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Financial Statement Analysis Apple, Hewlett-Packard, and Dell The Bad Debtors: Nick Davis, Madeline Nauyokas, Jeslyn Thompson

1 | Financial Statement Analysis

Table of Contents:

Table of Contents ……………………………………………..1

Vertical Analysis: AAPL 2010-2012………………………….2

Vertical Analysis: AAPL, HPQ, DELL 2012………………...3

Ratio Analysis: AAPL 2011-2012…………………………….5

Ratio Analysis Comparison: AAPL, HPQ, DELL 2012…….7

Footnote Analysis: AAPL 2012……………………………...13

Appendix A: Financial Statement Data…………………….14

Appendix B: Calculations…………………………………...17


Vertical Analysis: Apple 2010-2012

AAPL’s profit margin increased every year from 2010 to 2012. This growth is a reflection of AAPL’s ability to improve its cost structure through the control of expenses.

• The percentage of sales going towards the cost of goods sold was highest in 2010 and decreased during each subsequent year by a total of 4.49%. This progressive change suggests that AAPL is either getting lower prices from its suppliers or marking up its products more effectively.

• Operating expenses decreased every year during the period given. The percentage of sales going towards research and development and selling, general, and administrative expenses decreased 0.57% and 2.04%, respectively. These changes were likely caused by a lower amount of funds being allocated to wages, utilities, and related costs.

• Income tax was the only expense to increase in comparison to net sales every year from 2010 to 2012. However, it is evident that this 2.02% change did not have a major influence on AAPL’s profit generation because net income and tax expense were the highest during the same year.

Apple’s Expenses as a Percentage of Net Sales

Apple 2012 Apple 2011 Apple 2010

Cost of Sales 56.13% 59.52% 60.62%

Research and Development 2.16% 2.24% 2.73% Selling, General, and Administrative 6.42% 7.02% 8.46%

Interest 0.00% 0.00% 0.00%

Income Taxes 8.96% 7.65% 6.94%

Net Income 26.67% 23.95% 21.48%


Vertical Analysis: Apple, Hewlett-Packard, and Dell 2012 AAPL, DELL, and HPQ have three distinct cost structures based upon the sources of their expenses.

• The cost of goods sold is the largest expense by percentage for each company. AAPL’s expense in this category is significantly lower than that of DELL or HPQ. This shows that AAPL has a superior ability to either get low prices from manufacturers or markup merchandise. Keeping this cost low contributes to AAPL’s higher profitability and allows for funds to be invested elsewhere.

• Research and development accounts for approximately two percent of the companies’ net sales revenue. This is the only cost that is the same for all three corporations, and therefore, has no influence on the differences in profitability.

• The three companies vary greatly in their funding of selling, general, and administrative expenses. AAPL attributes the lowest costs to these expenditures, followed by HPQ then DELL. DELL’s expense is nearly twice that of AAPL, indicating that DELL needs to re-evaluate how much it spends on costs associated with running the company.

2012 Cost Structure Comparison

Apple 2012 Apple 2011 Apple 2010

Cost of Sales 56.13% 78.60% 76.50%

Research and Development 2.16% 1.88% 2.82% Selling, General, and Administrative 6.42% 14.23% 11.22%

Other Operating Expenses 0.00% 0.00% 3.67%

Goodwill 0.00% 0.00% 14.98%

Interest 0.00% 0.30% 0.73%

Income Taxes 8.96% 0.82% 0.60%

Net Income 26.67% 4.17% -10.51%


Vertical Analysis (Continued): Apple, Hewlett-Packard, and Dell 2012

• All three companies record interest expenses, however AAPL’s is negligible. This is because only DELL and HPQ have a substantial amount of liabilities to lenders that require interest payments in addition to the principal.

• AAPL pays significantly more in income taxes than DELL or HPQ. Both DELL and HPQ pay less than one percent, and AAPL pays almost nine percent. AAPL should examine why it is paying such high rates and determine if any of its actions have tax expenses that exceed the revenue being produced.

