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MBA 604 Financial Analysis Project By: Yasir Rashid, Omar Alaqeel, Ronald Davis, Laurie Davis, & Darren Southard.

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Presentation on theme: "MBA 604 Financial Analysis Project By: Yasir Rashid, Omar Alaqeel, Ronald Davis, Laurie Davis, & Darren Southard."— Presentation transcript:

1 MBA 604 Financial Analysis Project By: Yasir Rashid, Omar Alaqeel, Ronald Davis, Laurie Davis, & Darren Southard

2  Apple Inc. formally known as known as Apple Computer Inc. was founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne  Apple Inc. dropped the word computer in 2007 to reflect the company’s expansion into consumer electronics market in addition to its traditional focus personal computers  Apple Inc. is a American multinational corporation which manufactures and designs consumer electronics & software products  Apple Inc. sells its products worldwide through its online stores, its direct sales force, third party wholesalers,and resellers  Hardware products include: Macintosh computers, iPod, iPhone  Software products include: Mac OS X Operating system, iTunes media, iLife creativity software products, iWork  Apple generated nearly 33 billion in revenue in 2008  Apple competitors: Dell Inc., Hewlett-Packard Company, and Microsoft Corp.

3  Microsoft corporation was founded in 1975 by Bill Gates and Paul Allen  Multinational computer technology corporation which develops, manufactures, licenses, and supports a wide range of products for computing devices.  Microsoft hardware products include: Xbox, Xbox 360, Mouse/keyboards and Zune.  Microsoft software products include: Microsoft windows, Microsoft Office (i.e. Excel, PowerPoint, Word, etc.), PC/Xbox software games  Microsoft generated 61.98 billion in revenue in 2008

4 Apple (Ticker: AAPL)Microsoft (Ticker: MSFT)  Earnings Per Share (EPS)=Net Income/No. of Shares outstanding  Q1 (12/2008) EPS: 1605.00/890.42 = $1.80  Q4 (09/2008) EPS: 1136.00/888.33 = $1.28  Annual EPS (09/2008): 4,834.00/888.33 = $5.44  Q2 (12/2008) EPS: 4,174.00/8,889.00 = $0.47  Q1 (09/2008) EPS: 4,373.00/8,977.00 = $0.49  Annual EPS (06/2008): 17,681.00/9,151.00 = $1.93

5 AppleMicrosoft  Price Earnings Ratio=Market Price Per Share/Net Income Per Share  Q1 (12/2008) P/E: $85.35/1.81 = 47.2 times  Q4 (09/2008) P/E: $113.66/1.28 = 88.8  Annual P/E (09/2008): $113.66/5.04 = 20.7  Q2 (12/2008) P/E: $19.44/0.47 = 41.4 times  Q1 (09/2008) P/E: 26.29/0.48 = 54.8  Annual P/E (06/2008): 19.44/1.87 = 10.4

6 AppleMicrosoft  Book value Per Share=Total Shareholders Equity/Total outstanding shares  Q1 (12/2008) BVPS: 19,878.00/890.42 = $22.32  Q4 (09/2008) BVPS: 21,030.00/888.33 = $23.67  Annual BVPS (09/2008): 21,030.00/888.33 = $23.67  Q2 (12/2008) BVPS: 34,478.00/8,889.00 = $3.88  Q1 (09/2008) BVPS: 33,594.00/8,977.00 = $3.74  Annual BVPS (06/2008): 36,286.00/9,151.00 = $3.97

