BUS 600 - Week 4 Assignment # 2 -> Financial Statements

Week 4 Assignment 2: How to read financial statement

Required: read http://www.sec.gov/investor/pubs/begfinstmtguide.htm
Optional: use the knowledge you have learned from this chapter and the above website, analyze Apple Inc's financial statement from the third quarter of last year at http://images.apple.com/pr/pdf/q308fin_statements.pdf. Then read Apple's own analysis at http://www.apple.com/pr/library/2008/07/21results.html. Do you agree with apple? why or why not.

The three basic financial statements are (1) balance sheet, which shows firm’s assets, liabilities, and net worth on a stated date; (2) income statement (also called profit and loss account), which shows how the net income of the firm is arrived at over a stated period, and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firm’s activities during a stated period.

The statements show the financial status as of June 28, 2008. The numbers are in millions. Apple’s fiscal year starts every October.

Income Statements

The first page is the income statement. From the Net sales minus the Cost of Sales gets the Gross margin ($2600). It’s considered ‘gross’ because there are certain expenses that haven’t been deducted from it yet. Gross margin increases compare with previous year. The total operating expenses ($1208) increases from previous year. The cost of sales and operating expenses includes stock-based compensation expense as described as the bottom part of page 1. After total operating expenses deducted from gross margin, $2600 - $1208 = $1392, this is the operating income.  The Net income which has deducted the income taxes is $1072, this is the net profit. Apple makes more profit in 2008 than previous year. The Earnings per share (EPS) tells you how much money shareholders would receive for each share of stock they own if the company distributed all of its net income for the period. To calculate EPS, take the total net income and divide it by the number of outstanding shares of the company. The diluted EPS is $1.19 which is also better than previous year. Apple makes better profit than previous year.

Balance Sheets

Assets = Liabilities + Shareholder’s equity

This Apple’s balance sheet records as of June 28, 2008; it shows also the beginning of the fiscal year which is September 29, 2007. Assets are things that a company own that have value. All cash, investments and physical properties are assets. The total assets value has increased compares with previous year. Liabilities are amount of money that company owns to others. The shareholder’s equity is sometimes called capital or net worth. It’s the money (belongs to shareholders or the owner) that would be left if a company sold all of its assets and paid off all of its liabilities. The equity has increased over $5000 compares with previous year. This is a very good sign.

Cash Flow Statements

The Apple’s cash flow statements show nine months ended June 28, 2008 and June 30, 2007. Cash flow statements report a company’s inflows and outflows of cash. A cash flow statement can tell you whether the company generated cash. It uses and reorders the information from the balance sheet and income statement. The bottom line of the cash flow statement shows the net increases or decrease in cash for the period. Each part reviews the cash flow from (1) operating activities $5301; (2) investing activities $(6196); and (3) financing activities $916. Cash used in investing activities has almost doubled than previous year which makes the ‘increase in cash and cash equivalents’ to be $21 which is much less than the previous year which is $726. The end of the period cash still higher than previous year since the beginning period cash is much higher than the previous year.

The last page of the statement shows the schedule of deferred revenue from iPhone and Apple TV and AppleCare.

From my above analysis, I do agree with Apple regarding their best quarter for both revenue and earnings in Apple’s history.