Chapter 12, Problem 1FF

Focus on Financials Apple Inc.

LO 1, 2, 3, 4, 5

(Learning Objectives 1, 2, 3, 4, 5: Calculate standard financial ratios; measure liquidity and profitability; analyze earnings quality; vertical and horizontal analysis) Use the consolidated financial statements and the data in Apple Inc.’s annual report in Appendix A and online in the filings section of www.sec.gov to evaluate the company’s comparative performance for 2016 versus 2015.

Requirements

1. Perform a horizontal and a vertical analysis of the following information on the company’s comparative income statements for 2016 and 2015:

a.    Net sales

b.    Gross margin

c.    Operating income

d.    Net income

Did the company appear to be performing better or worse on these dimensions in 2016, relative to 2015? Explain.

2. Perform horizontal and vertical analysis of the company’s balance sheets for 2016 and 201 5. In what areas did the company’s balance sheet appear to be improving? Deteriorating? Explain.

3. Calculate the trends in the major elements of the company’s cash flow statement (operations, investing, and financing) for 2016 relative to 2015. From where does the company generate most of its cash? What did the company spend most of its cash on?

4. Describe the information in Apple’s annual report that can be used to analyze the company’s earnings quality. What is your overall evaluation of Apple’s earnings quality?