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Apple Inc. - Analysis of Fiscal 2017 Annual Report Apple Inc. is an American multinational technology company that designs, develops, and sells consumer electronics, computer software, and online services. The company's hardware products include the iPhone smartphone, the iPad tablet computer, the Mac personal computer, the iPod portable media player, and the Apple Watch smartwatch. Apple's consumer software includes the macOS and iOS operating systems, the iTunes media player, and the Safari web browser. Its online services include the iTunes Store, Apple Music, and iCloud. Established on April 1, 1976 in Cupertino, California, the company was previously named Apple Computer, Inc., for its first 30 years, but removed the word "Computer" in 2007, to reflect the company's ongoing expansion into the consumer electronics market in addition to its traditional focus on personal computers. Apple is the world's largest information technology company by revenue and the world's second-largest mobile phone manufacturer after Samsung. In August 2018, Apple became the first U.S. company to be valued at over US$1 trillion. The company employs 132,000 full-time employees (2018). 16h : Apple's worldwide annual revenue totaled $266 billion for the 2018 fiscal year. The company enjoys a high level of brand loyalty and has been repeatedly ranked as the world's most valuable brand. Answer the following questions from Apple's 2017 Financial Report (found in the Appendix of Wild, Larson & Chiappetta, pages A-2 to A-5). The purpose of this assignment is to familiarize you with a company's annual report and basic financial statement analysis. 1. What was the value of net sales for Apple for the fiscal year ended September 30, 2017? Be precise when giving your answer. Remember that the figures shown are in $millions! Csrvcconmus (VCICVVI2GOT eros LIQUIDITY &EFFICIENCY 2. Calculate the current ratio for 2017 and 2016 (show calculation). Formula: Current Assets/Current Liabilities times11 as i9dmevo sbau 2016 2017 20gs2so4OSIeilo eiayisn AmLs um asdhoAns et.protal vsb ang 36c3 nob aesoh 3. Calculate the acid test ratio for 2017 and 2016 (show calculation). Formula: "Quick" Assets/Current Liabilities times 2017 2016 cautso s4o1 U9Ge ngto rer Ano 1ph poi ntt on TOOS bioy 45A u Calculate the accounts receivable turnover ratio for 2017 (show calculation), Net Sales Formula: times Avg. Accounts Receivable hoad and bne (Ava. Accounts Receivable (Beginning A/R + Ending A/R)/21 S Calculate the inventory turnover ratio for 2017 (show calculation). C.O.G.S Avg. Inventory Formula: times (Avg. Inventory = (Begginning Inventory+ Ending. Inventory)/21 Note: Cost of Goods Sold is sometimes called "Cost of Sales" 6. Calculate days' sales in inventory for 2017 (show calculation). Formula: Ending Inventories days x 365 = Cost of Goods Sold* *Note: Cost of Goods Sold is sometimes called "Cost of Sales" 7. Calculate days' sales uncollected for 2017 (show calculation). days 2616 E 365 %3 Accounts Receivable Formula: Tasot no muis Net Sales 2 1 n Oo tecpAlazu A 8 Calculate the total asset turnover ratio for 2017 (show calculation) Net Sales Avg. Total Assets times Formula: Toise nisaz01 0Wi oi a:010 1 t tt 0 (Ava. Total Assets (Beg. Total Assets+ End. Total Assets)/21 e cW.tr STE SOLVENCY Calculate the debt-to-equity ratio for Apple for 2017 and 2016 (show calculation). Formula: Total Liabilities Total Stockholders' Equity y aw Note: The higher the ratio, the more debt the company has relative to investments by owners (i.e. riskier) 2012 yA 2017 2016 (noitluoleo worle) IOS 1o1 yiotngvni ni 29l62 '2ysb 91sluls 2vsb PROFITABILITY = 208 x 2910inevnl gnibn3 slumo 10. Calculate the profit margin ratio for the fiscal years ended September 30, 2017 and September 26, 2016 (show calculations). Formula: Net Income/Net Sales = 2016 2012017 ste loa0balleo 2mier i blo2 zbooa to t200:91o notelusic. worda) FIO5 01 betoslioon uet aysb siils 23x ldsvisoslainuo :01 : 11. What was Apple's return on total assets for 2017? els2 yo lFormula: Return on total assets Net Income Avg. Total Assets 201 inctluste woda) ( 001 0ust tevo ui226 tcdot edi eichnleoca 0 lumio qp6e 12. What was Apple's gross margin ratio for 2017? Formula: Gross margin ratio Net Sales-C.o.G.S. Net Sales esAlotc 13. What were Apple's basic earnings per common share for the fiscal year ended September 30, 2017? This is given in the Income Statement ("Consolidated Statement of Operations"). 