Expand Your Critical Thinking 13-1 Your parents are considering investing in Apple Inc. common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Financial statements of Apple are presented in Appendix A. Click here to view Appendix A. Answer the following questions. Make a 5-year trend analysis, using 2010 as the base year, of (1) net sales and (2) net income. (Round percentages to 0 decimal places, e.g. 15% and enter amounts in millions.) APPLE INC. Trend Analysis of Net Sales and Net Income For the Five Years Ended 2014 2018 2017 2016 2015 2014 (1) Net sales $ $ Trend $ $ $ % % (2) Net income $ $ $ $ $ Trend % % % % Compute for 2014 and 2013 the (1) debt to assets ratio and (2) times interest earned. (Round percentages to o decimal places, e.g. 15% and times to 1 decimal place, e.g. 15.2.) 2018 2017 Debt to Assets Ratio Times Interest Earned % % times times LINK TO TEXT LINK TO TEXT Compute for 2014 and 2013 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders' equity. Total assets at December 31, 2012, were $175,064 million and total stockholders' equity at September 29, 2012, was $118,210 million. (Round Percentages to i decimal places, e.g. 15.2% and all other answers to 2 decimal places, e.g. 15.25.) 2018 2017 Profit Margin % Asset Turnover times times Return on Assets % % Return on Common Stockholders' Equity % 9% A-6 APPENDIX A Specimen Financial Statements: Apple Inc. Apple Inc. Consolidated Statements of Cash Flows (in millions) September 29, 2018 Years ended September 30, 2017 $20,484 September 24, 2016 $20,289 $21,120 59,531 48,351 45,687 10,903 10,157 10,505 4,840 4,210 5,340 (32,590) (444) 5,966 (166) 4,938 486 (5,322) 828 527 217 (8,010) (423) (2,093) (2,723) (4,254) (5,318) 8,966 (626) 1,125 9,175 (44) 38,490 (51) 1,055 2,117 (1,554) (1,906) 77,434 64.225 66,231 (159,486) 31,775 (142,428) 21,258 Cash and cash equivalents, beginning of the year Operating activities: Net income Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization Share-based compensation expense Deferred income tax expense/(benefit) Other Changes in operating assets and liabilities: Accounts receivable, net Inventories Vendor non-trade receivables Other current and non-current assets Accounts payable Deferred revenue Other current and non-current liabilities Cash generated by operating activities Investing activities: Purchases of marketable securities Proceeds from maturities of marketable securities Proceeds from sales of marketable securities Payments for acquisition of property, plant and equipment Payments made in connection with business acquisitions, net Purchases of non-marketable securities Proceeds from non-marketable securities Other Cash generated by/(used in) investing activities Financing activities: Proceeds from issuance of common stock Payments for taxes related to net share settlement of equity awards Payments for dividends and dividend equivalents Repurchases of common stock Proceeds from issuance of term debt, net Repayments of term debt Change in commercial paper, net Cash used in financing activities Increase/(Decrease) in cash and cash equivalents Cash and cash equivalents, end of the year Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest 94,564 90,536 (12,734) (71,356) 55,881 47,838 (13,313) (721) (1,871) 353 (745) (12,451) (329) (521) (297) (1,388) 126 (124) (924) 16,066 (46,446) (45,977) 669 555 495 (2,527) (13,712) (72,738) 6,969 (6,500) (37) (87,876) 5,624 $25,913 (1,874) (12,769) (32,900) 28,662 (3,500) 3,852 (17,974) (1,570) (12,150) (29,722) 24,954 (2,500) (397) (20,890) (195) (636) $20,289 $20,484 $11,591 $10.444 $10,417 $ 3,022 $ 2,092 $ 1,316 See accompanying Notes to Consolidated Financial Statements APPENDIX A Specimen Financial Statements: Apple Inc. A-5 Apple Inc. Consolidated Statements of Shareholders' Equity (in millions, except number of shares which are reflected in thousands and per share amounts) Common Stock and Accumulated Additional Paid-In Capital Other Retained Comprehensive Total Shareholders' ' Shares Amount Earnings Income/(Loss) Equity Balances as of September 26, 2015 5,578,753 $27,416 $92,284 $ (345) $119,355 Net income 45,687 45,687 Other comprehensive income/(loss) 979 979 Dividends and dividend equivalents declared at $2.18 per share or RSU (12,188) (12,188) Repurchase of common stock (279,609) (29,000) (29,000) Share-based compensation 4,262 4.262 Common stock issued, net of shares withheld for employee taxes 37,022 (806) (419) (1,225) Tax benefit from equity awards, including transfer pricing adjustments 379 379 Balances as of September 24, 2016 5,336,166 31,251 96,364 634 128,249 Net income 48,351 48,351 Other comprehensive income/loss) (784) (784) Dividends and dividend