APPLE REPORT: Cash Flows/ Part Three
Cash flow ratio analysis for 1995
*we will compare Apple's 1994 and 1995 cash flow in the next section
Cash flow yield
Apple's cash flow yield is -0.566 while IBM's is 2.563. This means that Apple's operating activities generated negative 0.566 times as much cash flow as net income while IBM's generated 2.563 times as much as cash flow as net income. The cash flow yield also shows that Apple ability to generate operating cash flow in relation to net income was lower than IBM's. Apple's operating activities generated negative 0.566 times as much cash flow as net income while IBM's generated 2.563 times as much as cash flow as net income.
Cash flows to sales
Apple's cash flow to sales ratio is -2.17% while IBM's is 14.88%. This means that Apple generated cash flows to sales of negative 2.17 percent while IBM generated cash flows to sales of positive 14.88 percent. Obviously, IBM generated higher level of cash from sales. Therefore, the efficiency of Apple at generating operating cash flow from sales was lower than that of IBM. IBM generated higher level of cash from sales in 1995. Therefore, the efficiency of Apple at generating operating cash flow from sales in 1995 was lower than that of IBM.
Cash flow to assets
Apple cash flow to assets ratio is -1.04% while IBM's is 13.34%. This means that Apple generated cash flow to assets of negative 1.04 percent while IBM generated cash flow to assets of positive 13.34 percent. Therefore, Apple did not use its assets to generate cash flow as efficient as IBM did
Cash Flows Evaluations
Liquidity situation in 1995
Apple's financial position with respect to cash, cash equivalents, and short-term investment , net of short-term borrowing , decreased to $491 Million as September 29, 1995, from $966 million at September 30, 1994.
Cash flow from operating activities
Less cash was generated by operations in 1995 compared with 1994, primarily as a result of growth in inventory levels and an increase in accounts receivable. In detail, cash generated by operation activities decreased by 977 million in 1995 compare with 1994. Inventory level grew during 1995 in order to support anticipated demand in the first quarter of 1996 for the company's new products. Accounts receivable increased because of the higher sales levels achieved during 1995. Cash used for operation in 1995 was partially offset by cash generated from higher sales and accounts payable levels.
Cash flow from investing activities
Excluding short term investments, net cash used for investments increased in 1995 compared with 1994. Cash used for investment activities in 1995 increase by 400 million compare with 1994.
Cash flow from financing activities
Short-term borrowings increased by 169 million in 1995 compared with 1994. Long-term borrowings remained relatively constant during 1995. Cash generated by financing activities increased by 403 million in 1995compared with 1994.
Cash-generating efficiency
Cash flow yield
Apple's cash flow yield was -0.57 in 1995 compare to 2.38 in 1994. This means that Apple did not generate a good cash flow yield because their operating activities generated negative 0.57 times as much cash flow as net income in 1995 while they had generate a positive yield of 2.38 times in 1994. Therefore, Apple's ability to generate cash flow from operating activities significantly declined in 1995.
Cash flows to sales
The cash flow to sales ratio of Apple was -2.17% in 1995 compare to 8.02% in 1994. This means that Apple generate low level of cash from sales compare to 1994. Therefore, the efficiency of Apple at generating operating cash flow from sales in 1995 declined.
Cash flow to assets
The cash flow to assets ratio of Apple was -1.04 percent in 1995 while 14.07 percent in 1994. This means that Apple did not use its assets generate positive cash flow in 1995. In other word, the efficiency of Apple to use assets to generate cash flow dramatically declined in 1995.
Free cash flow
In 1993 Apple's free cash flow was negative $ 920 million. To continue at its planned levels, Apple had to increase its borrowing and common stock issuance. In 1994, Apple cash flow was positive $521 million. This means that Apple met its planned cash commitment s and has cash available to reduce debt or expand further. In 1995, Apple had negative free cash flow of $457 million and this resulted in them having to increase its short-term borrowings by $169 million.
Cash flows conclusion
Apple Computers ability to generate positive operating cash flows declined from 1994 to 1995. The major indication is the decline in the cash flow yield. This occurred because net cash flow from operating activities showed an extraordinary decline from a positive $737 million in 1994 to a negative $240 million in 1995. The principal reasons for the decline in operating cash flow was the growth in inventory levels and accounts receivable. As the result of the decline in cash flow yield, the other cash flow ratios also declined significantly. Overall, Apple's financial position with respect to cash flow worsened in 1995. |
