ACCT372 Financial Analysis of Apple Inc I WILL ATTACH A DOCUMENT THAT EXPLAINS EVERY THING THAT IS NEEDED FOR THIS ASSIGNMENT. Dr. Mohammad S. Bazaz Depart

ACCT372 Financial Analysis of Apple Inc I WILL ATTACH A DOCUMENT THAT EXPLAINS EVERY THING THAT IS NEEDED FOR THIS ASSIGNMENT. Dr. Mohammad S. Bazaz
Department of Accounting & Finance.
California State University_SB
FINANCIAL ACCOUNTING
Term Project
FINANCIAL STATEMENT ANALYSIS
NAMES OF GROUP MEMBERS
1. _______________________ Focused on parts: ………………
2. ________________________ Focused on parts: ………………
3. ________________________ Focused on parts: ………………
4. ________________________ Focused on parts: ………………
(The group may allocate the work among themselves. In that case each member may focus on
some specific parts for report preparation purpose; every member should review all parts and is
responsible for the entire project in order to achieve the term project objectives.)
Name of the corporation analyzed:
________________________________
[This report will not be returned to you. Keep a copy For Your Reference if you wish]
THIS TERM PROJECT HAS FOUR PARTS:
A. Reading and understanding financial statements
B. Analysis of financial statements
C. Class presentation of the high lights (Executive Summary)
Your answers must be typed. For this purpose, a copy of this project is presented
electronically and you can type your answers in the given spaces. Type you answers in
Italic font to differentiate your answers from the questions.
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INTRODUCTION
Annual reports produced by companies are a primary source of information about a company’s
activities over a specific period of time. The information disclosed in these reports is prepared by
the company’s management and is useful to different users, mainly investors and creditors.
The primary purpose of an annual report is to convince existing shareholders to continue investing
in the corporation. However, management may also use the annual report to: (1) persuade
prospective shareholders to invest in the corporation, (2) inform financial analysts about the
investment quality of the corporation, (3) inform lenders, such as bankers and suppliers, of the
credit-worthiness of the corporation, and (4) provide evidence to government agencies of
compliance with regulations.
As a manager, you are (or will become) involved in the preparation of financial statements, which
entails knowledge of the disclosure requirements. Furthermore, you will most probably use
financial statements frequently in your profession. For example, as a manager, you will be the
responsible person for the accuracy of the information in the financial statement. As an analyst,
you may be asked to advise clients about investments in particular companies. More importantly,
as an individual investor you may use financial statements to select your personal investments.
The basic purpose of the Financial Statement Project is to “get your hands dirty” with analysis of a
public company.
The objectives of this project are:
1.
2.
3.
4.
To expose you to alternative formats for presentation of financial statement disclosures as
well as the accounting terminology which may differ across companies.
To integrate real world illustrations of the accounting issues and disclosures related to the
specific topics covered in this course in order to gain a better understanding of the course
material.
To formally perform financial statement analysis and prepare the report.
To enhance your business research skills by searching for company-related information in
current business periodicals, the financial press, and other financial publications.
GETTING STARTED
You are asked to divide the class into groups of two students per group. You will be assigned a
public company or you can choose the company that you are working for if it is a public company.
When you receive the annual report, familiarize yourself with its contents by reviewing it carefully.
Annual reports usually have a contents page to help you locate specific items.
INSTRUCTIONS
The project comprises several parts and requires you to locate and extract specific information
from the corporation’s financial statements, especially the notes and supporting schedules which
are located after the financial statements in the annual report. Notes provide additional
explanations, descriptions, and supporting information not conveniently displayed within the body
of the financial statements. Supporting schedules are tables that provide more detailed
information about certain items in the primary financial statements.
Inexperienced financial statement users sometimes regard the notes and supporting schedules as
unimportant. However, most of the information contained in the notes and schedules are required
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Dr. Mohammad S. Bazaz
Department of Accounting & Finance.
California State University_SB
by GAAP and provide potentially valuable information to financial statement users concerning the
corporation. For example, a contingent liability may be shown in the notes rather than the liability
section of the balance sheet. A financial statement user who ignores the notes would not be
aware of any contingencies that may occur.
Read the instructions carefully and write your answers in the space provided. If the space is
insufficient, use additional sheets.
1.
