- Using the financial statements of Apple, discuss its inventory. Include percentage of total assets, its makeup, the costing method used, as well as information from the Notes to the Financial Statements. Use the “Decision Toolkit- A Summary” on page 253 of the text to frame your discussion. Do not include the calculations or formulas. Demonstrate your understanding of the ratios, using critical thinking to interpret Apple’s numbers.
Okay, it sounds complicated, but it’s not really. Inventory-It’s on the Balance Sheet. $2,111 million, or just over $2 million. The total assets are $231,839 million. Now what is the % of Inventory to Total Assets? To find out more, I have to go to the Notes. They’re after the financial statements. I used the Ctrl- F keys to search the PDF file for inventory. There’s not much there. They use lower of cost or market, using FIFO to determine the cost; that makes sense.
Now about the Toolkit questions- Is price of goods keeping pace with changes in cost of inventory? Let’s rephrase that- Is Apple able to charge enough to keep its profit margin stable? Sometimes companies have to cut prices to get more volumn. Looking at the gross profit rate of 2013 to 2014 will give us an idea. I don’t want you to calculate the ratio. Let’s find it. Believe it or not there’s a website with those numbers! What are they? Is Apple maintaining the same gross profit? That’s profit before all the other operating costs? Why is this an important number? That might be interesting to think about.
Now you’re on a roll. What is the profit margin? After all the expenses, what is the amount of profit per $1 of sales? How is Apple doing?
DECISION TOOLKIT A SUMMARY
|
DECISION CHECKPOINTS |
INFO NEEDED FOR DECISION |
TOOL TO USE FOR DECISION |
HOW TO EVALUATE RESULTS |
|---|---|---|---|
|
Are the company’s operations profitable? |
Income statement |
The income statement reports a company’s revenues and expenses and resulting net income or loss for a period of time. |
If the company’s revenue exceeds its expenses, it will report net income; otherwise, it will report a net loss. |
|
What is the company’s policy toward dividends and growth? |
Retained earnings statement |
How much of this year’s income did the company pay out in dividends to shareholders? |
A company striving for rapid growth will pay a low (or no) dividend. |
|
Does the company rely primarily on debt or stockholders’ equity to finance its assets? |
Balance sheet |
The balance sheet reports the company’s resources and claims to those resources. There are two types of claims: liabilities and stockholders’ equity. |
Compare the amount of debt versus the amount of stockholders’ equity to determine whether the company relies more on creditors or owners for its financing. |
|
Does the company generate sufficient cash from operations to fund its investing activities? |
Statement of cash flows |
The statement of cash flows shows the amount of cash provided or used by operating activities, investing activities, and financing activities. |
Compare the amount of cash provided by operating activities with the amount of cash used by investing activities. Any deficiency in cash from operating activities must be made up with cash from financing activities. |
0 comments