(Mt) – FIN 575 University of Phoenix Financial Ratio Analysis Worksheet

Running head: OVERVIEW OF FINANCIAL STATEMENTS Overview of Financial Statements Teresa Rudnick FIN/575 October 25, 2019 Betty Ahmed 1 OVERVIEW OF FINANCIAL STATEMENTS 2 1 Overview of Financial Statements 2 Income statements, balance sheets and statement of cash flows are the three primary financial statements which report a company’s financial performance over a specific accounting period. To start with, an income statement summarizes the revenues and expenses generated by in company over the entire reporting period. Some of the salient information contained in an income statement include the various revenues generated in a company, such as from the sale of the company’s products and services. The other important information that is contained in an income statement is the various expenses incurred by a company over a particular accounting period (Griffin & BarCharts, 2014). These expenses may include rent, transport, wages, interest paid as well as other utilities paid by a company. The other vital information contained in an income statement are the various gains received in the company, including those from the sale of various assets such as the company vehicle. Finally, the losses incurred in a company are the essential other pieces of information included in income statements (Nothhelfer, 2017). On the other hand, a balance sheet reports the assets and liabilities of a company at a specific point in time. Therefore, one of the salient information contained in a balance sheet is that of the current assets, which include inventory, prepaid expenses, accounts receivable and also other fixed assets such as machinery, land buildings, etc. (Nothhelfer, 2017). The other vital information contained in a balance sheet is the various liabilities such as interest payable, rent, dividends payable, deferred tax, customer prepayments, etc. Finally, a statement of cash flow summarizes the cash and cash equivalents entering and leaving a particular company in a specified accounting period. Therefore, some of the vital information contained in a statement of cash flow include cash from operating activities such as the decrease in inventory and also an increase in accounts payable. The other vital information is cash from investing activities such as OVERVIEW OF FINANCIAL STATEMENTS 3 capital expenditures and also proceeds from the sale of a property. In addition to this, cash flow from financing activities such as payment of a loan and also the purchase of treasury stock is the other vital information that should be included in a statement of cash flow (Nothhelfer, 2017). According to a report by Apple Inc. for the fiscal year ending on 29 September 2018, the net income was $59,531million, the total assets were $365,725 million and the total net cash flow in the same year was $5.624 billion (Apple Financial Statements, 2019). The three mentioned financial statements are all connected. However, the net income links both the cash 3 flow statement and the balance sheet. These two are connected in that any item on the balance sheet, which has a cash impact such as the working capital is linked to the cash flow statement since they are either use or source of cash. Apart from this, the ending cash balance in a balance sheet also appears in the cash flow statement. On the other hand, the income statement and the balance sheet are connected in that the purchase or sale or deposition of an asset appears on the balance sheet and also on the income statement as a gain or loss appropriately (Griffin & BarCharts, 2014). The income statement and the cash flow statement are, on the other hand, connected in that any non-cash expense or income on the income statement such as amortization and depreciation are also included in the cash flow statement to get the cash flow from operations. Finally, the income statement and the balance sheet are connected in that the net earning at the end of an income statement are transferred to the balance sheet as retained earnings from the previous accounting period (Griffin & BarCharts, 2014). Financial statements are very important in business since they record financial activities and also the position of a company. A balance sheet is essential to an entrepreneur since it tells him or her the assets or liabilities that they have for them to ensure that they are balanced. This helps entrepreneurs to know their company’s net worth or value (Henderson, 2019). On the other OVERVIEW OF FINANCIAL STATEMENTS 4 hand, a cash flow statement is crucial since it shows the entrepreneur how money moves within their business, thus helping them to control operations. This allows entrepreneurs to know if they have enough working capital for their business (Henderson, 2019). Finally, an income statement is essential since it helps them to understand how their business performed in a certain period by letting them know whether they made a profit or loss in their business. These documents are, thus, crucial to the success of an entrepreneur’s business. OVERVIEW OF FINANCIAL STATEMENTS References Apple Financial Statements 2005-2019 | AAPL. (2019). Retrieved 24 October 2019, from https://www.macrotrends.net/stocks/charts/AAPL/apple/financial-statements Griffin, M. P., & BarCharts, I. (2014). Financial Statements. Boca Raton, FL: Quick Study Reference Guides. Henderson, E. (2019). Users’ Perceptions of Usefulness and Relevance of Financial Statement Note Disclosures and Information Overload. International Journal of Business, Accounting, & Finance, 13(1), 41–56. Nothhelfer, R. (2017). Financial Accounting: Introduction to German GAAP with Exercises. Berlin/Boston: De Gruyter Oldenbourg. 