20TAFMEN 14. What was Apple's return on common stockholders' equity for 2017? Net Income- Preferred Dividends (if any) Avg. Stockholders' Equity Formula: MARKET PROSPECTS 15. What was Apple's dividend yield ratio for 2017 and 20116? Annual cash dividends per share Formula: Market price per share Notes: 1. The market price per Apple share was $154 at the end of September 2017 and $113 at the end of September 2016. 2. Cash dividends per share can be found in the Consolidated Statement of Operations. 2016 2017 Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) September 24, 2016 September 30, 2017 ASSETS Current assets Cash and cash equivalents 20,289 20,484 46,671 Short-term marketable securities 53,892 Accounts receivable, less allowances of $58 and $53, respectively 17,874 15,754 Inventories 4,855 2,132 Vendor non-trade receivables 17,799 13,545 Other current assets 13,936 8,283 Total current assets 128,645 106,869 Long-term marketable securitics 194,714 170,430 33,783 27,010 Property, plant and cquipment, net Goodwill 5,717 5,414 2,298 Acquired intangible assets, net 3,206 10,162 8,757 Other non-current assets Total assets 375,319 321,686 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable 49,049 37,294 Accrued expenses 25,744 22,027 Deferred revenue 7,548 8,080 Commercial paper 11,977 8,105 Current portion of long-term debt 6,496 3,500 Total current liabilitics 100,814 79,006 Deferred revenue, non-current 2,836 2,930 75,427 Long-term debt 97,207 Other non-current liabilities 40,415 36,074 Total liabilities 241,272 193,437 Commitments and contingencies Shareholders' equity Common stock and additional paid-in capital, S0.00001 par value: 12,600,000 shares authorized; 5,126,201 and 5,336,166 shares issued and outstanding, respectively 31,251 35,867 Retained earnings 98,330 96,364 Accumulated other comprehensive income (loss) (150) 634 Total shareholders' equity 134,047 128,249 Total liabilitics and shareholders' cquity $ 375,319 321,686 Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) September 30, 2017 September 26, 2015 233,715 Years ended September 24, 2016 215,639 Net sales 229,234 Cost of sales 131,376 84,263 141,048 140,089 88,186 93,626 Gross margin Operating expenses Research and development 10,045 8,067 11,581 14,194 24,239 Selling, general and administrative Total operating expenses 14,329 15,26 26,842 22,396 61,344 60,024 1,348 Operating income Other income (expense), net 71,230 1,285 2,745 Income before provision for income taxes 64,089 15,738 61,372 15,685 72,515 19,121 Provision for income taxes Net income 48,351 45,687 53,394 Earnings per share: 9.27 Basic $ 8.35 9.28 Diluted $ 9.21 8.31 $ 9.22 Shares used in computing carnings per share: Basic 5,217,242 5,470,820 5,753,421 Diluted 5,251,692 5,500,281 5,793,069 Cash dividends declared per share 2.40 2.18 1.98 Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years ended September 30, 2017 September 24, 2016 September 26, 2015 Net income 48,351 45,687 53,394 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of S(77), $8 and $201, respectively 224 75 (411) Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit (expense) of S(478), S(7) and S(441), respectively 1,315 7 2,905 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $475, S131 and S630, respectively (1,477) (741) (3,497) Total change in unrealized gains/losses on derivative instruments, net of tax (162) (734) (592) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit (expense) of $425, S(863) and $264, respectively Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $35, S(31), and