equivalents declared at $2.40 per share or RSU (12,803) (12,803) Repurchase of common stock (246,496) (33,001) (33,001) Share-based compensation 4,909 4,909 Common stock issued, net of shares withheld for employee taxes 36,531 (913) (581) (1,494) Tax benefit from equity awards, including transfer pricing adjustments 620 620 Balances as of September 30, 2017 5,126,201 35,867 98,330 (150) 134,047 Cumulative effect of change in accounting principle 278 (278) Net income 59,531 59,531 Other comprehensive income/(loss) (3,026) (3,026) Dividends and dividend equivalents declared at $2.72 per share or RSU (13,735) (13,735) Repurchase of common stock (405,549) (73,056) (73,056) Share-based compensation 5,443 5,443 Common stock issued, net of shares withheld for employee taxes 34,334 (1,109) (948) (2.057) Balances as of September 29, 2018 4,754,986 $40,201 $70,400 $(3,454) $107,147 See accompanying Notes to Consolidated Financial Statements. A-4 APPENDIX A Specimen Financial Statements: Apple Inc. Apple Inc. Consolidated Balance Sheets (in millions, except number of shares which are reflected in thousands and par value) September 29, 2018 September 30, 2017 ASSETS: $ 25,913 $ 20,289 40,388 53,892 Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net Inventories Vendor non-trade receivables 23,186 17,874 3,956 4,855 25,809 17,799 Other current assets 12,087 13,936 Total current assets 131,339 128,645 170,799 194,714 41,304 33,783 Non-current assets: Marketable securities Property, plant and equipment, net Other non-current assets - Total non-current assets Total assets 22.283 18,177 234,386 246,674 $365,725 $375,319 LIABILITIES AND SHAREHOLDERS' EQUITY: $ 55,888 $ 44,242 32,687 Current liabilities: : Accounts payable Other current liabilities Deferred revenue Commercial paper Term debt Total current liabilities 30,551 7,548 7,543 11,964 11,977 8,784 6,496 116,866 100,814 Non-current liabilities: 2,797 2,836 Deferred revenue Term debt Other non-current liabilities Total non-current liabilities Total liabilities 93,735 45,180 141,712 258,578 97,207 40,415 140,458 241,272 Commitments and contingencies 40,201 Shareholders' equity: Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,754,986 and 5,126,201 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensive income/loss) Total shareholders' equity Total liabilities and shareholders' equity 70,400 (3,454) 107,147 35,867 98,330 (150) 134,047 $365,725 $375,319 See accompanying Notes to Consolidated Financial Statements. APPENDIX A Specimen Financial Statements: Apple Inc. A-3 Apple Inc. Consolidated Statements of Comprehensive Income (in millions) September 29, 2018 $59,531 Years ended September 30, 2017 $48,351 September 24, 2016 $45,687 Net income Other comprehensive income/loss): Change in foreign currency translation, net of tax effects of $(1), $(77) and $8, respectively (525) 224 75 523 1,315 7 Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit/(expense) of $(149), $(478) and $(7), respectively Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(104), $475 and $131, respectively Total change in unrealized gains/losses on derivative instruments, net of tax 382 (1,477) (741) 905 905 (162) (734) (3,407) (782) 1,582 Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit/ (expense) of $1,156, $425 and $(863), respectively Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $21, $35 and $(31), respectively Total change in unrealized gains/losses on marketable securities, net of tax (64) 56 (3,406) (846) 1,638 979 Total other comprehensive income/(loss) Total comprehensive income (3,026) $56,505 (784) $47,567 $46,666 See accompanying Notes to Consolidated Financial Statements. A-2 APPENDIX A Specimen Financial Statements: Apple Inc. Apple Inc. Consolidated Statements of Operations (in millions, except number of shares which are reflected in thousands and per share amounts) 2016 Net sales Years ended September 29, September 30, September 24, 2018 2017 $ 265,595 $ 229,234 $ 215,639 163,756 131,376 101,839 88,186 84,263 Cost of sales 141.048 Gross margin 14,236 Operating expenses: Research and development Selling, general and administrative Total operating expenses 11,581 15,261 16,705 10,045 14,194 24,239 30,941 26,842 70,898 61,344 60,024 2,005 2,745 1,348 Operating income Other income/(expense), net Income before provision for income taxes Provision for income taxes Net income 72,903 64,089 13,372 15,738 61,372 15,685 45,687 $ 59,531 $ 48,351 $ Earnings per share: Basic Diluted $ 12.01 $ 9.27 $ 8.35 $ 11.91 $ 9.21 $ 8.31 Shares used in computing earnings per share: Basic Diluted 4,955,377 5,217,242 5,470,820 5,500,281 5,000.109 5,251,692 See accompanying Notes to Consolidated Financial Statements