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?
The problem deals with calculating ratios for two companies: Apple computers and HP.
Financial Reports, Cost Behavior, Break-even Analysis, Performance Measures
You must choose a publicly held company. Indicate the name of the company, a link to the homepage of the company and links to at least two other sources of financial information. Also, comment on your interest in the company and how one can expect to benefit from the analysis of this particular company.
Part I- Understanding Financial Reports
Assess the financial position of the company company in comparison to one of its competitors. The emphasis is on cash flow for this analysis.
1. Compute the return on assets, profit margin and asset utilization rate for your company and its competitor.
2. Assess your company's competitive financial position.
3. Compute the free cash flow for your company and its competitor.
4. Assess your company's relative cash position and comment on its receipt and use of cash during the year.
Part II- Cost Behavior
Review financial statements for two years. Make a comparison of
â?¢ cost of goods sold;
â?¢ accounts receivable; and
â?¢ accounts payable
...for the two years and show trends for all five categories for each company. Keeping the case analysis in mind, discuss and interpret the changes over the three year period. Which company is the best performer and why? How is this information useful to you from a managerial perspective? Explain your reasoning and support with the numbers you have pulled out for the comparison above. Don't forget to comment on the interaction of the balance sheet and income statement.
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?
â?¢ Are revenues and expenses growing at the same rate? What was the experience in the past few years?
â?¢ What is the current growth rate in the economy?
â?¢ How are the competitors doing?
â?¢ Current interest rates and tax burdens.
Discuss the implications of the information after you have completed the flexible budget.
â?¢ How does the flexible budget differ from a static budget?
â?¢ Budgets are used for planning and control. Discuss how you can use the information derived for these two purposes?
â?¢ Comment on using this information for performance evaluations.
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.
Use information from the latest financial statement for the same company to compute the measurements you researched.
Reflect on the advantages and disadvantages of these performance measures. Choose your preferred measure and explain your rationale.