S(32), respectively Total change in unrealized gains/losses on marketable securities, (782) 1,582 (483) (64) 56 59 (846) 1,638 (424) net of tax (784) Total other comprehensive income (loss) 979 (1,427) Total comprehensive income 47,567 46,666 51,967 See accompanying Notes to Consolidated Financial Statements Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares which are reflected in thousands) Accumulated Other Total Shareholders' Common Stock and Comprehensive Additional Paid-In Capital Retained Income Shares Amount Earnings (Loss) Equity Balances as of September 27, 2014 5,866,161 23,313 87,152 $ 1,082 $ 111,547 53,394 Net income 53,394 Other comprehensive income (loss) (1,427) (1,427) Dividends and dividend equivalents declared (11,627) (11,627) (36,026 Repurchase of common stock (325,032) (36,026) Share-based compensation 3,586 3,586 Common stock issued, net of shares withheld 37,624 for employee taxes (231) (609) (840) Tax benefit from equity awards, including transfer pricing adjustments 748 748 5,578,753 S 27,416 $ $ (345) S 119,355 Balances as of September 26, 2015 92,284 Net income 45,687 45,687 979 Other comprehensive income (loss) 979 Dividends and dividend equivalents declared (12,188) (12,188) Repurchase of common stock Share-based compensation (279,609) (29,000) (29,000) 4,262 4,262 Common stock issued, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments 37,022 (806) (419) (1,225) 379 379 31,25 S Balances as of September 24, 2016 5,336,166 96,364 634 128,249 48,351 Net income 48,351 Other comprehensive income (loss) (784) (784) Dividends and dividend equivalents declared (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 36,53 (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 S (150) 134,047 Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) September 26, 2015 Years ended September 30, 2017 September 24, 2016 21,120 Cash and cash equivalents, beginning of the year 20,484 S 13,844 Operating activities 48,35 Net income 45,687 53,394 Adjustments to reconcile net income to cash generated by operating activities Depreciation and amortization Share-based compensation expense Deferred income tax expense 10,157 10,505 11,257 4,840 4,210 3,586 5,966 4,938 1382 486 Oher (166) 385 Changes in operating assets and liabilities Accounts receivable, net (2,093) 527 417 Inventories (2,723) 217 (238) Vendor non-trade receivables (4,254) (51) (3,735) Other current and non-current assets (5,318) 1,055 (283) Accounts payable 9,618 1,837 5,001 Deferred revenue (1554) 1,042 (626) 9.058 Other current and non-current liabilities (154) (2,033) Cash generated by operating activities Investing activities 65,824 63,598 81,266 Purchases of marketable securities (159,486) (142,428) (166402) 21,258 Proceeds from maturities of marketable securities 31,775 14,538 Proceeds from sales of marketable securities 94,564 90,536 107,447 (297) Payments made in connection with business acquisitions, net (329) (343) (11247 Payments for acquisition of property, plant and equipment (12,451) (12,734) Payments for acquisition of intangible assets (344) (814) (241) Payments for strategic investments, net (395) (1,388) Other 220 (110) (26) (46,446) Cash used in investing activities (45,977) (56,274) Financing activities: Proceeds from issuance of common stock 543 555 495 Excess tax benefits from equity awards 627 407 749 (1,499) Payments for taxes related to net share settlement of equity awards (1,874) (1,570 (12,769) Payments for dividends and dividend equivalents (12,150) (11,561) Repurchases of common stock (32,900) (29,722) (35,253) Proceeds from issuance of term debt, net 28,662 24,954 27,114 Repayments of term debt (3,500) (2,500) Change in commercial paper, net 3,852 (397 2,191 Cash used in financing activities (17,347) (20,483) (17,716) 7,276 Increase (decrease) in cash and cash equivalents (195) (636) 21,120 Cash and cash equivalents, end of the year S 20,289 20.484 Supplemental cash flow disclosure Cash paid for income taxes, net 11,591 13,252 10,444 Cash paid for interest 2,092 1,316 S 514