On August 1, 2007 the Dell Computer Corporation's stock closed trading at $27.76 per share while Apple Corporation's shares closed at $133.64. Does this mean that because Apple's stock price is roughly four times that of Dell's, Apple is the more valuable company? Interpret the prices for these two firms using the information found here: (Most recent 12 months) Dell 2007 Apple 2007 Net Income ($ millions) $3,572 $3,130 Shares outstanding (millions) 2,300 869.16 Earnings per share ($) $1.55 $3.60 Price per share (8/1/07) $27.76 $133.64 Price-to-earnings ratio (PE ratio) 17.91 37.11 Book value of common equity ($ millions) $4,129 $9,984 Book value per share ($) $1.80 $11.49 Market-to-book ratio 15.42 11.63 It appears that Apple enjoys a ▼ higher lower price per share when compared to its 2007 earnings but a ▼ higher lower price when compared to the book value of the firm's equity. The ▼ lower higher market-to-book ratio for Apple reflects that fact that Apple has used a great deal ▼ more less equity (and ▼ more less debt) to finance its operations. (Select from the drop-down menus.)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
On August 1, 2007 the Dell Computer Corporation's stock closed trading at
per share while Apple Corporation's shares closed at
Does this mean that because Apple's stock price is roughly four times that of Dell's, Apple is the more valuable company? Interpret the prices for these two firms using the information found here:
(Most recent 12 months) Dell 2007 Apple 2007
Net Income ($ millions) $3,572 $3,130
Shares outstanding (millions) 2,300 869.16
Earnings per share ($) $1.55 $3.60
Price per share (8/1/07) $27.76 $133.64
Price-to-earnings ratio (PE ratio) 17.91 37.11
Book value of common equity ($ millions) $4,129 $9,984
Book value per share ($) $1.80 $11.49
Market-to-book ratio 15.42 11.63
It appears that Apple enjoys a
price per share when compared to its 2007 earnings but a
price when compared to the book value of the firm's equity. The
market-to-book ratio for Apple reflects that fact that Apple has used a great deal
equity (and
debt) to finance its operations. (Select from the drop-down menus.)
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