Financial analysis for Apple, Inc.
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TOPIC 1:
Retail firms are at risk that their inventory will become obsolete. What can a firm do to minimize this risk? What types of firms are most at risk? Least at risk? Select a retail firm that you think might be concerned about obsolete inventory and another that you believe would not be very concerned. Then, find their financial statements and calculate the inventory turnover ratio of these two firms for the past two fiscal years. Are your results what you expected? Explain what you expected to find and your results.
TOPIC 2:
In Topic A you examined the four basic financial statements for a publicly traded corporation. You used the search tool here: http://sec.gov/edgar/searchedgar/companysearch.html. Answer the ten questions you asked about the financial statements. For the questions you are unsure about, provide a possible method for determining the answer (additional research, etc.).
Topic A
First let us identify the four basic financial statements that all publicly traded corporations have to submit to the Securities and Exchange Commission (SEC) every quarter and year. These are:
1. Balance sheet - this financial statement shows the cumulative record of the company's assets and the funding resources for these assets - liabilities and owners' equity from the time the company was established to present.
2. Statement of cash flows - this shows the sources of the company's cash and where it used its cash for the given accounting period, which could be monthly, quarterly or annually. This financial statement is divided into three sections: cash from (used by) operating activities, cash from (used by) financing activities; and cash from (used by) financing activities.
3. Income statement - this statement presents the company's income for the given accounting period
4. Statement of changes in owners' equity - this shows the changes in owner's capital. These changes usually come from net income, withdraw and additional investments by owners.
I used Apple, Inc. for this exercise. You can access their financial statements for the year ended September 30, 2013 in their Form 10-K filing with the SEC which is at http://www.sec.gov/Archives/edgar/data/320193/000119312513416534/d590790d10k.htm.
This filing contains other data but we will only look at the four financial statements which are presented starting at page 44.
For the total assets, liabilities, and shareholders' equity balances, we have to look at the Balance Sheet which is on page 47.
Total assets = $207,000 million
liabilities = $83,451 million
shareholders' equity = $123,549 million
For Apple, Inc. the income statement is called Consolidated Statements of Operations which is in page 45. As I mentioned above, this financial statement shows the company's net income. In addition it also lists the operating expenses used to generate said income.
These are the 10 questions I think are relevant:
1. What are the sources of the company's sales? How much was derived from iPhone and iPad sales, for example?
2. Of the company's $13, 102 million accounts receivable, which borrower owe the most?
3. Of the company's common stock, how much is owned by Apple's executives?
4. The balance sheet showed a "Vendor non-trade receivables" balance, what is meant by this?
5. In the same statement, Apple reported deferred revenue of $7,435 million. What are the sources of these deferred revenues?
6. In the company's statement of cash flows, a "Share-based compensation expense" was deducted from net income to arrive at cash generated by operating activities. Of the total salaries and wages expense of the company, what percentage is Share-based compensation expense?
7. Under the investing activities of the statement of cash flows, a payment was made in connection with business acquisitions, what business did Apple purchase for the year?
8. In the statement of comprehensive income, Apple reported change in fair value of its derivatives, what type of derivatives are these?
9. For its short-term marketable securities, how long does Apple keep them in their books?
10. The company lists acquired intangible assets as part of its assets, what are these intangible assets?
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Solution Summary
Detailed evaluation of Apple's financial statements
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TOPIC 1:
Retail firms are at risk that their inventory will become obsolete. What can a firm do to minimize this risk? What types of firms are most at risk? Least at risk? Select a retail firm that you think might be concerned about obsolete inventory and another that you believe would not be very concerned. Then, find their financial statements and calculate the inventory turnover ratio of these two firms for the past two fiscal years. Are your results what you expected? Explain what you expected to find and your results.
The risk of inventory becoming obsolete is a big concern for retail firms because if this happens, the associated costs to the firm are considerable. Fortunately, there are several management techniques that have been refined to minimize this risk. And, personally, the best is the just-in-time (JIT) technique which is a process where a company maintains a bare minimum inventory levels and will only acquire the necessary inventory once an order from a customer is logged into their system. Hence, the name - just in time to fulfill customer orders.
I think that the type of firms that is most at risk is the manufacturing concerns. This is so because aside from maintaining inventories for their finished products, they also have to manage their raw materials inventory. Imagine if one of their final products becomes obsolete, if it is one of a kind, then the associated raw materials will also become useless and obsolete. An example here would be a cellphone manufacturer like Apple, Inc. (NYSE: AAPL).
On the other hand, the least at risk firms are fast-food companies. Though their inventories are highly perishable, it is rare that their food products become obsolete. It is more likely that their final products and raw ...
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