Apple Form 10-K Scavenger Hunt & Analysis

Name:

Figure 1: FY 2010-2014 Apple Stock Price Growth

Using the 2014 Apple Form 10-K, answer the following questions:

1. Using the financial statements in Item 8 and the ratio formulas from CH12 of your textbook, calculate the following ratios for 2014 and show the same number of decimals as prior years: (8 points)

(NOTE: There are numerous financial leverage indicators, including the debit to equity ratio included in CH12 in your textbook, but the formula you should use for purposes of this assignment is average assets divided by average equity since you can use it to connect return on assets to return on equity.)

2014 2013 2012 2011 Net sales growth rate 9.20% 44.58% 65.96% Gross profit margin 37.62% 43.87% 40.48% Operating profit margin 28.67% 35.30% 31.22% Net profit margin 21.67% 26.67% 23.95% Asset turnover 0.89 1.07 1.13 Return on assets 19.34% 28.54% 27.06% Financial leverage 1.58 1.50 1.54 Return on equity 30.64% 42.84% 41.67%

2. In the Competition section of Item 1, Apple states what the Companys competitors who sell mobile devices and personal computers based on other operating systems have done in order to gain or maintain market share. What was it? (2 points)

a)

In that same section, Apple states there are nine principal competitive factors driving customer decision-making, which impacts how Apple chooses to strategically position itself in the marketplace. Those nine competitive factors include: (5 points)

a)

b)

c)

d)

e)

f) Strong third-party software and accessories ecosystem

g) Marketing and distribution capability

h) Service and support

i) Corporate reputation

3. Using the Sales Data tables in Item 7, complete the following tables by retrieving the 2014 net sales by operating segment and by product for Apple in dollars and percentage change. (6 points)

($ in millions) 2014 Net Sales % Change 2014 % Change 2013 % Change 2012 Americas 9% 50% Europe 4% 31% Greater China 13% 78% Japan 27% 94% Rest of Asia Pacific 4% 8% Retail 7% 33% Total net sales $182,795 7% 9% 45%

($ in millions) 2014 Net Sales % Change 2014 % Change 2013 % Change 2012 iPhone 16% 71% iPad 3% 61% Mac (7%) 7% iPod (21%) (25%) iTunes, software and serv. 25% 38% Accessories 11% 15% Total net sales $182,795 7% 9% 45%

4. In the Product Performance section of Item 7, Apple states there are three reasons why iPhone sales increased during 2014. Those three reasons include: (3 points)

a)

b)

c)

In that same section, Apple states there are two reasons why there was increased demand for iPhone in all of the Companys operating segments during 2013. Those two reasons include: (2 points)

a)

b)

5. In the Gross Margin section of Item 7, Apple states there are three reasons why the gross profit margin percentage increased during 2014, despite being partially offset by the weakness in several foreign currencies relative to the U.S. dollar, price reductions on select products and higher cost structures on certain new products. Those three reasons include: (3 points)

a)

b)

c)

In that same section, Apple states there are six reasons why the gross profit margin percentage decreased during 2013. Those six reasons include: (3 points)

a)

b)

c)

d) Higher expenses due to changes to certain service policies and other warranty costs

e) Price reductions on certain products, including iPad 2 and iPhone 4

f) Unfavorable impact from foreign exchange fluctuations

6. In the Operating Expenses section of Item 7, Apple states there are two reasons why research and development expenses increased in 2014. Those two reasons include: (2 points)

a)

b)

In that same section, Apple states there are three reasons why selling, general and administrative expenses increased in 2014. Those three reasons include: (2 points)

a) Increased headcount and related expenses, including share-based compensation costs

b)

c)

7. Using operating segment data for Apple included in Note 11 of Item 8, calculate the 2014 operating segment profit margins and show the same number of decimals as prior years: (6 points)

2014 Operating Profit Margin 2013 Operating Profit Margin 2012 Operating Profit Margin Americas 36.37% 40.71% Europe 34.38% 40.94% Greater China 33.60% 43.68% Japan 50.65% 55.44% Rest of Asia Pacific 33.57% 39.60% Retail 19.90% 24.50%

8. In the Capital Return Program section of Item 7, Apple states its Board of Directors authorized what in April 2014? (2 points)

a)

9. Using the Statement of Cash Flows in Item 8, identify the four most significant financing activities that increased Apples financial leverage from 2013 to 2014: (4 points)

a)

b)

c)

d)

10. In Note 1 of Item 8, Apple states it effected a common stock split on June 6, 2014. A stock split increases the number of shares outstanding and decreases the stock price. For example, a 2-for-1 stock split would double the number of shares outstanding and cut the price in half. A stock split is an action taken by some companies when they believe the stock price has hit a ceiling and isnt growing to the extent they believe it should be. By splitting the stock, which cuts the price significantly, making it more affordable for investors, it can increase demand for the stock and help drive the price up.

At the time of the stock split, Apples stock was trading for a price just under $700 per share, which wasnt very affordable for many investors. How large of a stock split did Apple effect on June 6, 2014 to make the stock more affordable with the hope it would increase demand and drive the price up? (2 points)

a)

(NOTE: The stock split retroactively adjusted all share and per share information, so it did not impact the stock price growth chart in Figure 1 on the first page of this assignment.)

11. Using the 2013 information calculated and obtained in response to previous questions of this assignment and the flowchart presented and discussed in the PowerPoint video posted with this assignment, why do you think Apples stock price declined significantly during 2013? What evidence do you have to substantiate your claims? (10 points)

12. Using the 2014 information calculated and obtained in response to previous questions of this assignment and the flowchart presented and discussed in the PowerPoint video posted with this assignment, why do you think Apples stock price increased significantly during 2014? What evidence do you have to substantiate your claims? (10 points)

Using the 2021 Apple Form 10-K, answer the following questions:

13. Using the financial statements in Item 8 and the ratio formulas from CH12 of your textbook, calculate the following ratios for 2021 and show the same number of decimals as prior years: (8 points)

(NOTE: There are numerous financial leverage indicators, including the debit to equity ratio included in CH12 in your textbook, but the formula you should use for purposes of this assignment is average assets divided by average equity since you can use it to connect return on assets to return on equity.)

2021 2020 2019 2018 Net sales growth rate 5.51% -2.04% 15.86% Gross profit margin 38.23% 37.82% 38.34% Operating profit margin 24.15% 24.57% 26.69% Net profit margin 20.91% 21.24% 22.41% Asset turnover 0.83 0.74 0.72 Return on assets 17.33% 15.69% 16.07% Financial leverage 4.25 3.56 3.07 Return on equity 73.69% 55.92% 49.36%

14. In the Company Stock Performance section of Item 5, Apple provides a graph benchmarking Apples stock to the S&P 500 Index, the S&P Information Technology Index, and the Dow Jones U.S. Technology Supersector Index. Which two of the last three fiscal years saw the most growth in Apples stock? (2 points)

a)

b)

15. For the two years identified in your response to #14 of this assignment, use the ratios from #13 of this assignment, the flowchart presented and discussed in the PowerPoint video posted with this assignment, and your own self-guided review of Apples 2021 Form 10-K based on what you learned doing the scavenger hunt of Apples 2014 Form 10-K, to answer the following questions:

For the two years identified in your response to #14 of this assignment, why do you think Apples stock price increased significantly? What evidence do you have to substantiate your claims? (20 points)