfolio’s funds and their higher expected return is right.

Additionally, other areas of the companies’ financial performance should be compared.

Table 1.

Companies’ Other Areas of Financial Analysis and Their Stock Performance

[pic 13]

According to the data provided in the Table 1, Apple’s stock ratios exceed its competitor’s ratios. In addition, the Apple’s stock price significantly increased during the past 52 weeks, while the Hewlett-Packard’s share price increased only by 5.2% (Apple Inc. (AAPL), n.d.).

As it is also seen from the Table 1, the Apple’s share price significantly exceeded its competitor’s share price during the past 52 weeks.

In fact, the main financial strengths and weaknesses that the company has faced during the period under review should be considered. First of all, one of the most important strengths is growing of its net income and total sales. It means that demand on the company’s production is expanding. Secondly, the organization’s profitability and liquidity ratios are quite high. That is why, it can be considered as the company’s financial strength. Thirdly, its cash conversion cycle became shorter. It is the company’s strength too.

To conclude, it should be stated that the Apple’s beta was 1.16 during the analyzed ten years. It means that the company’s assets changes sharply than the overall market. However, considering two 5-year periods, it is worth mentioning that the beta of the first period (October 2010 –October 2015) was 0.69. It means that the company was more stable in that period. Additionally, the r-squared is 0.16 and it means that 16% of the market return of the Apple’s shares may be explained by general market return. The highest R-squared was 0.40. That is why 40% of changes in the market return of Apple’s shares could be explained by the overall market return

Chapter 6

For Problems 10 through 12: Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors’ expec- tations for future performance and that the current T-bill rate is 5%.

10. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as follows:

Wbills Windex

- 1.0

- 0.8

- 0.6

0.6 0.4

0.8 0.2

1.0 0

WBills

ERBills

WIndex

ERIndex

ERPortfolio

σ

σ 2

0

5%

1.0

13%

0.13

0.2

0.04

0.2

5%

0.8

13%

0.114

0.16

0.0256

0.4

5%

0.6

13%

0.098

0.12

0.0144

0.6

5%

0.4

13%

0.082

0.08

0.0064

0.8

5%

0.2

13%

0.066

0.04

0.0016

1.0

5%

0

13%

0.05