7 Selling, General, & Administrative / Sales Expenses for salaries, commissions, advertising, promotions, travel, entertainment / revenue. Apple  Sept. 2008 – Q4  SG&A = (999.00 * 1,000,000) /  Revenue = (7,895.00 * 1,000,000)  = 0.1265 * 100 = 12.65%  Dec. 2008 – Q1  SG&A = (1,091.00 * 1,000,000) /  Revenue = (10,167.00 * 1,000,000)  = 0.1073 * 100 = 10.73%  Year Ending Sept. 2008  SG&A = (3,761 * 1,000,000) /  Revenue = (32,749 * 1,000,000)  = 0.1148 * 100 = 11.48% Microsoft  Sept. 2008 – Q1  SG&A = (3,931.00 * 1,000,000) /  Revenue = (15,061.00 * 1,000,000)  = 0.2610 * 100 = 26.10%  Dec. 2008 – Q2  SG&A = (4,493.00 * 1,000,000) /  Revenue = (16,629.00 * 1,000,000)  = 0.2702 * 100 = 27.02%  Year Ending June 2008  SG&A = (18,166 * 1,000,000) /  Revenue = (60,420 * 1,000,000)  = 0.3007 * 100 = 30.07%

8 Asset Turnover Efficiency of corporate assets in generating revenue – Sales / Average Quarterly Assets. Higher the number the better. Measures pricing strategy – low profit margins, high ATO (inverse). Apple  Sept. 2008 – Q4  Revenues = (7,895 * 1,000,000) /  Avg. Quarterly Assets = ((39,572 * 1,000,000) + (31,709 * 1,000,000)) / 2  = 35,640,500,000  Asset Turnover = 0.22  Dec. 2008 – Q1  Revenues = (10,167 * 1,000,000) /  Avg. Quarterly Assets = ((42,787 * 1,000,000) + (39,572 * 1,000,000)) / 2  = 41,179,500,000  Asset Turnover = 0.25 Microsoft  Sept. 2008 – Q1  Revenues = (15,061 * 1,000,000) /  Avg. Quarterly Assets = ((65,117 * 1,000,000) + (72,793 * 1,000,000)) / 2  = 68,955,000,000  Asset Turnover = 0.22  Dec. 2008 – Q2  Revenues = (16,629 * 1,000,000) /  Avg. Quarterly Assets = ((65,786 * 1,000,000) + (65,117 * 1,000,000)) / 2  = 65,451,500,000  Asset Turnover = 0.25

9 Inventory Turnover How many times a company’s inventory is sold and replaced. Low ITO, poor sales, excess inventory levels. High ITO, strong sales, too low of inventory levels. Apple  Sept. 2008 – Q4  Cost of sales = (5,022 * 1,000,000) /  Avg. Quarterly Inventory = ((509 * 1,000,000) + (545 * 1,000,000)) / 2  = 527,000,000  Inventory Turnover = 9.53  Dec. 2008 – Q1  Cost of sales = (6,477 * 1,000,000) /  Avg. Quarterly Inventory = ((396 * 1,000,000) + (509 * 1,000,000)) / 2  = 452,500,000  Inventory Turnover = 14.31 Microsoft  Sept. 2008 – Q1  Cost of sales = (2,263 * 1,000,000) /  Avg. Quarterly Inventory = ((1,640 * 1,000,000) + (985 * 1,000,000)) / 2  = 1,312,500,000  Inventory Turnover = 1.72  Dec. 2008 – Q2  Cost of sales = (3,275 * 1,000,000) /  Avg. Quarterly Inventory = ((968 * 1,000,000) + (1640 * 1,000,000)) / 2  = 1,304,000,000  Inventory Turnover = 2.51

10 Current Ratio A measure of liquidity comparing current assets / current liabilities Higher ratio = current liabilities more than likely to be paid to creditors Apple  Sept. 2008 – Q4  Current Assets = (34,690 * 1,000,000) /  Current Liabilities = (14,092 * 1,000,000)  = 2.46  Dec. 2008 – Q1  Current Assets = (35,163 * 1,000,000) /  Current Liabilities = (14,757 * 1,000,000)  = 2.38  Year Ending Sept. 2008  Current Assets = (34,690 * 1,000,000) /  Current Liabilities = (14,092 * 1,000,000)  = 2.46 Microsoft  Sept. 2008 – Q1  Current Assets = (37,202 * 1,000,000) /  Current Liabilities = (24,383 * 1,000,000)  = 1.53  Dec. 2008 – Q2  Current Assets = (37,730 * 1,000,000) /  Current Liabilities = (23,710 * 1,000,000)  = 1.59  Year Ending June 2008  Current Assets = (43,242 * 1,000,000) /  Current Liabilities = (29,886 * 1,000,000)  = 1.45

