Question
Memo two to three pages to your supervisor explaining your findings and your recommendations for where improvements are needed to increase financial health. Be sure
- Memo two to three pages to your supervisor explaining your findings and your recommendations for where improvements are needed to increase financial health. Be sure to include the following:
- Areas within the company that are both above and below industry standards
- An explanation of the limitations of using ratio analysis
- The qualitative factors that play a role in improving the company's financial health
In the memo, suggest some specific ways in which the company can plan to improve below-industry-average ratio performance over time. Suggest annual targets over the next three years to catch up with or surpass industry averages. Explain why your recommendations should be effective.
Supporting Document: The Financial Ratios can be used to address this question.
| Financial Ratios | |||
| Company Name: | Apple Computer, Inc. | ||
| Financial Ratio | Formula | APPLE Company Result | Industry Average |
| Profitability | |||
| Profit Margin | Net income/Annual Sales | 20.91% | 25.70% |
| Operating Margin | Operating Earnings (Income)/Sales | 24.36% | 24.70% |
| Return on Total Assets | Net income/Total assets | 17.73% | 16.30% |
| Basic Earning Power (BEP) | EBIT/Total Assets | 20.47% | 16.80% |
| Return on Common Equity | Net income/Stockholders' equity | 87.87% | 34.00% |
| EBITDA Coverage | EBITDA/Total Interest Payment | 25.76 | 22.7 |
| Asset Management | |||
| Days Sales Outstanding * | Accounts receivable/(Annual sales/365) | 9.20 | 24 |
| Inventory Turnover | COGS/Inventory | 24.51 | 15.6 |
| Fixed Assets Turnover | Annual Sales/Fixed assets | 0.85 | 1.5 |
| Total Assets Turnover | Annual Sales/Total assets | 0.85 | 1.0 |
| Liquidity | |||
| Current Ratio | Current Assets/Current Liabilities | 1.4 | 1.1 |
| Quick Ratio | (Cash & Equivalents+Markeatable Securities+Accounts Receivables)/Current Liabilities | 0.9 | 1.1 |
| Debt Management | |||
| Total Debt/Total Assets | (Short-term Debt + Long-term Debt) / Total Assets | 0.46 | 0.52% |
| Times Interest Earned | EBIT/Interest charges | 22.08 | 25.45 |
| Market Value | |||
| Price/Earning (P/E) | P/E | 46.27 | 38.1 |
| Market/Book | Market price per share/Book Value per Share | 38.52 | 29.38% |
| * Calculation is based on 365-day year. | |||
| From 10K SEC Filings | |||
| Operating Earnings (Income) | $66,880 | ||
| Current Assets | $143,713 | ||
| Current Liabilities | $105,392 | ||
| Short Term Debt | $49,960 | ||
| Long Term Debt | $99,700 | ||
| Total Assets | $323,888 | ||
| Cash & Equivalents | $38,016 | ||
| Markeatable Securities | $52,927 | ||
| EBIT | $66,288 | ||
| EBITDA | $77,344 | ||
| Interest Payments or Charges | $3,002 | ||
| Annual Sales | $274,515 | ||
| Inventory | $4,061 | ||
| Accounts Receivable | $6,917 | ||
| Fixed Assets | $323,888 | ||
| Net income | $57,411 | ||
| Stockholders Equity | $65,339 | ||
| Cost of Goods Sold (COGS) | $169,559 | ||
| Average Inventory | $2,030 | ||
| Current Share Price | $151.76 | ||
| Earnings per Share | $3.28 | ||
| Book Value | $3.94 |
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Survey of Accounting
Authors: Thomas P. Edmonds, Frances M. McNair, Philip R. Olds, Bor Yi
3rd Edition
978-1259683794, 77490835, 1259683796, 9780077490836, 978-0078110856