If the requested information is not disclosed by the corporation, write “not disclosed” in the
blank space. Note, however, that some of the requested information may not be disclosed,
but could be calculated based on the disclosed information.
2.
Whenever possible, give page numbers in the annual report so that your answers can be
checked or your computations cab be verifies.
3.
Indicate whether dollar amounts are in thousands or millions of dollars.
4.
Hints on finding the information:
a.
b.
c.
d.
Disclosures may be contained in the financial statements and/or in the notes;
Not all disclosures pertaining to a topic are necessarily contained in one note, so you
need to skim the content of other notes to make sure you haven’t missed anything. Be
sure to always check the “significant accounting policies” related to each major topic.
Financial statements are “condensed,” i.e., there is not a separate line item shown for
every account that you will encounter in this course. As a result, if you don’t see a
particular item in the statement, you may find the item disclosed in the notes.
Some annual reports will not contain the requested information. When the structure of
the financial statements make it impossible to answer certain questions, simply indicate
why you are unable to answer the question as stated.
5.
The term “current” refers to the year for which the annual report was prepared.
6.
Certain parts of this project require calculation of selected ratios. Although instructions are
given for ratio calculations, you may wish to refer to the related chapters in the textbook for a
review of the computations and interpretations of some of these ratios.
7. Enclose all supporting documents and extra pages that you may use to prepare this
report.
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SECTION A:
READING AND UNDERSTANDING FINANCIAL STATEMENTS
NAME OF CORPORATION ANALYZED:
PART 1: GENERAL INFORMATION
The requested general information may be disclosed in several places in the corporation’s annual
report. Answer the following questions about the annual report you have selected:
1.
In which city and state is (are) the corporate headquarter(s) located?
__________________
2.
When is the fiscal year end of the corporation?
__________________________________
3.
What is (are) the primary product(s) of the corporation?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________
Indicate SIC code(s). If SIC code(s) is (are) not provided, find it out from the sources
available in the library and state the source that you used.
____________________________________________________________________
_____________________________________________________________________
What SIC code means and why it is important?
_______________________________________________________________________
_______________________________________________________________________
4.
Publicly traded corporations are required to have an annual audit. The auditor attests to the
credibility of a corporation’s financial statements. Who is the corporation’s auditor?
______________________________________
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Dr. Mohammad S. Bazaz
Department of Accounting & Finance.
California State University_SB
There are four types of audit report: unqualified, qualified, denial, no opinion. Which one
was issued for this company? If there was any specific explanation in the audit report,
explain it.
Opinion: _________________________________
___________________________________________________________________
_________________________________________________________________
5.
Shares of publicly traded corporations are traded in organized exchange markets (maybe
more than one stock market).
a.
Indicate the exchange market(s) on which the corporation’s shares are traded:
——————————————————————————————————————————-
b.
List the source from which you obtained the information about market listing?
Source: ————————————
c.
The ticker symbol is an abbreviation that identifies the corporation’s shares on the stock
exchange. What is (are) the ticker symbol(s) used to identify the corporation on the
stock exchange(s)?
Ticker symbol (s):
—————————————
Source of information: ———————————6.
The first note in the annual report usually summarizes the significant accounting policies
used by the corporation in the preparation of its financial statements. This note gives key
information that investors require in order to be able to compare the financial statements of
different companies. It is here that you will find information about the firm’s choice of
inventory cost flow assumption (e.g., FIFO, LIFO, etc.) and important revenue recognition
policies. Look at this note and briefly explain what is “significant” to note about how your
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company accounts for its transactions and operations. Attach a separate sheet if you need
more space.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
________________________________________________________________
7.
The Management Discussion and Analysis (MD&A) is usually presented as a separate
section and entitled as such. It is a requirement of the Security Exchange Commission (SEC)
as well as many other exchanges. It is an opportunity for management to explain their
perceptions of the operating results to the investors and other financial statement users.
Answer the following questions concerning the MD&A.
a.
Management may use the discussion and analysis as an opportunity to highlight certain
financial events such as significant changes in revenues or costs. Management may use
the discussion to highlight certain non-financial events such as the opening of new retail
outlets, sale or purchase of a subsidiary. What highlights are mentioned by management
for your company?
___________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____
b.
