Equivalent Terms (see also Table 14.2 in the textbook p. 267) Revenue = Sales Profit - Earnings or Income Expense - Cost RATIOS LIQUIDITY RATIOS: Liquidity ratios measure the speed with which a company can turn itsassets into cash to meet short term debt obligations The higher the ratio the more liquid a company is and the more easily they can meet their shadtarm debt obligations. But beware, higher is not always better. Too high a ratio may mean that a business is not using its assets efficiently, too many assets are either idle or generating an insufficient return. RATIO FORMULA RATIO FORMULA Current Ratio Current Assets/Current Liabilities Quick Ratio ("Acid Test") (Current Assets-Inventory Current Liabilities PROFITABILITY RATIOS: Profitability ratios associate the amount of income earned with the resources used to generate it (0.g. assets, sales, equity). RATION FORMULA RATIO FORMULA Gross Margin Gross Profit/Sales Profit Margin Net Income/Sales Return on Assets (ROA) Net Income Total Assets Return on Equity (ROE). Net Income Owner's Equity Both Return on Equity and Return on Assets are sometimes referred to as Return on investment (ROI). I will not use ROL DEBT/LEVERAGE RATIOS: Provides information on how much debt an organization has relative to other sources of capital, such as equity and income. RATIO Debt to Total Assets Times Interest Eamed (TIE) FORMULA Total Liabilities/Total Assets Operating Income Interest Expense RATIO Debt to Equity FORMULA Total Non-Current Liabilities/Equity Debt to total Assets and Debt to Equity measure QUANTITY of debt or leverage. A Debt to Total Assets ratio greater than 5 or 50% means the majority of your assets are financed through debt. A Debt to Equity ratio greater than 1 means that the majority of your long Tarm financing comes via debt--as an example if you have a Debt to Equity Ratio of 12 then you have $1.20 of long term debt for every $1.00 of equity Times Interest Earned starts to get a QUALITY of leverage, or how well a company employs loverage ASSET UTILIZATION (Activity) RATIOS: States) Focus E RATIOS LIQUIDITY RATIOS: Liquidity ratio measure the speed with which a company can turn its assets into cash to meet short term debt obligations The higher the ratio the more liquefa company is and the more easily they can meet their short term debt obligations. But beware, Higher is not always better. Too High a ratio may mean that a business is not using its assets efficiently, too many assets are either ide or generating an insufficient retum. RATIO I FORMULA RATIO FORMULA Current Ratio Current Assets/Current Liabilities Quick Ratio Acid Test Current Assets-Inventory Current Liabilities PROFITABILITY RATIOS: Profitability ratios associate the amount of income earned with the resources used to generate it (eg. assets, sales, equity). RATIO FORMULA RATIO FORMULA Gross Margin Gross ProfuSales Profit Margin Net Income Sales Retum on Asset (ROA) Net Income Total Assets Return on Equity (ROE) Net Incoma/Owner's Equity Both Retum on Equity and Retum on Assets are sometimes referred to as Return on Investment (ROI). I will not use ROI DEBT/LEVERAGE RATIOS: Provides information on how much debt an organization has relative to other sources of capital, such as equity and income. RATIO FORMULA RATIO FORMULA Debt to Total Assets Total Labios Total Assets Debt to Equity Total Non-Current Liabilities Equity Times Interest Earned Operating Income Interest Expense (TE) Debt to total Assets and Debt to Equity measure QUANTITY of debt or leverage. A Debt to Total Assets ratio greater than 5 or 50% means the majority of your assets are financed through debt. A Debt to Equity ratio greater than 1 means that the majority of your long form financing comes via debt - as an example if you have a Debt to Equity Ratio of 1.2 then you have $1.20 of long term debt for every $1.00 of equity Times Interest Earned starts to get a QUALITY of leverage, or how well a company employs leverage ASSET UTILIZATION (Activity) RATIOS: Measures how well a firm uses its assets to generate each $1 of sales or cash. Answers the following questions: 1) How quickly am Iconverting receivables to cash, 2) How quickly am I converting inventory to sales, and 3) How productive am I with my assets in generating sales RATIO FORMULA RATIO FORMULA Receivables Turnover Sales Accounts Receivable Inventory Turnover Sales/Total Inventory Total Assauroyer Sales Total Assets SHARE DATA Measures value based on shares of stock. RATIO FORMULA RATIO FORMULA Earnings per Share (EPS) Net Income /# of Shares Price Famings Ratio (P/E ratio) Share Price / EPS Outstanding Market Capturation of share outstanding share price The higher the EPS the greater the value or wealth per unit of ownership ( share) The PE ratio is used as a loose gauge on whether a firm is 'undervalued" or "overvalued-relative to the industry and/or the market as a whole Historically the PE ratio of the S&P 500 has been around 16: 1 0 An 8:1 ratio for arm might be a sign that a firm is undervalued - 30:1 might be a sign that a firm is overvalued Market Capitalization or market cap gives an aggregate sense of the current value placed on a company by the market. Differs from took value which is a value derived from the balance sheet (we won't go into this) LEVERAGE - QUANTITY VS. QUALITY Debt to Equity and Debt to Total Assets measure how leveraged (quantity) an organization is - Time Interest Earned (TIE) starts to get at how well an organization uses leverage (quality). As an example the Debt to Total Asset ratio of Starbucks and McDonalds is similar 42.3% for Starbucks and 54.23% for McDonalds, meaning that for both