STOCKS AND BONDS

Bond Valuation

This assignment contains two parts: Part I and Part II.

Part I

Answer these questions and show your work:

• Assume that the company that you selected for the Module 1 SLP has a bond outstanding that matures in 20 years and has a coupon rate of 6.5%. The par value of the bond is $1,000.
• If the yield to maturity is 8% and the bond pays interest on an annual basis, whats the current price of the bond? Is the bond selling for a premium or discount? How can you tell?
• If the yield to maturity is 8% but the bond pays interest on a semi-annual basis instead of an annual basis, whats the current price of the bond? Is it different from the value when using annual compounding? Explain.
• Now, assume that the economy enters into a recession and interest rates fall. The bonds yield to maturity is now 5%. Whats the bonds new price? How does the price compare with your answer in part a? Why did the bonds value change?
• A bond matures in ten years and is currently selling for $1,125. The bond pay interest annually, has a par value of $1,000, and a yield to maturity of 10.75%. Whats the bonds current yield?

Part II:

Write a 2-page essay comparing reinvestment risk and interest rate risk and how an investor can protect his or her portfolio from those risks. Please be sure to discuss duration in your paper.

SLP Assignment Expectations

You are expected to:

• Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
• Answer the SLP Assignment question(s) clearly and provide necessary details.
• Write clearly and correctlythat is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
• Type and double-space the paper

Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, its important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.

