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. Apple’s financial statements are presented in Appendix A. Instructions for accessing and using Apple’s complete annual report, including the notes to the financial statements, are also provided in Appendix A.

Instructions

(Follow the approach in the chapter for rounding numbers.)

(a) Make a 3-year trend analysis, using 2009 as the base year, of (1) net sales and (2) net income.

Comment on the significance of the trend results.

(b) Compute for 2011 and 2010 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders’ equity. How would you evaluate Apple’s profitability? Total assets at September 26, 2009, were $47,501 and total stockholders’ equity at September 26, 2009, was $31,640.

(c) Compute for 2011 and 2010 the (1) debt to assets ratio and (2) times interest earned. How would you evaluate Apple’s long-term solvency?

(d) What information outside the annual report may also be useful to your parents in making a decision about Apple?