organizations about half of their assets are financed by debt. BUT.... Starbuck's TIE is 43.4 (in other words every dollar in interest expense is generating $43.40 in operating income) and McDonalds is 16.57 (in other words every dollar in interest expense is generating only $16.57 in operating income). Starbucks is using their leverage much more effectively. What accounts for this? It could be one or a combination of the below. Make up of debt (interest bearing vs. noninterest bearing or short term/current vs. long term). Cost of Capital - maybe Starbuck's pays a lower rate of interest on debts. Better investment of capital (higher return). APPLE INCOME STATEMENT 52 Weeks Ending 2013-09-29 265,595 163,756 101,839 16,705 14,236 52 Weeks Ending 2017-09-30 229,234 141,048 88,186 15,261 11,581 52 weeks Ending 2016-09-24 215,639 131,376 84,263 14,194 10,045 30,941 70,898 26,842 61,344 24,239 60,024 A Revenue Cost of Goods Sold C Gross Profit Selling/General/Admin. Expenses (SG&A) Research & Development Depreciation Unusual Expense (Income Other Operating Expenses, Total Total Operating Expense E Operating Income Interest Expense/Income Gain (Loss) on Sale of Assets Other, Net Income Before Tax Income Tax Income After Tax Accounting Change Discontinued Operations Extraordinary Item F Net Income 2,005 72,903 13,372 59,531 2,745 54,089 15,738 48,351 1,348 61,372 15,685 45,687 59,531 48,351 45,687.00 See Table 14.3 in the book for income statement terms and definitions (p. 267). D S A B Total dollar amount of sales The cost of producing the goods and services Sometimes referred to as the cost of or out of revenue Income available or paying all expenses of production measure officiency preading costs of asset over is expected useful life Income lofloveratrol operating expenses have been deducted Sometimes referred to as EBIT (Earnings Before Interest and Taxes) Income off after taxes. C F APPLE BALANCE SHEET 2018-09-20 2017-09-30 2015-09-24 A 25.013 40.388 66,301 23.186 3.956 37 896 131,339 41,304 20289 53,892 74,181 17,874 4,855 13.935 128,645 33,783 5.717 2.298 194,714 10,162 375,319 20484 46.671 67,155 15,754 2,132 21.828 106 869 27.010 5,414 3.205 170.430 8,757 321,686 170.799 22,283 365,725 55,888 in millions of dollars ASSETS Cash & Equivalents Short Term investments Cash and Short Term investments Accounts Receivable Total Inventory Other Current Assets, Total Total Current Assets Property Plan e t Total-Net Goodwill. Net Intangit Net Long Term investoints Other Long Them Assets, Tot Total Assets LIABILITIES & STOCKHOLDER EQUITY Accounts Payable Accred Expenses Notes Payable/Short Term Debe Other Current Total Total Current Liabilities Long Term Debt Deferred Income Tax Other Liabilities Total Total Liabilities Redeemable Preferred Stock, Total Preferred Stock. Non Panamable Net Common Stock Foto Additional Paid in Capital Retained Earings (Accumulated Deficit) Treeway Stock. Common Other Equity, Total Total Equity Total Liabilities & Shareholders Equity 49,049 25,744 18.473 7548 100,814 97 207 2,836 40.415 241,272 60 978 116,866 93.735 2,797 45.180 258,576 37,294 22.027 11 605 BOBO 79 006 75427 2030 36074 193.437 G 40,201 35,867 31.251 70,400 98,330 96,364 (3.454) 107.147 365,725 (150) 134.047 375,319 634 128.249 321,686 I A See table 14.5 in the book for balance sheet terms and definitions (pp. 271). Eonomic resources of the company TE Sources ofinancing for a t Cash on from customers in payment for goods received IF Money owed to suppliers for goods and service Finished goods, W .Fraw materials used in proing goods t met spected to be paid in the next 12 months Assets that are cash or are expected to be turned cash in the real the total amount of carings a company has made during its and not B C D Financial Statement Geography and Ratio Analysis A) GEOGRAPHY: How much Cash and Short Term Investments did Apple have on hand on 9/29/2018? How much Income Tax did Apple pay in 2018? What was Apple's Total Equity in 20172 $ In 2018? How much did they spend on R&D in 2018? $ Formula for following questions = (#2018 - #2017) / #2017 What % did Revenue increase by between 2017 & 2018 (revenue 2018-revenue 2017\/revenue 2017 What % did SG&A increase by between 2017 & 2018? What % did Net Profits increase by between 2017 & 2018? What % did Cash & Short Term Investments increase by between 2017 & 2018? What % did Long Term Investments increase by between 2017 & 2018? B) RATIO ANALYSIS: Use the equations found on pages 1 & 2. 3 Easy Steps 1. Find the ratio and identify the parts to the equation. 2. Look up the parts. 3. Do the math. What was Apple's current ratio in the 2018 balance sheet? What was Apple's current ratio in the 2017 balance sheet? In which balance sheet were they more liquid? What was Apple's profit margin in 2018? What was Apple's profit margin in 2017? In which year were they more profitable? ed States) What was Apple's profit margin in 2018? What was Apple's profit margin in 2017? In which year were they more profitable? What was Apple's debt to equity ratio (you need to subtract current liabilities from total liabilities to get long term debt) from the 2018 balance sheet? What was Apple's debt to equity ratio (you need to subtract current liabilities from total liabilities to get long form debt) from the 2017 balance sheet? In which balance sheet were they more leveraged? Page 5 of 6* Calculate the market cap of Apple. On 1/22/2019 by taking the closing stock price of $154.15 (Apple Stock, NASDAQ AAPL ticker symbol) and multiplying that share price by the number of shares outstanding at 1/22/2019 (4.7 BILLION) to obtain the market cap of Apple. Your answers on 1/22/19