How to Write a Financial Statement Analysis.

It's that time of year again, the college kids are scrambling to get their term papers in last minute. I added a reflection paper last week and got nearly 100 hits on it overnight. Today, I come with an even better paper, a Financial Statement Analysis for Apple Computers Inc. I spent 2 months composing it. It includes all the key financial ratios: liquidity, ROA, ROE, total asset turnover, DSO, Profit margin, profitability, debt management, the works.


I can't post the entire paper because of the integrated tables and graphs, but I'm going to include some excerpts from it. If you want the whole thing, please purchase my eBook on how to write a Financial Statement Analysis. In my book, I detail each step needed to be taken, the best free sites to get your financial information from, where and how to calculate industry ratios, and proper formatting for the Ratio Analysis section. It's just a quick guide on what to do and how to do it. You can spend $200 to have one done for you in no time, or you can buy my guide and save $198 dollars and actually do the work yourself in half the time you'd have if you tried to do it yourself.


Believe me, when I first starting working on this it took me at least a week to gather information from several sources just on how to START the Financial Statement Analysis.


Here's portions of the document, with graphs excluded:

Apple Computers, Inc. was founded by Steve Wozniak, Steve Jobs, and Ronald Wayne on April 1^st, 1976 (Linzmayer). While there may be an April fool’s joke in the founding date, one cannot deny the success Apple Inc. has achieved as it rose to number two on the Fortune 500 list. Originally located in Steve Jobs Garage (Pederson) Apple Inc. is now headquartered in Lupertino, California and currently worth $255.18 billion, operating 301 retail stores in ten countries, 46,600 full time employees, and annual sales of 65.23 billion (explorepedia).

            Although Apple has seen success in recent years, the company had hard times. During the early eighties, Steve Jobs was struggling against the market controlled by IBM. To compete, Jobs worked relentlessly on the Macintosh computer and during the 1984 Superbowl, Apple aired its famous commercial starring Anya Major. The ad created the buzz as Jobs and Wozniak hoped, generating over $5 million in free publicity (Low End Mac). The Mac sold incredibly well, however, by Christmas of 1984, the public was growing tired of the low specs.

            During the early 90s, Apple did not have any problems with selling computer, but with building them. With over $1 billion in backorders, Apple was unable to acquire the parts fast enough to build the new PowerMac’s. Misjudging the market for the fourth quarter in 1995, Apple pushed the low-cost Performa over the mid-range PowerMac’s. Apple, Inc. posted a $68 million loss for that quarter. In the late 90s, Steve Jobs was appointed interim CEO. Since Apple’s stock price was the lowest it had been in 5 years, Jobs put his best efforts into new marketing strategies. Previously, Apple had sold its products direct to retailers, like best buy. Jobs changed this by offering its products over the web and phone, known as The Apple Store. Within a week, Apple had the third largest e-commerce site on the web and Jobs was able to announce, for the first time in a year, a profitable first quarter of $44 million. Jobs steamrolled the competition and Apple posted its first full year of profitable quarters. Jobs efforts allowed Apple’s stock price to rise to the 20s and in 1999, after the release of several new products Apple’s stock price rose to the high 70s.

            In 2000, Jobs dropped the “interim” from his title and became permanent CEO if the company and announced a new internet, mac-only based applications called iTools. As sales rose, so did the stock price, climbing to 130 by March. However, there was turbulence in the technology industry by mid 2000. Apple’s corporate strategy response, faced with massive sales decreases, was to get into the personal electronic devices market- mp3s, dvds, and digital cameras. The new product line, coupled with complementary software added incredible value to Apple products. The hope was that the new innovations and products would make Mac the digital hub and rejuvenate sales and security. In May of 2001 Jobs announced the opening of retail stores across America offering products like Apple computers, mp3 players, digital cameras, and other “digital lifestyle” products. With the new products and stores, Apple’s sales increased dramatically. Apple released the iPod in 2002 but the company struggled financially until 2003, when it released iTunes. In the first year, the iTunes store sold 70 million+ songs and the iTunes owned over 70% of the legal online music download services. iPods went from “Expensive toys” to must-have Christmas presents, launching Apple into the spotlight; Apple was in the position of having a monopoly for the first time in several decades.

Ratio Analysis

            In this section, Apple’s financial ratios will be covered in detail. The purpose of looking at the financial ratios for Apple is to discover how it compares to the technology and personal computers industry overall. By looking at the past and present performance trends of Apple, a short term forecast of Apple's future performance will be able to be determined. Ultimately, this section will act as a guide to investors; providing data and giving a realistic view of Apple’s financial position and comparison to the industry.

Liquidity Ratios

          Liquidity ratios exhibit a company’s ability to meet short term debt obligations and provide an overall picture of the company’s financial health (Brigham & Investopedia). 

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Asset Management Ratios

          Asset management ratios measure how effectively Apple controls assets and inventories. A firm overinvested in its inventories can damage profit by having high operating costs, on the other hand, a firm underinvested in assets will not be operating at optimum efficiency and will be unable to meet demands. Both situations can adversely affect stock price and harm the firm long term, therefore it is highly important to have the right amount invested in assets. 


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The total asset turnover ratio is the overall way to analyze how Apple is utilizing all of its assets to generate sales. The industry average is 1.1; Apple falls short of the allowed range at 0.86755. To increase sales margins, Apple could benefit from finding ways to utilize more of its assets or cut down on underperforming equipment. In the end, asset management may not be where it should be, but Apple can remedy the problem with minor changes in certain key areas.


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Debt Management

            The debt management section covers the financial leverage Apple has. In essence, a firm can finance assets with debt to increase returns to stockholders. Debt is usually a good measurement of the fixed cost to finance a company......................The debt ratio indicates how much debt a firm uses to finance its assets. Generally, the smaller the debt ratio, the better off the firm is. In Apple’s case, they have incredibly good debt management, with no short or long term debt or interest expense, indicating Apple doesn’t take risks, or have no current need for outside financing.

Profitability

            After liquidity, asset management, and debt management are combined, Profitability ratios are the result. Profitability ratios can be explained using the highly important DuPont analysis which gives a much better estimate of Return on Equity, the amount of profit generated on shareholder investments.

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From Grandma’s garage to large-cap growth company, Apple has taken a beating throughout the years. The company owes its success to one man who some say is a visionary; however, with the current health conditions of Steve Jobs, Apple may have to gear-up for another rocky road. Based on the analysis, Apple should perform well in 2011. Given recent trends, Apple is projected to outperform other companies in the Personal Computers industry. An investment in Apple would bring a positive return at a relatively low risk level. For technology’s sake, let’s hope Apple continues to thrive on Steve Jobs’ inspiring quote, “Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.¹”

Click here to get the rest of the paper, with graphs and a guide on how to write a Financial Statement Analysis!

**UPDATE (Feb 2014): Due to the use of a third party company, there will sometime be issues with transactions. If any errors or issues occur, a quick email to me with a brief detail and copy of your receipt, I will Email you the PDF version.**