1. Analyzing Financial Statements For Investing and Credit Decisions

2. Analysis Techniques  Trend analysis  Common size  Key ratios

3. 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

4. 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 155415522 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.

6. 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

7. 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 776791 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 443499 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.

9. 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. 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 -2,142143-5,551 Inventories -596275-15 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-----

11. What would you compare this to?

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