Running Head: APPLE'S FINANCIAL RATIO ANALYSIS TRIDENT UNIVERSITY Dexter Alfaro Module 1 SLP: The Time Value of Money and Financial Statement FIN501: Strategic Corporate Finance Prof. Paul Redden September 21, 2015 1 APPLE'S FINANCIAL RATIO ANALYSIS Apple, Inc.: Stock Analysis Below is a chart of Apple, Inc.'s (NasdaqGS: AAPL) cash dividends for the last 3 decades. Cash Dividend s $ 2014 1.84571 $ 2013 1.68570 $ 2012 0.75714 $ 1995 0.01716 $ 1994 0.01716 $ 1993 0.01716 $ 1992 0.01716 $ 1991 0.01716 $ 1990 0.01608 $ 1989 0.01464 1988 0.01215 $ 1987 0.00714 Source: Yahoo! Finance Year Apple, Inc.'s stock prices: September 27, 2014 $100.32 (Yahoo! Finance) September 28, 2013 $67.15 (Yahoo! Finance) September 29, 2012 $90.63 (Yahoo! Finance) 2 APPLE'S FINANCIAL RATIO ANALYSIS 3 In light of Yahoo! Account, Apple, Inc. together with Blackberry, Google, and Hewlett-Packard has a place with the Electronic Equipment industry. Industry information was sourced from Yahoo's industry focus. Just an industry's couples of measurements relating to the proportions are accessible. Apple, Inc., advantage pay is much bigger than the organization's advantage cost coming about to a positive other pay. Additionally, in registering for the organization's EBITDA scope, since the deterioration and amortization costs were not reported even with the salary articulation, I utilized the organization's working pay rather than its EBITDA. At the point when registering the organization's value/money streams proportion, the money streams gave by the organization's working exercises was utilized. 2014 Liquidity ratios: Current Quick Asset management ratios: Inventory turnover Total assets turnover Fixed assets turnover Days sales outstanding Debt Management ratios: EBITDA coverage Times-interest-earned Total debt to total assets Profitability ratios: Return on common equity Return on total assets Basic earning power Profit margin on sales Market Value ratios: Market/book Price/earnings 2013 2012 0.57 0.67 0.88 1.23 1.00 1.04 53.18 0.79 8.86 34.86 60.43 0.83 10.30 27.98 111.06 0.89 10.13 25.49 0.55 0.35 Industry NA NA 0.52 NA 0.40 0.33 35.42% 17.04% 22.65% 21.61% 29.98% 17.89% 23.67% 21.67% 35.30% 23.70% 31.38% 26.67% 2.63 15.46 2.10 11.74 3.37 14.21 21.50% 13.50% 5.7 36.9 APPLE'S FINANCIAL RATIO ANALYSIS Price/cash flow 10.22 8.10 (Author computation) 4 11.66 Liquidity ratios From 2012 to 2014, the company liquidity ratios, in general have been deteriorating with its current ratio decreasing from 1.00 times to just 0.57 times and its quick ratio from 1.04 times to 0.67 times. Asset management ratios These falling apart examples can likewise be seen in the organization's advantage management ratios. Stock turnover turned out to be slower from 111.06 times to a little more than 53 times showing the organization has turned out to be slower in changing over its stock to deals. Its aggregate resources turnover additionally diminished from 0.89 to 0.79 and its altered resources turnover declining from 10.13 times to 8.86 times demonstrating that the organization has turned out to be less productive in utilizing its benefits, when all is said in done, and settled resources, specifically to create deals. The organization is additionally having a more drawn out time changing over its deals into money with days deals extraordinary expanding from 25 days to around 35 days. Debt management ratios Then again, the organization's net wage is high to the point that about portion of it can be utilized to pay the organization's aggregate long haul debt in 2014. On the other hand, the organization's aggregate liabilities as financing for its aggregate resources has been expanding from only 0.33 to 0.52 which implies that in 2014, 52 pennies of each dollar of Apple, Inc., advantages was financed by liabilities. APPLE'S FINANCIAL RATIO ANALYSIS 5 Profitability ratios The organization demonstrated preferred profitability over the business. Besides, this profitability shows to be making strides. The organization's arrival on regular value expanded from 35.30% to 35.42% contrasted with the business' 21.50%. In any case, the organization's arrival on aggregate resources has been diminishing from 23.70% to 17.04%, which could be an organization's aftereffect expanding debt. It is net revenue on deals; however, twice as much as the business has additionally been declining from 26.67% to 21.62%. Market value ratios The organization's normal stocks give off an impression of being offering a ton less expensive than the business. With a market to book value of 2.63 contrasted with the business' 5.70. It is likewise offering at a lower cost to income at 15.46 in 2014 which expanded from 14.21 in 2012 contrasted with the 36.9 times for the business. Conclusion Yes, I would even now purchase the organization's shares. It is offering much less expensive that the normal organization in the hardware gear industry. As such, Apple is a take. Then again, I would in any case purchase the organization's bonds on the off chance that I am a bond financial specialist. The organization's money related wellbeing is sufficiently strong that the danger of Apple not having the capacity to pay its advantage commitments and important on its long haul debt is impossible. APPLE'S FINANCIAL RATIO ANALYSIS 6 References 2013 and 2014 Apple's financial data: Retrieved September 21, 2015, From http://www.sec.gov/Archives/edgar/data/320193/000119312514383437/d783162d10k.ht m#toc783162_11 2012 Apple's financial data: Retrieved September 21, 2015, From http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm Yahoo! Finance (2014). Apple Inc (AAPL): Historical prices. Retrieved on November 24, 2014, from http://finance.yahoo.com/q/hp? s=AAPL&a=11&b=12&c=1980&d=10&e=24&f=2014&g=v. Yahoo! Industry Center (2014). Electronic Equipment. Retrieved on November 24, 2014, from http://biz.yahoo.com/ic/314.html. Cash Dividends 11/6/2014 0.47 8/7/2014 0.47 5/8/2014 