Purchase Solution

# Accounting & Forecasting

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The following selected financial statements for Apple Computer are taken from the company's SEC filings. Answer questions 1 and 2 as follows based on this data.

Fiscal Years
(in millions except share and per share amounts)

1999

1998

1997

1996

1995

Net Sales
\$ 6,134
\$ 5,941
\$ 7,081
\$ 9,833
\$11,062

Net Income (loss)
\$ 601
\$ 309
\$ (1,045)
\$ (816)
\$ 424

Earnings (loss) per common share:
Basic
\$ 4.20
\$ 2.34
\$ (8.29)
\$ (6.59)
\$ 3.50

Diluted
\$ 3.61
\$ 2.10
\$ (8.29)
\$ (6.59)
\$ 3.45

Cash Dividends declared per common share

\$ --

\$ --

\$ --

\$ 0.12

\$ 0.48

Shares used in computing earnings (loss) per share (in thousands):
Basic
143,157
131,974
126,062
123,734
121,192

Diluted
174,164
167,917
126,062
123,734
123,047

Cash, cash equivalents, and short-term investments

\$ 3,226
\$ 2,300
\$ 1,459
\$ 1,745
\$ 952

Total Assets
\$ 5,161
\$ 4,289
\$ 4,233
\$ 5,364
\$ 6,231

Long-term Debt
\$ 300
\$ 954
\$ 951
\$ 949
\$ 303

Shareholder's Equity
\$ 3,104
\$ 1,642
\$ 1,200
\$ 2,058
\$ 2,901

1. Determine the year-to-year percentage annual growth in total net sales.

2. Based only on your answers to question #1, do you think the company will hit its sales goal of +20% annual revenue growth in 2000? Determine the target revenue figure, and explain why you do or do not feel that the company can hit this target.

Next, consider Apple's Consolidated Statement of Operations for the year ended September 25, 1999 as shown below and answer questions 3 and 4.

3. Use the Percentage Sales Method and a 20% increase in sales to forecast Apples' Consolidated Statement of Operations for the period September 26, 1999 through September 25, 2000. Assume a 15% tax rate and restructuring costs of 1% of the new sales figure.

4. Discuss your results from question number #3. What assumptions have you made? Do any of your assumptions seem unreasonable?

Consolidated Statements of Operations For the period September 26, 1998 through September 25, 1999

Sales
\$6,134
Cost of Sales
4,438
Gross Margin
1,696
Operating expenses:
R & D
314
996
In-process R & D
---------
Restructuring costs
---------
Total Operating Exp
\$1,310
Operating income
\$ 386
Total interest and other Income net
317
Income before provision for Income taxes
703
Provision for income Taxes (15%)
105.4
Net income
\$ 597.6

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Used the following information to answer the three question,s that follows.

ABC Fitness Company 000's

INCOME STATEMENT Dec. 99

Sales
1968.016
Cost of Goods Sold
1466.733
Gross Profit
501.283
361.402
Depreciation
35.7
Operating Income (EBIT)
104.181
Interest Expense
34.482
Other Expense
14.124
EBT
83.823
Taxes
24.701
Net Income
59.122

BALANCE SHEET 000's

Assets
Cash
89.469
Net Receivables
55.514
Inventories
322.433
Prepaids
8.775
Total Current Assets
476.191
Gross Plant & Equipment
955.661
Accumulated Dep
338.513
Net Plant & Equip
617.148
Other Assets
24.621
Total Assets
1117.96

Liabilities

Notes Payable
1.127
Accounts Payable
144.638
Taxes Payable
16.797
Accrued Expense
98.233
Total Current Liabilities
260.795
Long-Term Debt
415.138
Deferred Taxes
20.396
Total Liabilities
696.329

Equity

Common Stock
0.32
Capital Surplus
242.843
Retained Earnings
178.468
Total Equity
421.631
Total Liabilities and Equity
1117.96

Calculate the following asset activity ratios for the end of 1999.

1. Average Collection Period

2. Inventory Turnover

3. Total Asset Turnover

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

##### Solution Preview

The question has two sets of questions, the first is asking you to calculate the growth in sales. Please note that the sales show a turnaround in the final year but the other indicators are not very favorable. The question then asks you to calculate certain combined ratios.
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<br>There are some assumptions, which the question makes. First the question assumes that you can calculate the average collection period only on the bases of net receivables, this is not the industry norm usually the trade debtors and the receivables are added together. Since the breakup of the current assets is not given it is not possible to add the trade debtors to the bills receivables. This is exactly the reason why the figure of average collection period of 3.303 days is ludicrously low! Second the question assumes that the change in sales indicates a turnaround and expects a growth in sales, the financial evidence provided does not support this. To bolster his case the author of the question must be able to provide some non financial evidence to support his optimism. Third, the question presupposes that there is capacity of have an increase in sales next year, however the ratio analysis does not support this presupposition . The total asset turnover ratio is more than 5 which indicates an overtrading on fixed assets. Thus there is a need for an injection of ...

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