Is the tone of the management discussion optimistic or pessimistic? Give a few
examples to support your response.
___________________________________________________________________
______________________________________________________________________
_____________________________________________________________
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Dr. Mohammad S. Bazaz
Department of Accounting & Finance.
California State University_SB
c.
Management may use the discussion as a forum for predicting events or stating the
goals of the corporation. What predictions or goals were stated in the discussion and
analysis section?
___________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
PART 2: THE BALANCE SHEET
The balance sheet summarizes the company’s assets, liabilities and equity. Assets are usually
grouped into one of the following categories: current assets, investments, capital assets (property,
plant and equipment and intangible assets), and other assets. Liabilities are grouped into current
and long-term.
1. On what page of the annual report does the balance sheet appear? ____
2. Explain what the accounting equation is and how the balance presents this equation (pick up
the appropriate numbers from the balance sheet):
3. Asset Growth
The “size” of a corporation is commonly measured by the amount of total assets on the
corporation’s balance sheet. A corporation is considered “growing” if total assets increase from
one year to the next. The rate of growth is measured by the change in total assets divided by the
total assets of the previous year:
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a.
Determine the percentage growth in assets for this company. ____
Computation:
_____________________________________________________________________
_____________________________________________________________________
b.
Identify the balance sheet accounts most significant in explaining the change in total assets
of the corporation? What events might explain the reasons for the changes in these
accounts?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
__________________________________________________________________
4.
Common-size Analysis
Common size analysis is used to analyze the relative importance of each item on the balance
sheet. Specific items are usually expressed as a percentage of total assets. These percentages
are often compared to the percentage of previous years or to the percentages calculated for
another corporation in the same industry. Complete common-size analysis for the following items
for your company’s balance sheet.
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Dr. Mohammad S. Bazaz
Department of Accounting & Finance.
California State University_SB
Current Year
Previous Year
Current Assets
______________
______________
Investments
______________
______________
Property, Plant & Equip.
______________
______________
Intangible Assets
______________
______________
Other Assets
______________
______________
Total Assets
______________
______________
Current Liabilities
______________
______________
Total Liabilities
______________
______________
Shareholders’ Equity
______________
______________
Explain what you can infer from the common size analysis:
5. Assessing Working Capital
Current assets are called “current” because they are converted into cash during the operating
cycle. Current liabilities are liabilities liquidated by current assets or other current liabilities
within the operating cycle. Working capital is equal to current assets minus current liabilities. In
other words, working capital is the amount of current assets remaining after the current
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liabilities have been paid.
Working capital is considered a measure of the solvency of a corporation because a negative
working capital indicates the corporation is not able to pay current liabilities maturing in the next
operating cycle. Calculate working capital for the corporation as follows:
Current Year
Previous Year
Current Assets
_______________
_____________
Minus: Current Liabilities
_______________
_____________
Working Capital
_______________
_____________
By how much did the amount of working capital increase or decrease compared to the previous
year?___________
What balance sheet accounts explain the most significant changes in working capital?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
__
What can you infer from the working capital analysis?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
__
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Dr. Mohammad S. Bazaz
Department of Accounting & Finance.
California State University_SB
PART 3: THE INCOME STATEMENT
The income statement or statement of earnings summarizes corporate revenues and expenses
for a period of time. Presentation of several years permits comparisons to previous years’
results.
On what page in the annual report does the income statement appear? _____
1. Growth in Sales and Profits
a. Sales growth is indicated by calculating the percentage increase (decrease) of sales in
comparison with the previous year.
Indicate the growth in sales during the current year (show your computations):
———————————————————————————————————————————————————————————————————————————————————-
b.
Did sales increase or decrease? An explanation of the change in sales is often contained in
the Management Discussion and Analysis (MD&A). What reasons did management give
for the change?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
___
c.
Trends in corporate profits are determined by calculating the percentage increase
(decrease) of income from continuing operations over the previous year. Income from
continuing operations is net income without the effects of any discontinued operations,
extraordinary items, or cumulative effects of accounting changes.
Determine the growth in profits during the current year: _____
(Show computations)
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What can you infer from the analysis of growth in profit?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
_______________________________________________
2.
Common-Size Analysis
Common-size (or percentage) analysis expresses items in a financial statement as a
percentage of a single item. This analysis permits co…
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