Apple Is a Fundamentally Strong Stock



Low cash-to-debt ratio

Cash-to-debt ratio measures the financial strength of a company. Apple’s (AAPL) cash-to-debt ratio in 3Q15 is 0.64x, which is lower than the industry median of 1.4x. Apple’s operating income for 3Q15 was $14.1 billion and the interest expense was $201 million. Apple’s interest coverage ratio, which determines how easily the company can pay interest expenses on outstanding debt, is high at 70.1x.

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Current and quick ratio

Apple’s current ratio is 1.1x , lower than the industry median of 1.9x. The company’s quick ratio is 1.1x, compared with the industry median of 1.4x. Current and quick ratios measure a company’s ability to pay short-term obligations.

Price-to-earnings, price-to-book value, and price-to-sales ratios

As seen in the above chart, Apple’s price-to-earnings ratio is 12.8x, lower than the industry median of 16.3x. Its price-to-book value and price-to-sales ratios are 5.1x and 2.9x, respectively, compared with the industry medians of 1.4x and 0.8x, respectively. To compare, price-to-earnings ratios of peer companies SanDisk (SNDK) and Hewlett-Packard (HPQ) are 23.8x and 11.5x, respectively.

Dividend and share buyback

Apple’s trailing annual dividend yield is 1.8x, compared with the industry median of 2.3. Dividend yield measures how much a company pays out in dividends each year relative to its share price. Apple’s average share buyback ratio is 2.3x, compared with the industry median of -1.3x. Apple comprises 16% of the Technology Select Sector SPDR ETF (XLK) and 12.8% of the Powershares QQQ ETF (QQQ).


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