11 Apple (Q1)Microsoft (Q2) Profit margin of 36%: Gross margin(3,690) / Net sales revenues (10,167)= 0.362 Return on assets of 3.75%: Net income (1,605) + interest (1-.30) / Total assets (42,7 87) = 1,605+(1-.30)/42,787=.037 5 Profit margin of 80%: Gross margin / Net sales revenues 13354 / 1 6629 = 0.803 Return on assets of 13%: Net income (8547) + interest (1-Tax rate) / Total assets ( 65,786) = 8547 + 195.00(mil)(1-0.26) / 65,787= 0.13

12 Apple (Q1)Microsoft (Q2) Return on common equity Of 7%: Net income (1,605) / Shareholders’ equity (22,909) = 0.07006 Cost of goods sold (6,477)/ sales (10,167) = 0.637061 (64%) Return on common equity of 12%: Net income (8,547) / Shareholders’ equity (34,478) = 0.1214 Cost of goods sold (3,275)/ sales (16,629) = 0.196945 (20%)

13 Ratio Comparisons Annual 2008 Apple Profit margin of 35%: Net Income(11618) / Net sales (32479)=.35 Return on assets of 29%: Net income (11618) + interest (1-Tax Rate =0.74) / Total assets (39572) = 0.29 Microsoft Profit margin of 84%: Net Income (50878) / Net sales (60420) =.84 Return on assets of 24% : Net income (17681) + interest 195 (1-Tax rate =0.74) / Total assets (72793) =0.24

14 AppleMicrosoft Return on common equity Of 23%: Net income (4834) / Shareholders’ equity (2103 0) = 0.229 Cost of goods sold (20861) / sales (32479) =.642 or 64% Return on common equity Of 49%: Net income (17681) / Shareholders’ equity (3628 6) = 0.487 Cost of goods sold (9542)/ sales (60420) = 0.157 or 16%

15 Apple Inc Common Size Income Statement QTR EndingDec-08 Percent ofSep-08 Percent of Net sales10,167.00 Net sales7,895.00 Net sales Cost of sales6,477.0063.71%5,022.0063.61% Gross Margin3,690.0036.29%2,873.0036.39% R&D315.00298.00 SG&A1,091.00999.00 Operating income2,284.0022.46%1,576.0019.96% Depreciation158.00134.00 Op income W/DP2,126.0020.91%1,442.0018.26% Other Income158.00140.00 Income Before Tax2,284.0022.46%1,582.0020.04% Tax679.00446.00 Income After Tax1,605.0015.79%1,136.0014.39% Items as percent of net sales (in millions)

16 Microsoft Corp Common Size Income Statement QTR EndingDec-08 Percent ofSep-08 Percent of Net sales16,629.00 Net sales15,061.00 Net sales Cost of sales3,275.0019.69%2,263.0015.03% Gross Margin13,354.0080.31%12,798.0084.97% R&D2,290.002,283.00 SG&A4,493.003,931.00 Operating income6,571.0039.52%6,584.0043.72% Depreciation632.00585.00 Op income W/DP5,939.0035.71%5,999.0039.83% Other Income-476.00-215.00 Interst Income175.00207.00 Income Before Tax5,638.0033.90%5,991.0039.78% Tax1,464.001,618.00 Income After Tax4,174.0025.10%4,373.0029.04% Items as percent of net sales (in millions)

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19  Q1=19,878.00 /42,787.00= 0.46 Q4=18,542.00 /39,572.00= 0.47 Q1=19,878.00/22,909.00= 0. 86 Q4=18,542.00/21,030.00= 0. 88 Q2=31,308.00/65,786.00 = 0.47 Q1=31,523.00/65,117.00= 0.48 Q2=31,308.00/34,478.00= 0.90 Q1=31,523.00/33,594.00= 0.94 1.Liabilities/assets =Total Liabilities/Total Assets. 2.Dept/Equity =Total Liabilities/Shareholders’ equity. 3.Long Term Debt/Assets ratio.

