Activity Instructions: Financial Statement Analysis

For this Activity, you will create an Excel file (workbook). The ?Apple Solutions? workbook will consist of two (2) worksheets, each of which further examines the financial data of Apple Computer, Inc. Please retain these worksheets because they will serve as the basis for Activities 2 through 6 and the Stand-Alone Project.

To begin this Activity, you will need to download Supplement I from this Activity. Once downloaded, create an Excel file (workbook) titled ?Apple Solutions.? Within this workbook, create two (2) worksheets - Income Statements and Balance Sheets. Copy Apple Computer?s Income Statements from Supplement I into your newly create ?Income Statements? worksheet. Then copy Apple Computer?s Balance Sheets from Supplement I and paste into your newly created ?Balance Sheets? worksheet.

Your Activity responses should be both grammatically and mechanically correct and formatted in the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document them in a bibliography using APA style. (100 points) (An Excel file with two (2) worksheets and a 2-page written response are required.)

Part A	Go to both Apple Computer?s (http://www.apple.com) and the U.S. Securities and Exchange Commision?s Web sites (http://sec.gov/) to locate Apple?s 2002 Form 10-K (Annual Report). Examine the financial statements. Compare and contrast Apple?s standardized financial statements provided in Supplement I with those in the Form 10-K. Write a brief 1- to 2-paragraph summary stating whether the same substantive information is conveyed in the two sets of financial statements and whether there are any differences in the format of the disclosures. (16 points)
Part B	Vertically common size Apple?s income statements and balance sheets from 1998 to 2002. Refer to Chapter 4 of your text to see how vertical analysis is accomplished. You may also refer to the vertical common sizing of Apple from 1993 to 1998 in Appendix A of the text (p. 347 and pp. 349-350). For this task, place the percentage-based statements beneath the monetary ones in both worksheets as illustrated below. (20 points)
Part C	Horizontally common size Apple?s income statements and balance sheets, using the rolling-forward approach, from 1998 to 2002. Like Part B, place the revised statements below the vertical common sized statements in their respective worksheets. Refer to Chapter 4 to see how horizontal analysis is accomplished. You may also refer to the horizontal common sizing of Apple from 1993 to 1998 in Appendix A of the text (pp. 347-348 and pp. 350-351). (20 points)
Part D	Compute the compound annual growth rate for these statements in the ?Income Statements? and ?Balance Sheets? worksheets, respectively. Like Parts B and C, place the compound annual growth rate statements below the rolling-forward percentage-based statements in each worksheet, respectively. Refer to Chapter 4 to see how compound annual growth rates are computed. You may also refer to the compound annual growth common sizing of Apple from 1993 to 1998 in Appendix A of the text (pp. 348 and pp. 352). (20 points)
Part E	Write a one-paragraph trend analysis for each of the four (4) items below based upon the common sizing and growth rate financial statements of Apple for 1998 through 2002. (24 points) (A 1- to 2-page narrative response is required.)
	1.	Revenues
	2.	Net income as a percentage of sales
	3.	Current assets as a percentage of total assets
	4.	Liabilities as a percentage of total assets

Apple Computer, Inc. Income Statement (in millions of dollars) Net sales Cost of sales Gross margin Operating expenses: Research and development Selling, general and administration Executive bonus Restructuring costs In-process research and development Total operating expenses Operating income Other income and (expenses) Income (loss) before taxes Provision (benefit) for taxes Net income (loss) $ $ Basic EPS Diluted EPS $ $ 2002 5,742 4,139 1,603 2001 $5,363 $ 4,128 1,235 446 1,111 (2) 30 1 1,586 17 70 87 22 65 $ 0.18 0.18 430 1,138 11 1,579 (344) 304 (40) (15) (25) $ ($0.07) $ ($0.07) $ 2000 7,983 $ 5,817 2,166 380 1,166 90 8 1,644 522 570 1,092 306 786 1999 6,134 $ 4,438 1,696 1998 5,941 4,462 1,479 314 996 303 908 $ 27 1,337 359 317 676 75 601 7 1,218 261 68 329 20 309 2.42 $ 2.18 $ 2.10 1.81 $2.34 $2.10 2000 1999 1998 $ Table A: Apple Income Statement Apple Computer, Inc. Balance Sheet (in millions of dollars) Assets Current Assets Cash and equivalents Short-term investments Accounts receivable, net Inventories Deferred tax assets Other current assets Total current assets Property, plant & equipment, net Non-current investments Other assets Total assets 2002 $ $ Liabilities Current Liabilities Notes payable Accounts payable Accrued expenses Total current liabilities Long-term debt Deferred tax liabilities Total liabilities $ Shareholders' Equity Preferred stock Common stock Retained earnings Other equity Total shareholders' equity Total liabilities and S/E $ 2001 2,252 2,085 565 45 166 275 5,388 621 39 250 6,298 $ 911 747 1,658 316 229 2,203 $ 1,826 2,325 (56) 4,095 6,298 2,310 $ 2,026 466 11 169 161 5,143 564 128 186 $6,021 $ 1,191 2,836 953 33 162 252 5,427 313 786 277 6,803 $ 801 717 1,518 317 266 2,101 1,157 776 1,933 300 463 2,696 0 1,693 2,260 -33 3,920 $6,021 $ 76 1,502 2,285 244 4,107 6,803 $ $ $ $ 1,326 $ 1,900 681 20 143 215 4,285 318 339 219 5,161 $ 1,481 819 955 78 $ 812 737 1,549 ### 208 2,057 $ 719 801 1,520 954 173 2,647 150 1,349 1,499 106 3,104 5,161 ### 633 898 (39) 1,642 4,289 $ 365 3,698 348 243 4,289 Table B: Apple Balance Sheet Apple Computer, Inc. Statements of Cash Flows (in millions of dollars) 2002 Operating Activities Net income (loss) Depreciation and amortization expense Deferred income taxes IPRD and gains from equity sales Change in accounts receivable Change in inventory Change in accounts payable Restructuring costs $ 65 118 (34) 42 (99) (34) 110 - 2001 2000 1999 1998 ($25) $ 102 (36) (88) 487 22 (356) 786 $ 84 163 (364) (272) (13) 345 (27) 601 $ 85 (35) (230) 274 58 93 2 309 111 1 7 72 359 34 (107) Other Cash generated by operating act. (79) 89 79 $185 $ 124 826 $ (50) 798 $ (11) 775 (4,144) 4,100 (174) (4,267) $ 3,331 11 (107) (4,236) $ 3,155 23 (47) 25 (59) (252) ($4,268) $ 5,089 (232) 340 (37) $892 $ 372 (270) (930) $ 245 (104) (964) $ (2,313) 1,723 89 (46) (10) 24 (10) (543) 42 $42 $ (31.00) (31) $ $ 11.00 11 $ (25) 3 $ 105 105 Total cash generated (used) $ (58) $1,119 $ (135) $ (155) $ 251 Cash and cash equiv., beginning of year Cash and cash equivalents, end of year $ $ 2,310 2,252 Investing Activities Purchase of short-term investments Proceeds from sale of S-T investments Proceeds from sale of P,P&E Purchase of P,P&E Acquisition of technology Proceeds from sale of equity invest. Other Cash used for investing activities Financing Activities Notes payable to bank Long-term borrowings Proceeds from issuance of pref. stock Increase in common stock, net Dividends Cash generated by financing act. $ $ $ $ $1,191 $2,310 $ $ 1,326 1,191 Table C: Apple Statement of Cash Flows $ $ 1,481 1,326 $ $ 41 19 1,230 1,481