APPLE REPORT ANALYSIS....Here are some good hints
I would appreciate feedback for the complete report.
PS: The Moon is 28days not....Next week it's quarter 1st. See how
AAPL responds to that (hi hi)
In Apple's consolidated statements of cash flow of 1995 the reported net income is $424 million while cash flows from operations is negative $240 million. The reason for this large difference is that net income is prepared on the accrual basis while cash flow from operations is prepared on cash basis. In the income statement, revenues are recorded even though the cash for them may not have been received, and expenses are recorded even though there might not have been cash outlay. As a result, to arrive at cash flows from operations, the figures on the income statement must be converted from an accrual basis to a cash basis by adjusting earned revenues to cash received from sales and incurred costs and expenses to cash expensed and so on.
In Apple's consolidated statements of cash flow for 1995 it lists adjustments necessary to convert net income to cash flows from operations under the indirect method. Under the indirect method, Apple's net income of 1995 is adjusted for expenses such as depreciation, amortization expense, net book value of property and plant, and equipment retirement. Since these items are noncash expenses and do not affect Apple's cash flow, they are added to Apple's cash flow statement. Furthermore, similar adjustments for the changes in current assets and current liabilities are made in the statement of cash flows, these items are account receivable, inventories, deferred tax assets, other current assets accounts payable, accrued restructuring costs, other current liabilities, and deferred tax liabilities.
Global Market Risks
A large portion of the Company's revenue is derived from its international activities. As a result, the Company's operations and financial results could be significantly affected by international factors, such as changes in foreign currency, exchange rates or weak economic conditions in their foreign markets. When the U.S. dollar strengthens against other currencies, the U.S. dollar value of sales abroad decreases. When the U.S. dollar weakens, the U.S. dollar value of international sales increases. Having an inverse effect on costs, the U.S. dollar value of non-U.S. dollar-based costs increases when the U.S. dollar weakens and decreases when the U.S. dollar strengthens. Apple deals with currencies other than the U.S. dollar and so changes in exchange rates, in particular a strengthening of the U.S. dollar, may negatively affect the Company's consolidated sales and gross margins (as expressed in U.S. dollars).
Implications Of Accounting Policy
Apple Computer uses FIFO for assigning costs to their inventory. In the computer industry, learning curves have constantly reduced the costs of components and supplied inventories. As competition is based on price, FIFO can result in the production of finished goods with the lowest associated price. As technological advances and innovations change the hardware requirements in matters of months, Apple faces a major problem of obsolete and overvalued inventory at hand. That was a reason that caused a restructuring write-off charge in the first quarters of 1994?. As a consequence of its accounting policy Apple can sustain a competitive edge on pricing. Inventory levels though have to be in low levels with high turnovers rates.
Dividends and Stock Price
Since 1991 the company has consistently declared dividends of 48 cents per share. During the same period, Net Sales have nearly doubled with a smaller impact on Net Income. Proportionally to Sales, Apple should have been declaring $1 dividends with a $110-140 in stock value. The stock price of Apple though has experienced a dramatic downturn with a shift from $ 73 to $23 . EPS as a result may seem to have increased over the years with a high yield but on plasmatic values. The company has faced market skepticism and disapproval of its operating strategies. From the investors point of view, Apple is a high risk investment for a long position of stock purchasing.
Footnotes
In the third quarter of 1993 Apple embarked on a multi-year restructuring plan and recorded a 321 million charge to operating expenses. One year later (third quarter 1994) Apple revised the cost of their restructuring plan downward and recorded an adjustment of 127 million which appeared as income. In 1995 Apple again revised their costs associated with restructuring and recorded a 23 million dollar adjustment which appeared as income. These adjustments are shown on the income statement under costs and expenses as decreases, thus lowering expenses and raising income for 1994 and 1995.
Fiscal 1995 was a disappointing year for Apple Computer. The major factor that contributed to their poor performance were flawed strategic management decision that resulted in high inventory levels, negative cash flows, and poor accounts receivable collection. The negative cash flow resulted in a large amount of short term borrowing which put operational burdens
Apple recently replaced its CEO who has implemented a new corporate strategy and implemented drastic changes that hopefully will be evident in the companies future balance sheet earnings. Apple is dramatically decreasing their inventory levels so they will have less resources tied up in finished goods that rapidly become outdated. Apple is also tightening their account receivable controls which had suffered when the company was trying to reduce levels of unwanted inventory. The Company is also making a shift towards long term borrowing which will lower their borrowing rate and allow more assets to be used for research and development. Profits margins are expected to be 40% lower in 1996 but Apple is positioning itself to take advantage in the surge in demand for multi media technology brought about by the rise of the internet. If this market continues to grow Apples long term prospects look good. Combined with their large share of the educational market, strong sales in Asia, and their high brand name recognition, Apple is a good long run investment. |