20 1.Acid-test (Quick) =(Current Assets - Inventory)/Current Liabilities. 2.Days’ Receivables =Accounts Receivable/(Sales/365). Q1=(35,163.00-396)/14,757.00= 2.36 Q4=(34,690.00-509)/14,092.00= 2.42 Q2=(37,730.00-968.00)/23,710.00= 1.55 Q1=(37,202.00-1,640.00)/24,383.00= 1.45 Q1=2,196.00/(10,167.00/365)= 78 Q4=2,422.00/(7,895.00/365)= 111 Q2=10,953.00/(16,629.00/365)= 240 Q1=9,535.00/(15,061.00/365)= 231

21 Depreciation Method :  Apple & Microsoft both utilize straight line method of depreciation. Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets. Inventory Method:  Inventories are stated at the lower of cost, computed using the first-in, first-out method, or market. If the cost of the inventories exceeds their market value, provisions are made currently for the difference between the cost and the market value. The Company’s inventories consist primarily of finished goods for all periods presented.

22  Apple 10K report revealed that the auditors (KPMG) opinion is Unqualified opinion on the consolidated financial statements.

23  Apple  SG&A = 11.48%  Asset Turnover (Q1)= 0.25  Inventory T/O = 14.31 (Q1)  Current Ratio = 2.46  (Earnings Per Share = $5.44)  P/E = 20.7  Microsoft  SG&A = 30.7%  Asset Turnover (Q1)= 0.25  Inventory T/O= 2.51 (Q2)  Current Ratio = 1.45  (Earnings Per Share = $1.93)  P/E = 10.4

24 References Apple, Inc. References: 1)Apple, Inc., Annual Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =2&freq=1 http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =2&freq=1 2)Apple, Inc., Annual Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =1&freq=1 http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =1&freq=1 3)Apple, Inc., Quarterly Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =1&freq=2 http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =1&freq=2 4)Apple, Inc., Quarterly Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =2&freq=2 http://www.marketwatch.com/tools/quotes/financials.asp?symb=AAPL&sid=609&report =2&freq=2

25 References Microsoft, Inc. References: 5)Microsoft, Inc., Annual Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=2&freq=1 http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=2&freq=1 6)Microsoft, Inc., Annual Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=1&freq=1 http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=1&freq=1 7)Microsoft, Inc., Quarterly Income Statement Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=1&freq=2 http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=1&freq=2 8)Microsoft, Inc., Quarterly Balance Sheet Retrieved May 9, 2009, from http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=2&freq=2 http://www.marketwatch.com/tools/quotes/financials.asp?symb=MSFT&sid=3140&repor t=2&freq=2

26 References Ratio Definitions: 9)Selling, General & Administrative Expense, Retrieved May 9, 2009, from http://www.investopdeia.com/terms/s/sga.asp http://www.investopdeia.com/terms/s/sga.asp 10)Asset Turnover, Retrieved May 9, 2009, from http://www.investopedia.com/terms/a/assetturnover.asp http://www.investopedia.com/terms/a/assetturnover.asp 11)Inventory Turnover, Retrieved May 9, 2009, from http://www.investopedia.com/terms/i/inventoryturnover.asp http://www.investopedia.com/terms/i/inventoryturnover.asp 12)Current Ratio, Retrieved May 9, 2009, from http://www.investopedia.com/terms/c/currentratio.asp http://www.investopedia.com/terms/c/currentratio.asp

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