• HPQ has massive costs attributed to goodwill that neither AAPL nor DELL has. This is the primary cause for HPQ’s negative net income, and without it, HPQ would have a profit margin similar to that of DELL. If the goodwill is due to a major acquisition that will generate revenue in the future, then experiencing losses of income in the short-term may be worth it. However, having such low profits is taking on a great risk.


Ratio Analysis: Apple 2011-2012 Profitability Ratios:

Apple 2012 Apple 2011

Return on Assets 0.29 0.27

Asset Turnover 1.07 1.13

Return on Sales 0.27 0.24

Return on Common Shareholder’s Equity 0.43 0.34

AAPL’s increase from 2011 to 2012 in return on assets shows it has improved its ability to use assets to generate profit. Because AAPL’s return on common shareholder’s equity is greater than the return on assets, AAPL is using leverage to benefit its shareholders. An increase on AAPL’s return on common shareholder’s equity means it is now able to give more on the dollar back to shareholders for every dollar that is invested compares to 2011. A decrease in asset turnover shows that AAPL’s ability to generate revenue has decreased. However, the increased return on sales means they were better able to control costs. Short-Term Liquidity Ratios:


Current Ratio 1.50 1.61

Quick Ratio 1.04 1.12

Cash Ratio 0.76 0.93

Cash Flow from Operations to Current Liabilities 1.53 1.54

AAPL’s current, quick, and cash ratios have decreased in the last two years showing a decrease in the company’s liquidity. However, AAPL still has more assets than liabilities which is favorable. AAPL’s cash flow ratio has increased, meaning AAPL has improved its ability to generate cash through operating activities.


Ratio Analysis (Continued): Apple 2011-2012 Working Capital Management Ratios:


Days Accounts Receivable 18.75 18.09

Days Inventory 3.21 5.10

Days Payable 73.37 74.44

Net Conversion Cycle -51.41 -51.25

AAPL’s ability to control its working capital has increased mostly due to the decrease in days of inventory. There was a slight increase in days accounts receivable and a decrease in days payable, but overall, AAPL improved. The decrease in the net conversion cycle is beneficial. A negative net conversion cycle means that AAPL is able to pay suppliers after they receive payment from customers. Long-Term Solvency Ratios:


Times Interest Earned 392.79 2854.71

Debt to Equity 0.49 0.52

The decrease in times interest earned shows that AAPL’s ability to generate income to meet their interest payments has also decreased. However, AAPL is financed less by debt and more by equity than in 2011 which is a positive change. Shareholder Ratios:


Price to Earnings 15.11 14.61

Dividend Yield 0.00 0.00

Dividend Payout 0.06 0.00

AAPL has become even more favorable to shareholders by slightly increasing the yield on their investment, and also paying out a higher dividend. In relation to stock price, the return has decreased, so an investor paid more for their earnings in 2012 as shown by the increase in the price earnings ratio.


Ratio Analysis Comparison: Apple, Hewlett-Packard, and Dell 2012 AAPL is the most profitable corporation, followed by DELL and then HPQ.

Apple 2012 Dell 2012 Hewlett-Packard 2012

Return on Assets 0.29 0.05 -0.10

Asset Turnover 1.07 1.24 1.01

Return on Sales 0.27 0.04 -0.10

Return on Common Shareholder’s Equity 0.43 0.24 -0.41

• AAPL has the highest return on sales, showing that it can control its costs and turn sales into income. AAPL also has the highest return on assets, showing that it is able to effectively utilize its resources to generate income. However, AAPL does not have a strong asset turnover. In 2012, this ratio was in its third year of decline and was lower than that of DELL and HPQ. AAPL is turning both sales and assets into income, but based on the corporation’s amount of assets, it has the potential to generate a greater number of sales.

• DELL has the second highest profitability with the second highest values for return on assets and return on sales. As seen in its positive ratios, DELL is making a profit; however, AAPL’s profit is greater due to higher ratios. DELL has a stronger asset turnover, showing that the corporation is successful in turning assets into sales.

