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. The complete annual report, including the notes to its financial statements, is available at the company's website. Appendix A Specimen Financial Statements: Apple Inc. Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company's operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations peces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new building. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation's accounting system The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report: Financial Highlights Letter to the Stockholders Management's Dression and Analysis . Financial Statements Notes to the Financial Statements Management's Responsibility for Financial Reporting Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Selected Financial Data The official ssc filing of the annual report is called a Form 10-K, which often omits the public relations pleve found in most standard anal reports. On the following w esent Apple Inc.'s financial statements taken from the company's 2017 Form 10-K. The complete Form 10-K, including notes to the financial statement is available at the company's website. Appleine CONSOLIDATED STATEMENTS OF OPERATIONS Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS in millions, except number of shares which are reflected in thousands and pershare amounts) Years ended September 24, September 30, September 26, $ $ Not sales Cost of sales Gross margin 229,234 141,048 88,186 215,639 131,376 84.263 233,715 140,089 93626 Operating expenses Research and development Selling general and administrative Total operating expenses 11,581 15 261 10,045 14,194 24.239 B.087 14 329 22,396 20.842 61,344 71.230 Operating income Other income (expense), net Income before provision for income taxes Provision for income taxes Not income 64,089 60,024 1.348 61,372 15.685 45,687 72,515 19.121 15.738 40.351 53.394 Earings per share: Basic Diluted 9.28 9.27 9.21 S $ 8.355 8.31 $ Shanes used in computing earnings per share Basic Diluted 5.217.242 5.251,692 5,470,820 5,500 281 5,753,421 5,793,069 Cash dividends declared per share 2.40 $ 2.18 $ 1.98 Soo accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) September 30, Years onded September 24, 2015 45.687 September 26, 48.351 53 394 Net income Other comprehensive incomo loss): Change in foreign currency translation, net of tax effects of $(77) $8 and $201. respectively 224 (411) Change in unrealized gains/osses on derivative Instruments: Change in fair value of derivatives, net of tax benefit (expense) of $(478). $(7) and 5(441), respectively Adjustment for not (gainslosses realized and included in net income, net of tax expense (benefit) of $475, $131 and $630, respectively Total change in unrealized gains/losses on derivative Instruments, net of tax 2,905 (1.477) (162) (741) (734) (3.497) (502) Change in unrealized Gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit expense) of $425 $(863) and $264, respectively Adiustment for net losinsVosses realized and included in net income, net of tax expenselbeneft) of $35, 5(31) and S(32), respectively Total change in unrealized gains/losses on marketable securities, net of tax (782) 1.582 (483) (64) (846) (424) Total other comprehensive income (05) Total comprehensive income (1.4273 (784) 47,567 40.006 See nocompanying Notes to Consolidated Financial Statements, Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) September 30, September 24, ASSETS: $ Current assets Cash and cash equivalents Short-term marketable securities Accounts receivable, less allowances of $58 and $53, respectively Inventories Vendor non-trade receivables Other current assets Total current assets 20,289 53,892 17,874 4.855 17,790 13,936 128,645 20.484 46.671 15.754 2,132 13,545 8,283 106869 Long-term marketable securities Property, plant and equipment, net Goodwill Acquired intangible assets, net Other non-current assets Total assets 194714 33,783 5.717 2.290 10,162 375 319 170,430 27.010 5.414 3,206 8.757 3:21. GDE S LIABILITIES AND SHAREHOLDERS' EQUITY: 49,040 Current abilities Accounts payable Accrued expenses Derred revenue Commercial page Current portion of long-term debe Total current liabilities 7,548 11.977 37.294 22,027 8.000 8.105 3.500 79,006 100,814 Deferred revenue, non current Long-term debt Other non-current abilities Total abilities 2.806 97,207 40.415 241.272 2.930 75 427 36.074 193437 Other non-current abilities Total abilities 36 074 40,415 241 272 193 437 Commitments and contingencies Shareholders' equity: Common stock and additional paid in capital, SO200001 par value: 12 600,000 shares authorized: 5.126,201 and 5,336,166 shares issued and outstanding, respectively Retained earings Accumulated other comprehensive income (los) Total shareholders' equity Total lalities and shareholders' equity 35,367 98,330 (150) 134,047 375,319 31.251 96,384 634 120.249 321.686 $ $ 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) Common Stock and Additional Pald-in Capital Shares Amount 5,866,161 $ 23.313 Retained Total Shareholders' Accumulated Other Comprehensive Income Los) 1 OR S 87,1525 $ 