5 Comment Summary Page 2 1. Should not be bold here. 2. You need headings in your paper. You have not included an introduction that include s the purpose of the paper. For salient information, you needed to discuss revenues and expenses and net income from the income statement; assets, liabilities, and owner’s equity from the balance sheet; and cash from operations, financing investing and net cash flows from the statement of cash flows. You have located the net income, total assets and net cash flows. Connectivity section needed to include that the net income is shown/needed on the statement of cash flows, the changes in cash information comes from both the income statement and the balance sheet items, net income/ loss is used/moved to the balance sheet for owner’s equity or retained earnings section. You have discussed the importance of financial statements to the entrepreneur. You met the 700 word count and mostly met APA formatting. You have one peer review reference from the UOP Library. Page 3 3. Need a new section for this discussion. Running head: FINANCIAL RATIOS 1 Financial Ratios Teresa Rudnick FIN/575 November 2, 2019 Betty Ahmed FINANCIAL RATIOS 2 Financial Ratios 1 Often, financial ratios are commonly used tools when it comes to comparing and analyzing the financial standing of various companies. Financial ratios are thus used as a diagnostic tool to establish the various sources of financial troubles which may strike a company. Apart from, making comparative judgments regarding a company’s performance financial ratios are also used to track the performance of a company in different periods (Kuma, 2018). Further, financial ratios are also used to identify the performance trends of a company over a specific time. There are various categories of financial ratios, but the major categories are liquidity ratios, solvency ratios and profitability ratios (Thomas & Rabiyathul Basariya, 2019). To start with, liquidity ratios are used to measure a company’s ability to repay long-term and short-term liabilities. In short, liquidity ratios look at the available cash operations. Some of the uses of liquidity ratios include that they are used to measure a company’s ability to pay short-term liabilities using current assets, quick assets, or even cash and cash equivalent. Apart from this, liquidity ratios are also used by financial institutions to determine their health of institutions with regard to responding to liquidity before providing credit to them. Finally, liquidity ratios are used to measure the efficiency of a firm to convert inventory and receivable cash to either reduce or increase its liquidity (Apple Financial Statements, 2019). On the other hand, solvency ratios also leverage ratios measure a company’s ability to sustain its operations by comparing the debt levels with the company’s assets, earnings and also equity. Solvency ratios thus keep track of a company’s debt to ensure that it is optimal. Therefore, solvency ratios are used to evaluate a company’s debt levels, the relative amount of assets generated from debts, and also the weight of total debt against shareholders’ equity (Apple Financial Statements, 2019). Apart from this, solvency ratios are also used to the ability of a firm FINANCIAL RATIOS 3 to satisfy its liabilities with its assets. Solvency ratios are used to understand the capital structure of a company to determine if its solvent or not. Solvency ratios are used to measure the efficiency of a firm to convert borrowed debt to generate revenue and expand its business (Thomas & Rabiyathul Basariya, 2019). Finally, profitability ratios measure the ability of a company to generate profits relative to balance sheet assets, operating costs equity and also revenue. Therefore, profitability ratio is used to measure the degree of a company’s profits and also determine if a company makes enough profits from its assets, the net sales, after paying the costs of the goods sold. Profitability ratios are used to assess the capacity of a firm to generate adequate income to repay interest on its debts. Finally, profits ratios are also used to evaluate the 2 efficiency of assets to make a profit. Using the financial statements of Apple Inc. as per September 2019 below will be the calculations of the current ratio, the profit margin and the after-tax ROE. Using Apple’s balance sheet for the year ended 28th September 2019, the current ratio will be used to compare the current assets of Apple Inc. with the current liabilities of the company. It is one of the liquidity ratios and is calculated by dividing the current assets by the current liabilities of a company in a given period. Further, the