• HPQ is the least profitable with values less than zero for return on sales and return on assets. This is a reflection of HPQ’s inability to control costs resulting in a negative net income. These problems carry over into asset turnover, which is also the lowest of the three companies. The ratio’s value is barely above one, showing that assets are not being used to generate a high level of sales.


Ratio Analysis Comparison (Continued): Apple, Hewlett-Packard, and Dell 2012 AAPL and DELL use leverage to benefit their shareholders. HPQ fails to do so.


Return on Assets 0.29 0.05 -0.10

Return on Common Shareholder’s Equity 0.43 0.24 -0.41

• The return on common shareholders’ equity exceeds return on assets for both AAPL and DELL. DELL is slightly better at using leverage than AAPL because it has a greater difference between the two ratios previously stated. The companies are effectively utilizing funds from investors and lenders to purchase productive assets that generate income. This benefits shareholders by strengthening the company, thus increasing stock prices and allowing for previously determined dividends to be paid.

• HPQ’s return on assets is greater than its return on common shareholders’ equity. The negative ratio values denote that HPQ is not making a profit, and the relationship between them shows that the corporation’s position is not improving through use of equity.


Ratio Analysis Comparison (Continued): Apple, Hewlett-Packard, and Dell 2012 AAPL is the best short-term loan candidate. DELL is the second most attractive candidate to lenders, and HPQ is the third.


Current Ratio 1.50 1.19 1.09

Quick Ratio 1.04 0.97 0.66

Cash Ratio 0.76 0.55 0.24

Cash Flow from Operations to Current Liabilities

1.53 0.14 0.22

• AAPL has current ratio of 1.50, which indicates that current assets exceed current

liabilities. Because AAPL has more assets than liabilities, it has enough resources to repay its current and future debts. This makes the company a reliable venture. Furthermore, AAPL has a quick ratio of 1.04 and a cash ratio of 0.76. These numbers show that AAPL is extremely liquid, with the majority of its current assets being cash and accounts receivable. Lenders will not have to wait for AAPL to sell its inventory to receive their payment, because AAPL already has the funds to pay them back.

• DELL has a current ratio of 1.19. This means that, while DELL does not have as much security as AAPL, its current assets still exceed its current liabilities. DELL will be able to cover both old and new debts. DELL’s quick ratio of 0.97 and cash ratio of 0.55 show that the company is liquid enough to make timely payments.

• HPQ’s current ratio of 1.09 is lower than that of the other two companies and shows that the amount of assets and liabilities is almost equal. The company cannot take on many loans before its liabilities become greater than its assets. In addition, with a quick ratio of 0.66 and a cash ratio of 0.22, HPQ is less liquid than the other two companies. These factors make HPQ a significantly more risky loan candidate than either AAPL or DELL.


Ratio Analysis Comparison (Continued): Apple, Hewlett-Packard, and Dell 2012 AAPL is the best at managing its working capital accounts, followed by DELL and finally HPQ.


Days Account Receivable 18.75 41.43 51.79

Days Inventory 3.21 11.21 26.99

Days Payable 73.37 93.45 54.94

Net Conversion Cycle -51.41 -40.82 23.85

• AAPL has the most efficient conversion cycle overall because it has the lowest days accounts receivable and days inventory. This means that the company’s strength lies in its ability to turn inventory into sales and then quickly turn the inflow of receivables from sales into cash.

• DELL has the highest days accounts payable and is also successful in terms of days accounts receivable and days inventory. Although DELL is not more efficient than AAPL overall, it is better at prolonging it accounts payable. This gives the corporation more opportunities to invest borrowed funds.

• HPQ is the worst in every category of the working capital breakdown, and subsequently, has the highest net conversion cycle. HPQ has too much capital tied up in inventory and uncollected receivables.


Ratio Analysis Comparison (Continued): Apple, Hewlett-Packard, and Dell 2012 AAPL is the most attractive candidate to long-term lenders. DELL is the second best, and HPQ is the third.


