Chapter 2: Comparative Analysis

Comparative Analysis of Apple and Google AA 1-2: Key Figures for Apple and Google 1. Total Assets Invested (Current Year) o Apple: To find the total assets for Apple, refer to their current year financial statements, typically located in their balance sheet. o Google (Alphabet): Similarly, Google’s (Alphabet Inc.) total assets for the current year are reported in its balance sheet. 2. Return on Assets (ROA) The formula for calculating Return on Assets (ROA) is: ROA=Net IncomeTotal Assets×100 Apple: Calculate ROA by dividing Apple's net income by its total assets and multiplying by 100. o Google (Alphabet): Perform the same calculation for Google, dividing its net income by its total assets. 3. Current Year Expenses o Apple: Current year expenses can be found in Apple’s income statement, typically listed under total expenses or operating expenses. o Google (Alphabet): Similarly, Google’s current year expenses are found in its income statement. 4. Comparison to Competitors' 10% Return on Assets o Apple: Compare Apple’s ROA to the industry standard of 10% to assess whether Apple outperforms or underperforms. o Google (Alphabet): Do the same for Google to evaluate its performance against the 10% benchmark. 5. Investment Decision Based on ROA o Based solely on the return on assets, determine whether Apple or Google is a better investment by comparing their ROA values. The company with a higher ROA is generally considered to be using its assets more efficiently to generate profit. o Extended Analysis of Samsung AA 1-3: Key Figures for Samsung 1. Samsung’s Return on Assets (ROA) o Current Year: Calculate Samsung’s current year ROA using the same formula as Apple and Google. o Prior Year: Do the same calculation for Samsung’s prior year to compare. 2. Favorable or Unfavorable Change o Assess whether Samsung’s ROA increased or decreased from the prior year. An increase indicates a favorable change, while a decrease indicates an unfavorable change. 3. Comparison to Apple and Google o Apple and Google: Compare Samsung’s current year ROA with that of Apple and Google to determine if Samsung has a better or worse return on assets. Discussion Questions 1. Purpose of Accounting in Society Accounting provides vital information to stakeholders (owners, investors, regulators) about a company’s financial performance and position, enabling informed decisions. 2. Why Study Accounting if Technology Can Process Data? Understanding accounting is crucial because technology processes data based on rules, and humans need to interpret, validate, and apply these rules to ensure accuracy and ethical reporting. 3. External Users of Accounting Information o Investors: Assess company profitability for investment decisions. o Creditors: Evaluate the company’s ability to repay loans. o Government: Ensure compliance with tax laws and regulations. o Suppliers: Determine creditworthiness for extending trade credit. 4. Questions Managers Can Answer with Accounting Information o What is the company's current profitability? o How much cash is available for future investments? o What are the outstanding liabilities and debts? 5. Examples of Businesses o Services: Law firms, accounting firms, consulting agencies. o Products: Retail stores, manufacturers, wholesalers. 6. Internal Role of Accounting Internally, accounting helps management make decisions about budgeting, cost control, and financial planning. 7. Accounting Services Offered by Professionals o Auditing: Verifying the accuracy of financial statements. o Tax Preparation: Preparing tax returns and planning. o Consulting: Advising on business strategy and financial management. 8. Accounting Information for Marketing Managers Marketing managers may use sales revenue data, customer profitability reports, and budget information to shape marketing strategies. 9. Accounting as a Service Activity Accounting is described as a service activity because it provides critical financial information that helps stakeholders make informed decisions. 10. Accounting-Related Professions Examples include auditors, tax accountants, management accountants, and forensic accountants. 11. Ethics Rules for Auditors Ethics rules require auditors to avoid conflicts of interest and maintain independence, ensuring they provide unbiased and accurate assessments of financial statements. 12. Tax Professionals' Work Beyond Tax Returns Tax accountants also engage in tax planning, advisory services, and compliance work to help businesses manage tax obligations. 13. Objectivity in Financial Statements Objectivity means that the information reported in financial statements should be based on verifiable, reliable data, free from bias. 14. Accounting Principle for Reporting Office Stationery at Cost This is justified by the historical cost principle, which states that assets should be recorded at their original cost, not at their market value. 15. Revenue Recognition Principle This principle ensures that revenue is recorded when earned, not when cash is received, aligning with the matching principle for expenses. 16. Four Forms of Business Organization • • • • Sole Proprietorship: Single owner. Partnership: Two or more co-owners. Corporation: Separate legal entity owned by shareholders. Limited Liability Company (LLC): Combines features of corporations and partnerships. 17. Definitions • • • • Assets: Resources owned by the business. Liabilities: Obligations to outsiders. Equity: The owner’s interest in the business after liabilities. Net Assets: Total assets minus total liabilities. 18. Events That Change Equity • Investments by owners, dividends, revenues, and expenses all impact equity. 19. Two Main Categories of Accounting Principles • • General Principles: The basic assumptions and guidelines for preparing financial statements. Specific Principles: Detailed rules used in reporting business transactions. 20. Meaning of Revenue Revenue is the income generated from normal business operations, such as sales of products or services. 21. Net Income Net income is the profit after subtracting expenses from revenues. Net Income=Revenues−Expenses 22. Four Basic Financial Statements • • • • Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows 23. Purpose of the Income Statement The income statement reports a company's profitability over a period, showing revenues, expenses, and net income. 24. Examples of Expenses • • Rent Expense Salaries Expense 25. Purpose of the Statement of Retained Earnings It shows changes in retained earnings over time, including net income and dividends. 26. Information in a Balance Sheet A balance sheet shows the company’s financial position, listing its assets, liabilities, and equity at a specific point in time. 27. Statement of Cash Flows Reports on This statement reports the inflows and outflows of cash from operating, investing, and financing activities. 28. Return on Assets (ROA) ROA measures how effectively a company uses its assets to generate profit. It is calculated as: ROA=Net IncomeTotal Assets×100