Answer to Question #238507 in Accounting for Sinbae

Question

Review the Apple Inc. 2020 Annual Report (Form 10-K) ,financial statements begin on page 34 of the PDF) and respond answer each question below. 

1. On Apple's Balance Sheet (page 36 of the PDF), they report common stock and additional paid-in capital (APIC) together in one row on the Apple's balance sheet (p.36)

 What is the likely reason that they did that? 

2.What is the term of Apple's stock repurchase program ?

3. Related to evaluating Liquidity, compute and interpret (1) current ratio, (2)quick ratio, (3)average collection period, (4)inventory turnover ratio for Apple for the most recent fiscal year. 

4. Related to evaluating Profitability, compute and interpret the (1)profit margin ratio, (2)asset turnover ratio, (3)return on (common) stockholders' equity (ROE) ratio,(4) payout ratio for Apple for the most recent fiscal year. 

Apple annual report link below 

https://annualreport.stocklight.com/NASDAQ/AAPL/201273977.pdf

Answer 1

Solution:

1.). The reason they report common stock and additional paid-in capital together in one row on Apple’s balance sheet is that the two items are related as they fall under capital account contributions.

Common stock is a part of paid-in capital, which is the total amount received from investors for stock representing their ownership of the company. On the balance sheet, the par value of outstanding shares is recorded to common stock, and the excess (market price-par value) is recorded to additional paid-in capital.

2.). The term of Apple’s stock repurchase program is 3 years.

3.). i.). Current ratio = $\frac{current \; assets}{current \; liabilities} = \frac{143,713}{105,392} = 1.36$

The current ratio is more than 1, which means that Apple has more cash to pay its obligations in the short term.

ii.). Quick ratio = $\frac{Current\; assets - inventory - other \;current \;assets}{Current\; liabilities} = \frac{143,713 - 4,061 - 11,264}{105,392} = \frac{128,388}{105,392} = 1.22$

The quick ratio is slightly greater than 1, which means that the company’s total current assets are slightly more than its current liabilities. Therefore, it has enough resources to pay off its short-term debts without having to borrow.

iii.). average collection period = $\frac{Accounts \; receivable\;net}{Total \; net\;sales} \times 365= \frac{16,120}{274,515}\times 365 = 5.9 = 6 \;days$

The average collection period for Apple is 6 days which means that it is very efficient in collecting its accounts receivables.

iv.). Inventory turnover ratio = $\frac{Cost \;of \;goods\;sold}{Average \; inventory} = \frac{169,559}{(4,106 + 4,061)/2} = \frac{169,559}{4,083.50} = 42 \;days$

Apple has a higher inventory turnover ratio meaning that it has strong sales and efficient inventory management.

4.). i.). profit margin ratio = $\frac{Net \; income}{Net\;sales} \times 100= \frac{57,411}{274,515}\times 100 = 20.9 \%$

Apple has a higher profit margin ratio which means that it is operating efficiently. The company is able to effectively control its costs or provide goods and services at a price significantly higher than its costs.

ii.). Asset turnover ratio = $\frac{Net\;sales}{Average \; total\;sales} = \frac{274,515}{(338,516 + 323,888)/2} = \frac{274,515}{331,202} = 0.8$

Apple’s asset turnover ratio is 0.8 which is considered good for the technology industry. The industry benchmark is 0.65. Therefore, the company has a higher asset turnover ratio hence more efficient at generating revenue from its assets.

iii.). Return on (Common) stockholder equity (ROE) = $\frac{Net \; income}{Shareholders\;equity} \times 100= \frac{57,411}{65,339}\times 100 = 87.9 \%$

Apple has a higher ROE which means that the company is more efficient in generating income and growth from its equity financing.

iv.). Payout ratio = $\frac{Total \; dividends}{Net \; income} = \frac{14,081}{57,411}\times 100 = 24.5 \%$

Apple has a payout ratio of 24.5% which is healthy. It means that the company is reinvesting more money back into expanding its business.