Times Interest Earned 392.79 17.61 -12.82

Debt to Equity 0.49 3.44 3.76

• AAPL has the highest times interest earned, showing that it has the greatest ability to pay

back the interest owed on the principal of its loans. It also has a debt-to-equity ratio less than one, which means that AAPL gets most of its finances from investors as opposed to creditors. Potential lenders can rely upon receiving payments because there are not many liabilities to be paid back prior to theirs.

• DELL has a positive times interest earned, which means that it can pay back the interest on all of the loans it currently has outstanding in addition to interest on future liabilities. Unfortunately, DELL has a high debt-to-equity ratio, signaling that it has excessive loans outstanding.

• HPQ has poor times interest earned and debt-to-equity ratios. At this point, HPQ does not have adequate funds to pay interest on the liabilities it already has, and taking out additional loans will only worsen this problem. Unlike AAPL and DELL, HPQ cannot be relied upon to make payments of interest or principal.


Ratio Analysis Comparison (Continued): Apple, Hewlett-Packard, and Dell 2012 DELL is the most attractive company for stockholders, followed by AAPL, then HPQ.


Price to Earnings 15.11 10.10 -2.16

Dividend Yield 0.00 0.01 0.04

Dividend Payout 0.06 0.12 -‐0.08

• Based on the price to earnings ratio, DELL is the least expensive stock compared to its earnings. To investors, this means that every dollar spent, they are earning more. Second to DELL is AAPL with a more expensive stock relative to earnings. While the stock may be more expensive, investors might see this as potential for growth. HPQ is last because investors would be losing money by purchasing this company’s stock.

• HPQ has the greatest dividend yield, followed by DELL, and then by AAPL which has almost no dividend yield at all. Investors prefer a high dividend yield because if a stock price was held constant, the return on their investment comes from the dividend yield.

• If an investor was buying stocks for dividends, then Dell would be the most attractive company, followed by HPQ, and then AAPL. HPQ’s Dividend Payout Ratio is negative which means that even though the company has negative earnings, they are still paying out dividends. For every dollar earned per share, DELL paid out 12 cents, HPQ paid 8 cents, and AAPL paid 6 cents.


Footnote Analysis: Apple 2012 Accounts Receivable: AAPL analyzes the accounts receivable to determine the allowance for doubtful accounts. Factors such as the age of the accounts, the economy, the customers’ credit, and the company’s previous experiences are considered when determining the amount. In 2012, AAPL had a considerable amount of trade receivables from third parties. Iinvestors must pay attention to the amount of receivables especially in more risky international markets

Inventories: AAPL uses the FIFO method and makes the assumption that the oldest inventory will be sold first. If the cost of inventory is continuing to rise, the balance sheet will reflect this method through higher inventory and a lower cash amount due to taxes. Because of a lower cost of goods sold, the income statement will have a higher net income. In looking at profitability ratios, investors must realize that a high net income can result in higher ratios for return on assets and return on sales.

Property, Plant and Equipment: It is important for shareholders to look at the age of an asset and the life assigned to it. AAPL gives buildings a lifespan of 30 years. Machinery and equipment get a useful life of two to five years and three to five years for internal software. A longer life leads to a lower depreciation expense, leading to higher net income and assets. In 2012, the depreciation and amortization expense for property, plant and equipment was $2.6 billion. A shareholder can use this information to see when AAPL will need to invest in new property, plant and equipment. In 2012, AAPL spent $8.3billion on new property, plant and equipment

Long-term Debt: AAPL classifies any debt that is due in greater than 12 months as long-term. AAPL did not have any long-term debt in 2009 or the five years before, therefore they had no related interest expenses. To a potential lender, this would mean that if you invested in AAPL, you would be first on the list to be repaid.

Stockholders’ Equity: AAPL announced an authorization plan to buyback $10 billion in common stock. Potential investors could see an increase in the earnings per share due the fact that when a company buys back stock, the total number of shares decreases. AAPL sometimes uses share-based compensation to pay employees and outstanding liabilities which increases equity and causes a tax benefit. There are also five million shares of preferred stock that could be issued which would decrease the earnings per share.