53,394 (1.427) (11.627) (36 026) Balances as of September 27, 2014 Net Income Other comprehensive income foss) Dividends and dividend equivalents declared Repurchase of common stock Share-based compensation Common stock issued, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balancos as of September 26, 2015 111,547 53,394 (1.427) (11,627) (36,026) 3.586 (325,032) 3,586 37,624 (231) 1600) (640) 788 7.18 557753 27,416 82,284 (345) 119,355 78 92,204 45,687 119.355 45.687 979 (12.188) (29,000) (12.188) (279.609) 29.000) 37.622 (419) pricing adjustments Balances as of September 26, 2015 Net income Other comprehensive income foss) Dividends and dividend equivalents declared Repurchase of common stock Share based compensation Common stock issued, net of shares wield for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balances as of September 24, 2016 Net Income Other comprehensive income foss) Dividends and dividend equivalents declared Repurchase of common stock Share-based compensation Common stock issued, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balances as of September 30, 2017 SM166 90.564 48.351 379 128.249 48,351 (784) (12,803) 33.001) 4.909 (246,496) (12,803) (33,001) 4,909 36,531 (913) (1.494) 5.125.2015 620 35.57 $ 98,330 $ 620 134,047 (150) See accompanying Notes to Consolidated Francial Statements. Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS mons) Years ended September 24, September 30, Cash and cash equivalents, beginning of the year 21.120 13.54 Operating activities Net income 53.54 September 30, Years ended September 24, September 26 21.120 $ 13.44 35 45.687 Cash and cash vos, beginning of the you Operating activities Not income Adiants to content income to cash generated by operating activities Depreciation and amortization Share-based compensation sonte Deferred income tax expens Other Changes in operating assets and tables Accounts receive 10,157 10.505 4210 4933 11,257 3.586 5.965 1100 12,050 (2.723) 0.735) 1,055 15,318 ,618 137 104 (1.554) 12.033) 81.256 (165402 (15940 31775 94,584 (162.428) 21,25 Vendor non-trade receivables Other current and non-currentes Accounts payable Deferred Other current and noncurrent la Cash generated by operating Investing activities Purchases of marketable securities Proceeds from matures of marketable securities Proceedom of securities Payments made in connection with business Bo n net Payments for ton of property, and more Payment for s in intangib Payment for strategier Other Casadin inven tivities Francing activities Proces romance of mon stock Excex benefit from u s Pay e d to remontowarde 107 447 (12.451) 0227 (12,734) (814 (1.386) 110 (241) 146.44) 1083 1837 (1554) 5001 1,042 (154) 12.0331 05824 81.266 (142 428) 21.258 90.535 (166 402 14538 107.447 (343) (11247) (241) (12.734) (814) (1.338) (110) 26) 56.274) Accounts payable Deferred revenue Other current and non-current liabilities Cash generated by operating activities 63,598 Investing activities: Purchases of marketable secunties (150.486) Proceeds from maturities of marketable secure 31.775 Proceeds from sales of marketable securities 94,584 Payments made in connection with business actions et (329 Payments for acquisition of property, plant and equipment (12.451) Payments for acquisition of intangible assets Payments for strategic investments, net Other 220 Cash used in investing activities Financing activities: Proceeds from issuance of common stock 555 Excess lax benefits from ouity awards Payments for taxes related to not share s ome of uity awards (1.674) Payments for vidends and dividendoguivalent (12,700) Repurchases of common stock (32.000 Proceeds from suance of a debat Repayments of term debt 500 Change in commercial paper, net Cath used in financing activities (17,347) Increase Decrease in cash and cash equivalent Cash and oth equivalents, end of the year Supplemental cash flow disclosure Cash paid for income tres, net 11,591 Cash paid for interest 2002 See accompanying Notes to Consolidated Financial Statements TO 11.570) (12.150) (29,722) 2954 (2.500) (397) 11.400) (11.561) (523) 27,114 2.191 (17,716) 20.484 21, 120 $ $ 10.44 1.310 $ s 13.252 514 Make a 5-year trend analysis, using 2013 as the base year, of (1) net sales and (2) net income. (Round percentages to decimal places, s. 15% and enter amounts in millions.) APPLE INC. Trend Analysis of Net Sales and Net Earnings For the Five Years Ended 2017 2017 (1) Net sales $ Trend (2) Net income $ Trend e Textbook and Media Compute for 2017 and 2016 the (1) debt to assets ratio and (2) times interest earned. (Round percentages to decimal places, es 15 and times to 1 decimal place, c.8. 15.2.) 2017 2016 Debt to Assets Ratio Times Interest Earned Compute for 2017 and 2016 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders' equity. Total assets at September 26, 2015, were $290,345 million and total stockholders' equity at September 26, 2015, was $119,355 million. (Round Percentages to 1 decimal places, e... 15.2% and all other answers to 2 decimal places, eg. 15.25) 2017 2016 Profit Margin Asset Turnover times Return on Assets Return on Common Stockholders' Equity 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. The complete annual report, including the notes to its financial statements, is available at the company's website. Appendix A Specimen Financial Statements: Apple Inc. Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company's operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations peces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new building. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation's accounting system The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report: Financial Highlights Letter to the Stockholders Management's Dression and Analysis . Financial Statements Notes to the Financial Statements Management's Responsibility for Financial Reporting Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Selected Financial Data The official ssc filing of the annual report is called a Form 10-K, which often omits the public relations pleve found in most standard anal reports. On the following w esent Apple Inc.'s financial statements taken from the company's 2017 Form 10-K. The complete Form 10-K, including notes to the financial statement is available at the company's website. Appleine CONSOLIDATED STATEMENTS OF OPERATIONS Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS in millions, except number of shares which are reflected in thousands and pershare amounts) Years ended September 24, September 30, September 26, $ $ Not sales Cost of sales Gross margin 229,234 141,048 88,186 215,639 131,376 84.263 233,715 140,089 93626 Operating expenses Research and development Selling general and administrative Total operating expenses 11,581 15 261 10,045 14,194 24.239 B.087 14 329 22,396 20.842 61,344 71.230 Operating income Other income (expense), net Income before provision for income taxes Provision for income taxes Not income 64,089 60,024 1.348 61,372 15.685 45,687 72,515 19.121 15.738 40.351 53.394 Earings per share: Basic Diluted 9.28 9.27 9.21 S $ 8.355 8.31 $ Shanes used in computing earnings per share Basic Diluted 5.217.242 5.251,692 5,470,820 5,500 281 5,753,421 5,793,069 Cash dividends declared per share 2.40 $ 2.18 $ 1.98 Soo accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) September 30, Years onded September 24, 2015 45.687 September 26, 48.351 53 394 Net income Other comprehensive incomo loss): Change in foreign currency translation, net of tax effects of $(77) $8 and $201. respectively 224 (411) Change in unrealized gains/osses on derivative Instruments: Change in fair value of derivatives, net of tax benefit (expense) of $(478). $(7) and 5(441), respectively Adjustment for not (gainslosses realized and included in net income, net of tax expense (benefit) of $475, $131 and $630, respectively Total change in unrealized gains/losses on derivative Instruments, net of tax 2,905 (1.477) (162) (741) (734) (3.497) (502) Change in unrealized Gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit expense) of $425 $(863) and $264, respectively Adiustment for net losinsVosses realized and included in net income, net of tax expenselbeneft) of $35, 5(31) and S(32), respectively Total change in unrealized gains/losses on marketable securities, net of tax (782) 1.582 (483) (64) (846) (424) Total other comprehensive income (05) Total comprehensive income (1.4273 (784) 47,567 40.006 See nocompanying Notes to Consolidated Financial Statements, Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) September 30, September 24, ASSETS: $ Current assets Cash and cash equivalents Short-term marketable securities Accounts receivable, less allowances of $58 and $53, respectively Inventories Vendor non-trade receivables Other current assets Total current assets 20,289 53,892 17,874 4.855 17,790 13,936 128,645 20.484 46.671 15.754 2,132 13,545 8,283 106869 Long-term marketable securities Property, plant and equipment, net Goodwill Acquired intangible assets, net Other non-current assets Total assets 194714 33,783 5.717 2.290 10,162 375 319 170,430 27.010 5.414 3,206 8.757 3:21. GDE S LIABILITIES AND SHAREHOLDERS' EQUITY: 49,040 Current abilities Accounts payable Accrued expenses Derred revenue Commercial page Current portion of long-term debe Total current liabilities 7,548 11.977 37.294 22,027 8.000 8.105 3.500 79,006 100,814 Deferred revenue, non current Long-term debt Other non-current abilities Total abilities 2.806 97,207 40.415 241.272 2.930 75 427 36.074 193437 Other non-current abilities Total abilities 36 074 40,415 241 272 193 437 Commitments and contingencies Shareholders' equity: Common stock and additional paid in capital, SO200001 par value: 12 600,000 shares authorized: 5.126,201 and 5,336,166 shares issued and outstanding, respectively Retained earings Accumulated other comprehensive income (los) Total shareholders' equity Total lalities and shareholders' equity 35,367 98,330 (150) 134,047 375,319 31.251 96,384 634 120.249 321.686 $ $ 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) Common Stock and Additional Pald-in Capital Shares Amount 5,866,161 $ 23.313 Retained Total Shareholders' Accumulated Other Comprehensive Income Los) 1 OR S 87,1525 $ 