Analyzing Financial Statements For Investing and Credit Decisions

Analysis Techniques  Trend analysis  Common size  Key ratios

Trend Analysis - Income Statement Examining trends in account balances Examine key performance indicators such as – Revenue – Income from operations – Net income Watch for one time charges 3

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)12 Months Ended In Millions, except Share data in ThousandsSep. 25, 2010Sep. 24, 2011Sep. 29, 2012 Net sales $65,225$108,249$156,508 Cost of sales 39,54164,43187,846 Gross margin 25,68443,81868,662 Operating expenses: Research and development 1,7822,4293,381 Selling, general and administrative 5,5177,59910,040 Total operating expenses 7,29910,02813,421 Operating income 18,38533,79055,241 Other income/(expense), net Income before provision for income taxes 18,54034,20555,763 Provision for income taxes 4,5278,28314,030 Net income $14,013$25,922$41,733 Earnings per share: Basic $15.41$28.05$44.64 Diluted $15.15$27.68$44.15 Shares used in computing earnings per share: Basic 909,461924,258934,818 Diluted 924,712936,645945,355 Cash dividends declared per common share $0.00 $2.65 Apple Inc. Income Statement Note – the reporting convention is to put the most recent year on the left. The reports in these slides are modified to present oldest information on the left.

Trend Analysis - Balance Sheet Examine key performance indicators – Total assets – Property, plant, and equipment – Current portion of long-term debt – Long-term debt – Debt compared to equity 6

CONSOLIDATED BALANCE SHEETS (USD $) Sep. 24, 2011Sep. 29, 2012 In Millions, unless otherwise specified Current assets: Cash and cash equivalents $9,815$10,746 Short-term marketable securities 16,13718,383 Accounts receivable, less allowances of $98 and $53, respectively 5,36910,930 Inventories Deferred tax assets 2,0142,583 Vendor non-trade receivables 6,3487,762 Other current assets 4,5296,458 Total current assets 44,98857,653 Long-term marketable securities 55,61892,122 Property, plant and equipment, net 7,77715,452 Goodwill 8961,135 Acquired intangible assets, net 3,5364,224 Other assets 3,5565,478 Total assets 116,371176,064 Current liabilities: Accounts payable 14,63221,175 Accrued expenses 9,24711,414 Deferred revenue 4,0915,953 Total current liabilities 27,97038,542 Deferred revenue - non-current 1,6862,648 Other non-current liabilities 10,10016,664 Total liabilities 39,75657,854 Commitments and contingencies Shareholders' equity: Common stock, no par value; 1,800,000 shares authorized; 939,208 and 929,277 shares issued and outstanding, respectively 13,33116,422 Retained earnings 62,841101,289 Accumulated other comprehensive income Total shareholders' equity 76,615118,210 Total liabilities and shareholders' equity $116,371$176,064 Apple Inc. Balance Sheet In 2012, Apple had no long-term debt.

Trend Analysis - Statement of Cash Flow Key performance indicators – Primary source of cash for the period should be from operating cash flow – Net increase in cash from all activities for the period – Discretionary cash flow availability 9

10 CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)12 Months Ended In Millions, unless otherwise specifiedSep. 25, 2010Sep. 24, 2011Sep. 29, 2012 Cash and cash equivalents, beginning of the year $5,263$11,261$9,815 Operating activities: Net income 14,01325,92241,733 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 1,0271,8143,277 Share-based compensation expense 8791,1681,740 Deferred income tax expense 1,4402,8684,405 Changes in operating assets and liabilities: Accounts receivable, net -2, ,551 Inventories Vendor non-trade receivables -2,718-1,934-1,414 Other current and non-current assets -1,610-1,391-3,162 Accounts payable 6,3072,5154,467 Deferred revenue 1,2171,6542,824 Other current and non-current liabilities 7784,4952,552 Cash generated by operating activities 18,59537,52950,856 Apple Inc. Statement of Cash Flows -----Operating activities only-----

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Summary Trend analysis shows us changes in statement amounts over time. Start with major amounts then investigate related accounts to explain changes in trend.