Appendix A: Apple Financial Statement Data 2012 2011 2010 Accounts Payable $21,175 $14,632 $12,015 Accounts Receivable $10,930 $5,369 $5,510 Cash and Cash Equivalents $10,746 $9,815 Cash Flow from Operating Activities $50,856 $37,529 Current Assets $57,653 $44,988 Current Liabilities $38,542 $27,970 $20,722 Cost of Sales $87,846 $64,431 $39,541 Interest $140 $14 Inventory $791 $776 $1,051 Marketable Securities $18,383 $16,137 Net Income $41,733 $25,922 $14,013 Net Sales $156,508 $108,249 $65,225 Provision for Income Tax $14,030 $8,283 Research and Development $3,381 $2,429 $1,782 Selling, General, and Administrative $10,040 $7,599 $5,517 Total Assets $176,064 $116,371 $75,183 Total Liabilities $57,854 $39,756 Total Shareholders’ Equity $118,210 $76,615 $47,791 Dividends per Share $2.65 $0.00 Earnings per Share (Diluted) $44.15 $27.68 Preferred Dividends $0.00 $0.00 Stock Price $667.10 $404.30 *Dollar amounts in millions, excluding stock data Source Documents: Statement of Financial Position: Accounts Payable; Accounts Receivable; Cash and Cash Equivalents;

Current Assets; Current Liabilities; Financing Receivables; Inventory; Marketable Securities (Short-Term Investments); Total Assets; Total Liabilities; Total Shareholders’ Equity

Footnotes: Preferred Dividends

Statement of Cash Flows: Cash Flow from Operating Activities

Statement of Income: Cost of Sales (Cost of Products + Cost of Services); Interest; Net Income; Net Sales (Total Net Revenue); Provision for Income Taxes; Research and Development; Selling, General, and Administrative; Dividends Per Share; Earnings Per Share

Yahoo Finance: Stock Price


Appendix A (Continued): Dell Financial Statement Data 2012 2011 Accounts Payable $11,579 $11,656 Accounts Receivable $6,629 $6,476 Cash and Cash Equivalents $12,569 Cash Flow from Operating Activities $3,283 Current Assets $27,968 Current Liabilities $23,439 $22001 Cost of Sales $44,754 Financing Receivables $3,213 Interest $171 Inventory $1,382 $1,404 Marketable Securities $208 Net Income $2,372 Net Sales $56,940 Provision for Income Tax $469 Research and Development $1,072 Selling, General, and Administrative $8,102 Total Assets $47,450 $44,533 Total Liabilities $36,839 Total Shareholders’ Equity $10,701 $8,917 Dividends per Share $0.16 Earnings per Share (Diluted) $1.35 Preferred Dividends $0.00 Stock Price $13.63 *Dollar amounts in millions, excluding stock data Source Documents: Statement of Financial Position: Accounts Payable; Accounts Receivable; Cash and Cash

Equivalents; Current Assets; Current Liabilities; Financing Receivables; Inventory; Marketable Securities (Short-Term Investments); Total Assets; Total Liabilities; Total Shareholders’ Equity



Statement of Income: Cost of Sales (Cost of Products + Cost of Services); Interest; Net Income; Net Sales (Total Net Revenue); Provision for Income Taxes; Research and Development; Selling, General, and Administrative; Dividends Per Share; Earnings Per Share



Appendix A (Continued): Hewlett-Packard Financial Statement Data 2012 2011 Accounts Payable $13,350 $14,750 Accounts Receivable $16, 407 $18,224 Cash and Cash Equivalents $11,301 Cash Flow from Operating Activities $10,571 Current Assets $50,637 Current Liabilities $46,666 $22001 Cost of Sales $92,068 Financing Receivables $3,252 Goodwill $18,035 Interest $876 Inventory $1,382 $1,404 Net Income -$12,650 Net Sales $120,357 Other Expenses $4,412 Provision for Income Tax $717 Research and Development $1,072 Selling, General, and Administrative $8,102 Total Assets $108,768 $129,517 Total Liabilities $85,935 Total Shareholders’ Equity $22,833 $39,004 Dividends per Share $0.50 Earnings per Share (Diluted) -$6.41 Preferred Dividends $0.00 Stock Price $13.85 *Dollar amounts in millions, excluding stock data Source Documents: Balance Sheet: Accounts Payable; Accounts Receivable; Cash and Cash Equivalents; Current

