Assignemnt: Financial Statement Analysis Case Study
Apple, Inc. has been riding high, and is consistently one of the largest corporations in the world. Google is one of Apple's primary competitors. One quick way to analyze Apple and Google can be accomplished by using DuPont Analysis (ROE = PM * AT * EM)1.
Complete the following:
• Go to www.finance.yahoo.com and find the most current Income Statement and Balance Sheet for Apple.
• Compute all 4 ratios for Apple for 2009 through 2011. Please use the Yahoo site so that numbers are consistent.
• Compute the DuPont Ratio for Google for the most current year only. Take all numbers out at least 2 places past the decimal.
• When you are done computing your ratios, write an essay sharing your analysis. Be sure to discuss all four ratios of the DuPont analysis in a time series as well as the cross-sectional comparison with Google. In the essay, do not focus on the numbers used to compute ratios but instead, show an ability to interpret the economic meaning of the computed ratios.
Your paper should meet the following requirements:
• Be approximately 2 pages in length, not including the cover page and reference page.
• Follow the CSU-Global Guide to Writing and APA. Each paper should include an introduction, a body with at least two fully developed paragraphs, and a conclusion. Provide at least one reference.
• Be clear and well written, concise, and logical, using excellent grammar and style techniques. You are being graded in part on the quality of your writing. If you need assistance with your writing style, start with Tools for Effective Writing at the CSU-Global Library, accessible from the Library's homepage.
1 Regarding the DuPont Analysis equation appearing at the beginning of this assignment, recall that the ratios included in the DuPont Identity are as follows:
ROE = Return on equity = Net income/Total stockholders' equity (stated as a %)
PM = Profit margin = Net income/Total revenue (stated as a %)
AT = Asset turnover = Total revenue/Total assets (stated as a whole number and not as a %)
EM = Equity multiplier = Total assets/Total stockholders' equity (stated as a whole number and not as a %)
State your answer (for example) like the following equation:
35.01% = 15.14% * 1.25*1.85
Appropriate comments should include:
• Apple's profit margin has risen in the past 2 years but is smaller than Google's. While Apple managers have improved in controlling costs, Google managers outperform Apple in this area.
• Apple shows improved efficiency in using its assets in the current year i.e., its assets generated more revenues than the previous year. Apple's assets produce more revenue per dollar invested in assets when compared to Google.
• Apple has been fairly consistent in its reliance on debt over the 3 years reviewed. Apple uses more debt to finance its assets than Google; that debt adds leverage and magnifies Apple's earnings. However, Apple takes more risk because of that reliance on debt.