53,394 (1.427) (11.627) (36 026) Balances as of September 27, 2014 Net Income Other comprehensive income foss) Dividends and dividend equivalents declared Repurchase of common stock Share-based compensation Common stock issued, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balancos as of September 26, 2015 111,547 53,394 (1.427) (11,627) (36,026) 3.586 (325,032) 3,586 37,624 (231) 1600) (640) 788 7.18 557753 27,416 82,284 (345) 119,355 78 92,204 45,687 119.355 45.687 979 (12.188) (29,000) (12.188) (279.609) 29.000) 37.622 (419) pricing adjustments Balances as of September 26, 2015 Net income Other comprehensive income foss) Dividends and dividend equivalents declared Repurchase of common stock Share based compensation Common stock issued, net of shares wield for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balances as of September 24, 2016 Net Income Other comprehensive income foss) Dividends and dividend equivalents declared Repurchase of common stock Share-based compensation Common stock issued, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balances as of September 30, 2017 SM166 90.564 48.351 379 128.249 48,351 (784) (12,803) 33.001) 4.909 (246,496) (12,803) (33,001) 4,909 36,531 (913) (1.494) 5.125.2015 620 35.57 $ 98,330 $ 620 134,047 (150) See accompanying Notes to Consolidated Francial Statements. Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS mons) Years ended September 24, September 30, Cash and cash equivalents, beginning of the year 21.120 13.54 Operating activities Net income 53.54 September 30, Years ended September 24, September 26 21.120 $ 13.44 35 45.687 Cash and cash vos, beginning of the you Operating activities Not income Adiants to content income to cash generated by operating activities Depreciation and amortization Share-based compensation sonte Deferred income tax expens Other Changes in operating assets and tables Accounts receive 10,157 10.505 4210 4933 11,257 3.586 5.965 1100 12,050 (2.723) 0.735) 1,055 15,318 ,618 137 104 (1.554) 12.033) 81.256 (165402 (15940 31775 94,584 (162.428) 21,25 Vendor non-trade receivables Other current and non-currentes Accounts payable Deferred Other current and noncurrent la Cash generated by operating Investing activities Purchases of marketable securities Proceeds from matures of marketable securities Proceedom of securities Payments made in connection with business Bo n net Payments for ton of property, and more Payment for s in intangib Payment for strategier Other Casadin inven tivities Francing activities Proces romance of mon stock Excex benefit from u s Pay e d to remontowarde 107 447 (12.451) 0227 (12,734) (814 (1.386) 110 (241) 146.44) 1083 1837 (1554) 5001 1,042 (154) 12.0331 05824 81.266 (142 428) 21.258 90.535 (166 402 14538 107.447 (343) (11247) (241) (12.734) (814) (1.338) (110) 26) 56.274) Accounts payable Deferred revenue Other current and non-current liabilities Cash generated by operating activities 63,598 Investing activities: Purchases of marketable secunties (150.486) Proceeds from maturities of marketable secure 31.775 Proceeds from sales of marketable securities 94,584 Payments made in connection with business actions et (329 Payments for acquisition of property, plant and equipment (12.451) Payments for acquisition of intangible assets Payments for strategic investments, net Other 220 Cash used in investing activities Financing activities: Proceeds from issuance of common stock 555 Excess lax benefits from ouity awards Payments for taxes related to not share s ome of uity awards (1.674) Payments for vidends and dividendoguivalent (12,700) Repurchases of common stock (32.000 Proceeds from suance of a debat Repayments of term debt 500 Change in commercial paper, net Cath used in financing activities (17,347) Increase Decrease in cash and cash equivalent Cash and oth equivalents, end of the year Supplemental cash flow disclosure Cash paid for income tres, net 11,591 Cash paid for interest 2002 See accompanying Notes to Consolidated Financial Statements TO 11.570) (12.150) (29,722) 2954 (2.500) (397) 11.400) (11.561) (523) 27,114 2.191 (17,716) 20.484 21, 120 $ $ 10.44 1.310 $ s 13.252 514 Make a 5-year trend analysis, using 2013 as the base year, of (1) net sales and (2) net income. (Round percentages to decimal places, s. 15% and enter amounts in millions.) APPLE INC. Trend Analysis of Net Sales and Net Earnings For the Five Years Ended 2017 2017 (1) Net sales $ Trend (2) Net income $ Trend e Textbook and Media Compute for 2017 and 2016 the (1) debt to assets ratio and (2) times interest earned. (Round percentages to decimal places, es 15 and times to 1 decimal place, c.8. 15.2.) 2017 2016 Debt to Assets Ratio Times Interest Earned Compute for 2017 and 2016 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders' equity. Total assets at September 26, 2015, were $290,345 million and total stockholders' equity at September 26, 2015, was $119,355 million. (Round Percentages to 1 decimal places, e... 15.2% and all other answers to 2 decimal places, eg. 15.25) 2017 2016 Profit Margin Asset Turnover times Return on Assets Return on Common Stockholders' Equity