Assets; Current Liabilities; Financing Receivables; Inventory; Total Assets; Total Liabilities; Total Shareholders’ Equity



Statement of Earnings: Cost of Sales (Cost of Products + Cost of Sales); Financing Receivables; Goodwill; Interest; Net Income; Net Sales (Total Net Revenue); Other Expenses (Financing Interest + Amortization of Intangible Assets + Restructuring Charges + Acquisition Related Charges); Provision for Income Taxes; Research and Development; Selling, General, and Administrative; Dividends Per Share; Earnings Per Share



Appendix B: Calculations *Dollar amounts in millions, excluding stock data

Apple Ratios 2011 Profitability Ratios

• Return on Common Shareholders Equity (Net Income – Preferred Dividends) / Average Shareholders Equity ($25,922 – 0) / [($76,615 + $47,791) / 2] = 41.67%

• Asset Turnover Net Sales / Average Assets $108,249 / [($116,371 + $75,183) / 2] = 1.13

• Return on Sales {Net Income + [Interest x (1 – Tax Rate)]} / Net Sales {$25,922 + [$14 x (1 – 0.35)]} / $108,249 = 23.96%

• Return on Assets {Net Income + [Interest x (1 – Tax Rate)]} / Average Assets {$25,922 + [$14 x (1 – 0.35)]} / [($116,371 + $75,183) / 2] = 27.07%

Short Term Liquidity Ratios • Current Ratio

Current Assets / Current Liabilities $44,988 / $27,970 = 1.61

• Quick Ratio (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities ($9,815 + $5,369 + $16,137) / $27,970 = 1.12

• Cash Ratio (Cash + Marketable Securities) / Current Liabilities ($9,815 + $16,137) / $27,970 = 0.93

• Operating Cash Flows to Current Liabilities Cash Flow from Operating Activities / Average Current Liabilities $37,529 / [($27,970 + $20,722) / 2] = 1.54

Working Capital Management Ratios • Days Accounts Receivable

Net Sales / Average Accounts Receivable $108,249 / [($5,369 + $5,510) / 2] Accounts Receivable Turnover = 19.90 360 days / 19.90 = 18.09 days


• Days Inventory Cost of Sales / Average Inventory $64,431 / [($776 + $1,051) / 2] Inventory Turnover = 70.53 360 days / 70.53 = 5.10 days

• Days Accounts Payable Cost of Sales / Average Accounts Payable $64,431 / [($14,632 + $12,015) / 2] Accounts Payable Turnover = 4.84 360 days / 4.84 = 74.38 days

• Net Days Working Capital Days Accounts Receivable + Days Inventory – Days Accounts Payable 18.09 + 5.10 – 74.38 = -51.19 days

Long Term Solvency Ratios • Debt to Equity Ratio

Total Liabilities / Total Shareholders’ Equity $39,756 / $76,615 = 0.52

• Times Interest Earned

(Net Income + Interest Expense + Taxes) / Interest Expense ($25,922 + $14 + $3,338) / $14 = 2091.00

Investor Ratios • Price-Earnings Ratio

Stock Price / Earnings per Share (Diluted) $404.30 / $27.68 = 14.61

• Dividend Yield Dividends per Share / Stock Price $0.00 / $404.30 = 0.00%

• Dividend Payout Dividends per Share / Earnings per Share (Diluted) $0.00 / $27.68 = 0.00%

Apple Ratios 2012 Profitability Ratios








• Quick Ratio (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities ($10,746 + $10,930 + $18,383) / $38,542 = 1.04

• Cash Ratio (Cash + Marketable Securities) / Current Liabilities ($10,746 + $18,383) / $38,542 = 0.76




