Using the Annual Report of Apple. Use this: a) http://investor.apple.com/financi

Question

Using the Annual Report of Apple.

Use this:

a) http://investor.apple.com/financials.cfm

b) http://files.shareholder.com/downloads/AAPL/6336098505x0x962680/D18FAEFF-460A-4168-993D-A60CBA8ED209/_10-K_2017_As-Filed_.pdf

1. By how much did the company's cash balance change from the beginning of the year to the end of the year?

2. What type of instruments does the company consider to be cash equivalent?

3. Calculate the cash ratio.

4. How does this ratio compare with the industry?

5. What is the balance of accounts receivables for the company?

6. Compute the acid-test ratio. If the current liabilities came due immediately, could the company pay them?

7. Compute the accounts receivable turnover at year end.

8. Compute days sales in receivables at year end.

9. Based on the acid-test ratio, accounts receivable turnover, and days sales in receivables, how does the company compare to the industry?

Explanation / Answer

Financial statements present the results of operations and the financial position of the company. Four main statements are commonly prepared by publicly-traded companies: balance sheet, income statement, cash flow statement and statement of changes in equity.

Balance Sheet (Statement of Financial Position)

The balance sheet tells you whether the company can pay its bills on time, its financial flexibility to acquire capital and its ability to distribute cash in the form of dividends to the company's owners. In short, it is a view of the company’s financial positions as of the date it is prepared.

The balance sheet shows the company's assets, liabilities and shareholders' equity. Each is defined in Statement of Financial Accounting Concepts No. 6, but to summarize:

The key balance sheet accounting equation is Assets = Liabilities + Owners Equity, or A=L+OE

In the most common format, assets on a balance sheet are listed on the left; they ordinarily have debit balances unless the balance is negative or a contra-asset, an offset to a basic asset account is shown separately. Liabilities and owner’s equity is shown on the righthand side, and these accounts typically have credit balances. These three main categories are separated and further divided to show important relationships and subtotals.

Assets are broken down into current and noncurrent (or long-term). Assets are listed from top to bottom in order of decreasing liquidity, i.e., how quickly they can be converted to cash. (For more on this see, Reading The Balance Sheet.)

Current assets are cash and other assets that are expected to be used during the normal operating cycle of the business, usually one year. They typically include cash and cash equivalents, short-term investments, accounts receivables, inventory and prepaid expense. Noncurrent assets will not be realized in full within one year. They typically include long-term investments: property, plant and equipment; intangible assets and other assets.

Liabilities are listed in order of expected payment. Obligations expected to be satisfied within one year are current liabilities. They include accounts payable, trade notes payable, advances and deposits, current portion of long-term debt and accrued expenses. Noncurrent liabilities include bonds payable and the portion of long-term debt such as loans maturing in period longer than a year.

The structure of the owners' equity section depends on whether the entity is an individual, a partnership or a corporation. Assuming it's a corporation, the section will include capital stock, additional paid-in capital, retained earnings, accumulated other comprehensive income and treasury stock.

Balance sheet data can be used to compute key indicators that reveal the company's financial structure and its ability to meet its obligations. These include working capital, current ratio, quick ratio, debt-equity ratio and debt-to-capital ratio. (To learn more read, Testing Balance Sheet Strength.)

Analysts, potential creditors and investors can learn a lot from reviewing a company’s balance sheet. For example:

Read more: Accounting Basics: Financial Statements https://www.investopedia.com/university/accounting/accounting5.asp#ixzz5LPwN9rNv
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