liquidity ratio is used by investors to show how a certain company can maximize its assets to reduce the current debts which a company owes other firms. As per Apple Inc’s balance sheet for the fiscal year ending 28th September 2018, the total current assets were $162,819 million, whereas the current liabilities were $105,718 million. Therefore, the current ratio using this information will be 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 Current ratio=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Thus, Current ratio= 162819000000 105718000000 = 1.5401 FINANCIAL RATIOS 4 On the other hand, the profit margin is a profitability ratio that measures the amount of net income earned with each dollar of the sales made. In a nutshell, the profit margin indicates the amount by which a company’s revenue exceeds its costs of operation. The profit margin is thus used to measure the efficiency of a company to convert the net sales into net income (Kuma, 2018). However, to calculate the profit margin of Apple Inc. for the year ending 28 th September 2019, the income statement or the consolidates statement of operation will be used. It can thus be illustrated by subtracting the total expenses from the total sales and then dividing the result with the total sales. However, in a simple way, the profit margin is given by Profit margin = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 Considering the latter consolidated statement of operation, the net income was $55,256 million, whereas the net sales were $260,174 million. 55256000000 Thus, the profit margin for apple for this fiscal year will be 260174000000 = 0.2124= 21.24% Finally, the after-tax ROE is a solvency ratio that measures the efficiency of a company to use equity to generate profit. Therefore, the ROE indicates how much profit is generated from investment equity (Thomas & Rabiyathul Basariya, 2019). To calculate the after-tax ROE, net income after tax, from the income statement and the stakeholder’s equity of the 2019 fiscal year from the consolidated statement of shareholders equity will be used. The net income for the fiscal year ending 28th September 2019 was $55,256 million, whereas the stakeholder’s equity for the same period was $107,147million minus $90,488 million. Therefore, considering the formula for the after-tax ROE which is, 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥 After-tax ROE = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝑒𝑞𝑢𝑖𝑡𝑦 FINANCIAL RATIOS 5 The after-tax ROE of Apple Inc. for the year ending 28th September 2019 is, 55,256,000,000 16,659,000,000 = 3.3169= 33.169% However, according to Morningstar, the current ratio of Apple Inc. was 1.54, the profit margin was 21.24%, while the after-tax ROE was 55.92%. With regards to the current ratio of the calculated current ratio was the same as that which was on the Morningstar website. My calculated current ratio was 1.54 and so was the current ratio of Apple Inc. for the year ending September 2019 (Morningstar,2019). On the other hand, the calculated profit margin was the same as that from the Morningstar website. The profit margin of Apple Inc. was 21.24% for the year ending September 2019 as per the Morning star website and this was the same case as for my calculated profit margin. Finally, my calculated after tax-ROE differed from that on Morning star (Morningstar,2019). As per my calculations, the after-tax ROE was 33.169%, whereas the ROE from the Morningstar website was 55.92%. 3 Current ratio for the year ended September 2019 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Category 1 Calculated morning star Column1 FINANCIAL RATIOS 6 Profit margin for the year ending september 2019 25 20 15 10 5 0 Category 1 Series 1 Morning star Column1 After-tax ROE for the year ending September 2019 60 50 40 30 20 10 0 Category 1 Series 1 Morningstar Column1 FINANCIAL RATIOS 7 References Apple Financial Statements 2005-2019 | AAPL. (2019). Retrieved 24th October 2019, from https://www.macrotrends.net/stocks/charts/AAPL/apple/financial-statements Growth, Profitability, and Financial Ratios for Apple Inc (AAPL) from Morningstar.com. (2019). Retrieved 2nd November 2019, from https://financials.morningstar.com/ratios/r.html?t=0P000000GY&culture=en&platform=s al Kuma, B. (2018). Insurance Industry and its Financial Ratios. International Journal of Research in Social Sciences, 8(10), 588–592. Thomas, J., & Rabiyathul Basariya, S. (2019). A Study on the Issues of Financial Ratio Analysis. Indian Journal of Public Health Research & Development, 10(3), 1079. Comment Summary Page 2 1. You need to begin with an introduction. Page 3 2. YOu need headings in your paper. i. You also need more detail on each category of ratios. Page 5 3. Very good job with the ratio and comparisons. You put in a good effort to calculate and display the current ratio, profit margin, and after tax return on equity and compare with calculated ratios. For accurate formulas, see https://www.aaii.com/journal/article/ 16-financial-ratios-for-analyzing-a-companys-strengths-and-weaknesses.touch You met the library article and 1,050 word count requirement.

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