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Accounting: Ratio analysis for Apple and HP.

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Problem 5-6 Inventory Turnover for Apple Computer and Hewlett-Packard

The following information was summarized from the 2006 annual report of apple computer, inc.:

Cost of sales for the year ended: (in millions)

September 30, 2006 $13,717
September 24, 2005 $ 9,989

September 30, 2006 270
September 24, 2005 (as restated) 165

Net sales for the year ended:

September 30, 2006 $19,315
September 24, 2005 (as restated) $13,931

The following information was summarized from the fiscal year 2006 annual report of Hewlett Packard Company:

Cost of sales for year ended: (in millions)

October 31, 2006 $55,248
October 31, 2005 $52,550


October 31, 2006 $ 7,750
October 31,2005 $ 6,877

Net revenue for the year needed:

October 31, 2006 $ 91,658
October 31, 2005 $ 86,696

1. Calculate the gross profit for Apple Computer and Hewlett-Packard for each of the two year presented.
2. Calculate the inventory turnover ratios for both the companies for the most recent year.
3. Which company appears to be performing better? What other information should you consider to determine how these companies are performing in this regard?

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Solution Summary

The problem deals with calculating ratios for two companies: Apple computers and HP.

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Financial Reports, Cost Behavior, Break-even Analysis, Performance Measures

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Part II- Cost Behavior
Review financial statements for two years. Make a comparison of
â?¢ revenues;
â?¢ cost of goods sold;
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â?¢ accounts payable
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Part III- Break-Even Analysis and Planning
Prepare a flexible budget for next year.
Limit limiting your budgeting to the absorption approach.
Set up the flexible budget showing three different growth rates. Use the financial statements and do research to determine growth trends. Explain your estimates and prepare a flexible budget showing the low, the average, and the high revenues and adjust all other line items in the income statement to reflect the revised revenue assumptions.
â?¢ What is the growth rate in sales for the past three years?
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â?¢ Current interest rates and tax burdens.
Discuss the implications of the information after you have completed the flexible budget.
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Part IV-
Lastly, regarding operating leverate, ROI, EVA, and pick another performance measure of your choice. You will note that there are variations in the computations of a particular measurement. Consistency in application is the key.
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Reflect on the advantages and disadvantages of these performance measures. Choose your preferred measure and explain your rationale.

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