0.47 2/6/2014 0.43571 11/6/2013 0.43571 8/8/2013 0.43571 5/9/2013 0.43571 2/7/2013 0.37857 11/7/2012 0.37857 8/9/2012 0.37857 11/21/1995 0.00429 8/16/1995 0.00429 5/26/1995 0.00429 2/13/1995 0.00429 11/18/1994 0.00429 8/15/1994 0.00429 5/27/1994 0.00429 2/7/1994 0.00429 11/19/1993 0.00429 8/16/1993 0.00429 5/28/1993 0.00429 2/12/1993 0.00429 11/30/1992 0.00429 8/17/1992 0.00429 6/1/1992 0.00429 2/14/1992 0.00429 11/18/1991 0.00429 8/19/1991 0.00429 5/20/1991 0.00429 2/15/1991 0.00429 11/16/1990 0.00429 8/20/1990 0.00393 5/21/1990 0.00393 2/16/1990 0.00393 11/17/1989 0.00393 8/21/1989 0.00357 5/22/1989 0.00357 2/17/1989 0.00357 11/21/1988 0.00357 8/15/1988 0.00286 5/16/1988 0.00286 2/12/1988 0.00286 11/17/1987 0.00286 8/10/1987 0.00214 5/11/1987 0.00214 Date Year 2014 2013 2012 1995 1994 1993 1992 1991 1990 1989 1988 1987 Cash Dividends $ 1.84571 $ 1.68570 $ 0.75714 $ 0.01716 $ 0.01716 $ 0.01716 $ 0.01716 $ 0.01716 $ 0.01608 $ 0.01464 0.01215 $ 0.00714 2014 Liquidity ratios: Current Quick Asset management ratios: Inventory tunrover Total assets turnover Fixed assets turnover Days sales outstanding Debt Management ratios: EBITDA coverage Times-interest-earned Total debt to total assets Profitability ratios: Return on common equity Return on total assets Basic earning power Profit margin on sales Market Value ratios: Market/book Price/earnings Price/cash flow 2013 2012 Industry 0.57 0.67 0.88 1.23 1.00 1.04 53.18 0.79 8.86 34.86 60.43 0.83 10.30 27.98 111.06 0.89 10.13 25.49 0.55 0.35 NA NA NA 0.52 0.40 0.33 35.42% 17.04% 22.65% 21.61% 29.98% 17.89% 23.67% 21.67% 35.30% 23.70% 31.38% 26.67% 21.50% 2.63 15.46 10.22 2.10 11.74 8.10 3.37 14.21 11.66 5.7 36.9 13.50% SOLIDATED STATEMENTS OF OPERATIONS ber of shares which are reflected in thousands and per share amounts) Net sales Cost of sales Gross margin Operating expenses: Research and development Selling, general and administrative Total operating expenses Operating income Other income/(expense), net Income before provision for income taxes Provision for income taxes Net income 2014 182,795 112,258 70,537 2013 170,910 106,606 64,304 2012 156,508 87,846 68,662 6,041 11,993 18,034 52,503 980 53,483 13,973 39,510 4,475 10,830 15,305 48,999 1,156 50,155 13,118 37,037 3,381 10,040 13,421 55,241 522 55,763 14,030 41,733 Earnings per share: Basic 6.49 5.72 6.38 Diluted 6.45 5.68 6.31 Shares used in computing earnings per share: Basic 6,085,572 6,477,320 6,543,726 Diluted 6,122,663 6,521,634 6,617,483 Cash dividends declared per common share 1.82 1.64 0.38 CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) 2014 ASSETS: Current assets: Cash and cash equivalents Short-term marketable securities Accounts receivable, less allowances of $86 and $99, respectively Inventories Deferred tax assets Vendor non-trade receivables Other current assets Total current assets Long-term marketable securities Property, plant and equipment, net Goodwill Acquired intangible assets, net Other assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable Accrued expenses Deferred revenue Commercial paper Total current liabilities Deferred revenue - non-current Long-term debt Other non-current liabilities Total liabilities Commitments and contingencies Shareholders' equity: Common stock and additional paid-in capital, $0.00001 par value; 12,600,000 shares authorized; 5,866,161 and 6,294,494 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensive income/(loss) Total shareholders' equity Total liabilities and shareholders' equity Price 2013 2012 13,844 14,259 11,233 26,287 17,460 13,102 2,111 1,764 4,318 3,453 9,759 7,539 9,806 6,882 68,531 73,286 130,162 106,215 20,624 16,597 4,616 1,577 4,142 4,179 3,764 5,146 231,839 207,000 10,746 18,383 10,930 791 2,583 7,762 6,458 57,653 92,122 15,452 1,135 4,224 5,478 176,064 30,196 18,453 8,491 6,308 63,448 3,031 28,987 24,826 120,292 22,367 13,856 7,435 0 43,658 2,625 16,960 20,208 83,451 21,175 11,414 5,953 23,313 19,764 87,152 104,256 1,082 -471 111,547 123,549 231,839 207,000 16,422 101,289 499 118,210 176,064 100.32 67.15 38,542 2,648 16,664 57,854 90.63 CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Cash and cash equivalents, beginning of the year 2014 14,259 Operating activities: Net income 39,510 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 7,946 Share-based compensation expense 2,863 Deferred income tax expense 2,347 Changes in operating assets and liabilities: Accounts receivable, net -4,232 Inventories -76 Vendor non-trade receivables -2,220 Other current and non-current assets 167 Accounts payable 5,938 Deferred revenue 1,460 Other current and non-current liabilities 6,010 Cash generated by operating activities 59,713 Investing activities: Purchases of marketable securities Proceeds from maturities of marketable securities Proceeds from sales of marketable securities Payments made in connection with business acquisitions, net Payments for acquisition of property, plant and equipment Payments for acquisition of intangible assets Other Cash used in investing activities Financing activities: Proceeds from issuance of common stock Excess tax benefits from equity awards Taxes paid related to net share settlement of equity awards Dividends and dividend equivalents paid Repurchase of common stock Proceeds from issuance of long-term debt, net Proceeds from issuance of commercial paper, net Cash used in financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents, end of the year 2013 10,746 2012 9,815 37,037 41,733 6,757 2,253 1,141 3,277 1,740 4,405 -2,172 -973 223 1,080 2,340 1,459 4,521 53,666 -5,551 -15 -1,414 -3,162 4,467 2,824 2,552 50,856 -217,128 -148,489 -151,232 18,810 20,317 13,035 189,301 104,130 99,770 -3,765 -496 -350 -9,571 -8,165 -8,295 -242 -911 -1,107 16 -160 -48 -22,579 -33,774 -48,227 730 530 739 701 -1,158 -1,082 -11,126 -10,564 -45,000 -22,860 11,960 16,896 6,306 0 -37,549 -16,379 -415 3,513 13,844 14,259 665 1,351 -1,226 -2,488 0 0 0 -1,698 931 10,746