• Days Inventory Cost of Sales / Average Inventory $87,846 / [($791 + $776) / 2] Inventory Turnover = 112.12 360 days / 112.12 = 3.21 days






• Times Interest Earned (Net Income + Interest Expense + Taxes) / Interest Expense ($41,733 + $140 + $7,682) / $140 = 353.96





Dell Ratios 2012 Profitability Ratios







• Quick Ratio (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities ($12,569 + $6,629 + $208 + $3,213) / $23,439 = 0.97

• Cash Ratio (Cash + Marketable Securities) / Current Liabilities ($12,569 + $208) / $23,439 = 0.55





• Days Inventory Cost of Sales / Average Inventory $44,754 / [($1,382 + $1,404) / 2] Inventory Turnover = 32.13 360 days / 32.13 = 11.21 days





• Times Interest Earned (Net Income + Interest Expense + Taxes) / Interest Expense ($2,372 + $171 + $469) / $171 = 17.61





Hewlett-Packard Ratios 2012 Profitability Ratios

• Return on Common Shareholders Equity (Net Income – Preferred Dividends) / Average Shareholders Equity (-$12,560 – 0) / [($22,833 + $39,004) / 2] = -40.62%



• Return on Sales {Net Income + [Interest x (1 – Tax Rate)]} / Net Sales {-$12,560 + [$876 x (1 – 0.35)]} / $120,357 = -9.96%

• Return on Assets {Net Income + [Interest x (1 – Tax Rate)]} / Average Assets {-$12,560 + [$876 x (1 – 0.35)]} / [($108,768 + $129,517) / 2] = -10.06%



• Quick Ratio (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities ($11,301 + $16,407 + $3,252 + 0) / $46,666 = 0.66

• Cash Ratio (Cash + Marketable Securities) / Current Liabilities ($11,301 + $0) / $46,666 = 0.24




• Days Inventory Cost of Sales / Average Inventory $92,068 / [($6,317 + $7,490) / 2] Inventory Turnover = 13.34 360 days / 13.34 = 26.99 days


• Net Days Working Capital Days Accounts Receivable + Days Inventory – Days Accounts Payable 51.80 + 26.99 – 54.96 = 23.83 days




• Times Interest Earned (Net Income + Interest Expense + Taxes) / Interest Expense (-$12,560 + $876 + $717) / $876 = -12.52


Stock Price / Earnings per Share (Diluted) $13.85 / -$6.41 = -2.16


• Dividend Payout Dividends per Share / Earnings per Share (Diluted) $0.50 / -$6.41 = -7.80%

Apple Vertical Analysis 2010

• Product Expenses Cost of Sales / Net Sales $39,541 / $65,225 = 60.62%

• Operating Expenses Research and Development / Net Sales $1,782 / $65,225 = 2.73% Selling, General, and Administrative / Net Sales $5,517 / $65,225 = 8.46% Interest / Net Sales -$43 / $65,225 = -0.00%

• Tax Expenses Provision for Income Tax / Net Sales $4,572 / $65,225 = 6.94%

• Profit Margin Net Income / Net Sales $14,013 / $65,225 = 21.48%




• Operating Expenses Research and Development / Net Sales $2,429 / $108,249 = 2.24% Selling, General, and Administrative / Net Sales $7,599 / $108,249 = 7.02% Interest / Net Sales $14 / $108,249 = 0.00%








Dell Vertical Analysis 2012




• Tax Expenses Provision for Income Tax / Net Sales $469 / $56,940 = 0.82%


Hewlett-Packard Vertical Analysis 2012


• Operating Expenses Research and Development / Net Sales $3,399 / $120,357 = 2.82% Selling, General, and Administrative / Net Sales $13,500 / $120,357 = 11.22% Interest / Net Sales $876 / $120,357 = 0.73% Other / Net Sales $4,412 / $120,357 = 3.67%

• Tax Expenses Provision for Income Tax / Net Sales $717 / $120,357 = 0.60%

• Profit Margin Net Income / Net Sales -$12,650 / $120,357 = -10.51%

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