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Apex Printing Financial Statement Analysis Essay

Financial Analysis Apex Printing has a generally healthy financial condition. First, the company is liquid, with a current ratio of 1.13. While this is down from the prior year, it is still at a healthy level over 1.0. The long-term debt-to-equity has declined in the past year. This might indicate that some of the long-term debt is coming due this year, so it is important to know what the precise structure of this debt is, but getting the LTD to equity ratio under 1.0 is a healthy sign for the solvency of Apex.

Apex has been able to improve its gross margin in the past year, which is a positive sign for its profitability. As a result, its net margin has also increased, meaning that it has contained its costs to a point where all of the increase in the gross margin flows through to the net margin. The result of this is that Apex recorded a significant increase in its return on equity. This went from 10.27% to 31.05%, which is a huge increase. While in some cases that sort of ROE increase reflects on a company that has very little equity value, that is not the case here because the LTD to equity ratio has improved. Thus, the improvement...

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Apex jumped significantly in profitability last year, and is a much superior performer in that regard than other firms in the industry. Even if, however, Apex regresses to the mean next year, it will still be a top performer in the industry, as it has better financial metrics that its peers.
To demonstrate, Apex Printing can be compared with two of its closest competitors, RR Donnelly and Quad/Graphics. All three companies are liquid, with health current ratios over the past two years. There is little cause for concern for any of these three companies, but some of the other metrics reveal that Apex is in a stronger financial position.

The long-term debt to equity ratio is one area where Apex is superior. Apex has a capital structure that contains a healthy amount of equity and good balance between equity and debt, but the other two companies do not. RR Donnelly is heavily leveraged. In its favor…

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All of the firms earn a reasonable gross margin, usually in the low 20s. Last year for Apex is an outlier, and more data will be needed to see if Apex can sustain this higher level for the gross margin. Last year, Apex also significantly outperformed the competition with respect to the net profit margin. RR Donnelly lost money in 2012 and turned a slim profit in 2013. Quad turned a slim profit in both years. Last year, it barely earned any net income at all. In that sense, Apex is clearly performing better, even if last year's performance cannot be sustained.

The ROE for Apex is 31%, much higher than it was for 2012, but that is mainly due to the fact that it increased its profitability in the year. RR Donnelly also experienced a high ROE in 2013, after recording a loss in 2012. However, we know that RR Donnelly does not have much equity, so it should have a higher ROE. Apex has a similar ROE, but a much lower level of leverage, which makes Apex the better investment. Quad has almost no equity, but a very low ROE as well. This is attributable to the fact that it has a very low net margin as well. Quad appears to just be scraping by, earning a minimal return on minimal equity.

Overall, Apex is the best investment of the three by far. It earns the best returns on equity, relative to the degree of leverage. Quad has generally lousy metrics other than the current ratio, and should be ruled out on that basis. RR Donnelly is less profitable than Apex, and while it earns a healthy ROE, it has a high level of leverage, so it should have a high ROE. Apex has an ROE almost as high but with a much healthier degree of leverage, which makes Apex the best investment among the three companies, even if last year's exceptional profitability is ultimately non-sustainable.
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