Chapter 12: Company Analysis

Here's a breakdown to approach each component of this comprehensive assignment. If you need more specific guidance or examples on any part, just let me know! AA 12-1: Analyzing Apple’s Statement of Cash Flows 1. Statement of Cash Flows Method: Review Apple’s statement of cash flows in Appendix A. Generally, companies use either: o Indirect Method: Starts with net income and adjusts for non-cash items and changes in working capital. o Direct Method: Lists specific cash receipts and payments. 2. Cash from Operating Activities & Dividends: o Identify the cash provided by operating activities for fiscal years 2019, 2018, and 2017. o Note cash paid for dividends during each fiscal year. 3. Cash Flow Sufficiency: o Compare cash flows from operations to dividends paid in 2019 to determine if operational cash flow covered dividends. 4. Stock Repurchase Comparison: o Analyze the amount spent on repurchasing common stock in 2019 compared to 2018. AA 12-2: Comparative Analysis of Apple and Google 1. Cash Flow on Total Assets Ratio: o Formula: Cash Flow on Total Assets = Cash Flow from Operating Activities / Average Total Assets. o Compute this ratio for each of the recent two years for both companies. 2. Comparative Performance: o For the current year, determine which company has a higher cash flow on total assets ratio. 3. Industry Comparison: o Compare each company's cash flow on total assets ratio with the industry average (15%) to see if it’s above or below average for both Apple and Google. AA 12-3: Extended Analysis with Samsung 1. Samsung’s Cash Flow on Total Assets Ratio: Compute Samsung’s cash flow on total assets for the recent two years. 2. Change in Ratio: o Determine if the change in Samsung’s ratio year-over-year is favorable or unfavorable. 3. Comparison with Apple and Google: o For the current year, compare Samsung’s cash flow on total assets with Apple’s and Google’s. o Discussion Questions: Statement of Cash Flows 1. Reporting Purpose: o The statement of cash flows provides insights into a company’s cash inflows and outflows categorized by operating, investing, and financing activities. 2. Key Questions: o Two examples:  Did the company generate enough cash from operations to cover dividends?  How much cash was spent on investing activities, like purchasing equipment? 3. Investing Activities Examples: o Examples: Purchases or sales of land, buildings, and equipment. 4. Financing Activities Examples: o Examples: Issuing stock, paying dividends, and repurchasing shares. 5. Direct Method: o Directly reports cash received and paid in operating activities. 6. Indirect Method: o Starts with net income and adjusts for non-cash transactions and working capital changes. 7. Dividends on Statement of Cash Flows: o Reported under financing activities. 8. Land Purchase with Partial Financing: o Report only the cash portion in investing activities and disclose the note in supplementary information. 9. Short-Term Loan: o The cash received is reported under financing activities. 10. Net Income vs. Cash Flow: o Positive net income may still result in a net cash outflow if significant working capital is required. 11. Depreciation: o While depreciation is not a cash flow, it is added back to net income under the indirect method because it’s a non-cash expense. Beyond the Numbers Ethics Challenge (BTN 12-1): 1. Improving Cash Flows: o Examples: Accelerate collections from customers or delay payments to suppliers. 2. Ethics Commentary: o Consider the ethics and potential financial misinterpretation if actions only artificially improve cash flows without genuine improvements. Communicating in Practice (BTN 12-2): 1. Memo on Cash Flow Statement Purpose: o Explain the importance of understanding cash flows rather than just net income. o Highlight how the indirect method’s adjustments are due to non-cash activities and working capital changes. Would you like further details or specific examples on any of these sections?