(continued) Apple Inc.
Req. 2 (in millions) – Analysis
The balance sheet reports that Apple increased most of the assets in
2014, except for cash, cash equivalents, and short-term investments.
Apple’s liquidity decreased in 2014. Its equity has decreased as a
Req. 3
Section
Computation
Horizontal Analysis
Operating
(2014 Amount
– 2013 Amount)
2013 Amount
($59,713 – $53,666) / $53,666
11.27%
Investing
($22,579 – $33,774) / $33,774
(33.15)%
Financing
($37,549 – $16,379) / $16,379
129.25%
Apple generates most of its cash from its operating section. In 2014,
Apple spent most of its cash in financing activities. As noted above,
there was a 129.25% increase in net cash used in financing activities.
The line items on the statement of cash flows with the largest cash
outflows are:
Purchases of property, plant and equipment
$9,571 million
Dividends paid
$11,126 million
(continued) Apple Inc.
Req. 4
Student views on this part will vary. Significant events after the fiscal
year end of September 27, 2014 include the following product
introductions:
Date
Product Introduced
October 16, 2014
iMac with Retina 5K display
October 22, 2014
iPad Air 2 and iPad Mini 3
April 24, 2015
Applewatch
September 9, 2015
iPad Mini 4
September 25, 2015
iPhone 6S and iPhone 6S Plus
October 26, 2015
The new products positively impacted sales and earnings. Record sales
were recorded for iPhone 6S. The new products were controllable but
the response by consumers was noncontrollable.
Focus on Analysis: Under Armour, Inc.
(1-2 hours)
Req. 1 (in millions)
a. Ability to pay current liabilities
Ratio
Computation
2014
2013
Interpretation
Current
CA
$1,549
$1,129
= 3.67
= 2.64
more liquid
(Quick)
= 2.07
= 1.30
more liquid
b. Ability to sell inventory and collect receivables
Ratio
Computation
2014
2013
Interpretation
Inventory
COGS
$1,572
$1,195
Turnover
Avg.
$503
$394
increased
inventory
= 3.13
= 3.03
slightly
Inventory
(continued) Under Armour, Inc.
Ratio
Computation
2014
2013
Interpretation
AR
Net Sales
$3,084
$2,332
increased
Turnover
Avg.
$245
$193
slightly
receivables
= 12.59
= 12.08
$245
$193
AP
COGS
$1,572
$1,195
Turnover
Avg.
$188
$155
increased
payables
= 8.36
= 7.71
slightly
Payable
$188
$155
(continued) Under Armour, Inc.
c. DuPont Analysis
Ratio
Computation
2014
2013
Interpretation
Return on
Net Income
$208
$162
Sales
Net Sales
$3,084
$2,332
no
=0.07
=0.07
change
$3,084
$2,332
=1.68
=1.71
Return on
Net income
$208
$162
=0.11
=0.12
Return on
Net income
$208
$162
Equity
Avg. common
$1,202
$935
no
equity
=0.17
=0.17
change
Req. 2
Students’ responses will vary for these answers. At time of printing,
these figures were not available.
Req. 3
Student views on this part will vary. Under Armour, Inc., is a company in
the sports apparel industry. The company’s stock closed at $83.44 per
Group Projects
(2-3 hours)
Student responses will vary on this assignment.
Comprehensive Financial Statement Analysis Project
(2-4 hours)
The following answers come from the January 31, 2015 year end 10-K of
Kohl’s Corporation.
Req. 1
a. Two competitors of Kohl’s are Target and J.C. Penney.
(Hoovers.com)
b. Kohl’s Corporation operates approximately 1,162 family-orientated
department stores in the United States. Kohl’s sells moderately
priced, exclusive and national brand apparel, footwear,
c. Three of Kohl’s private brands are Apt. 9, Croft & Barrow, and
Jumping Beans.
d. Kohl’s largest asset is Property and Equipment, net. Its largest
liability is Long-term Debt.
(continued) Comprehensive Problem Kohl’s
f. In 2014, the company repurchased 13 million shares for
approximately $677 million.
g. Kohl’s records revenue at the time of sale in stores, net of returns.
E-Commerce sales are recorded when the company estimates that
the customer receives the merchandise. Gift cards are only
recorded as revenue when the gift cards are redeemed.
(continued) Comprehensive Problem Kohl’s
Req. 2 (in millions)
Ratio
Computation
2014
2013
a.
Return
Net income
$867
$889
on Sales
Net sales
$19,023
$19,031
= 4.56%
= 4.67%
b.
Asset
Net sales
$19,023
$19,031
Turnover
Avg. total assets
($14,431 +
$14,357)/2
($14,357 +
$13,905)/2
= 1.32
= 1.35
c.
Return
4.56% × 1.32
4.67% × 1.35
× Asset turnover
= 6.02%
= 6.30%
d.
= 2.41
= 2.35
e.
Return
Return on assets
6.02% × 2.41
6.30% × 2.35
on Equity
× Leverage ratio
= 14.51%
= 14.81%
f.
Gross
Gross margin
$6,925
$6,944
Margin
Net sales
$19,023
$19,031
= 36.4%
= 36.5%
g.
h.
Book
*From K-1
(continued) Comprehensive Problem Kohl’s
From 2013 to 2014, return on sales, asset turnover, return on assets,
return on equity, and gross margin all deteriorated. But the leverage
ratio, earnings per share, and book value per share all improved. The
Req. 3 (in millions)
Ratio
Computation
2014
2013
a. Inventory
Cost of goods sold
$12,098
$12,087
Turnover
Avg. inventory
($3,814 +
$3,874)/2
($3,874 +
$3,748)/2
=3.15
=3.17
Days’ Inventory
365/
365/3.15
365/3.17
Outstanding
Inventory turnover
= 115.9 days
= 115.1
days
Turnover
($1,511 +
$1,365)/2
$1,307)/2
c. Cash
Conversion
DIO – DPO
115.9 – 43.4
= 72.5 days
115.1 – 40.3
= 74.8 days
e. Quick (Acid-
Test) Ratio
Cash + short-term
investments + net
current receivables
1,407
971
Current liabilities
2,859
2,758
=0.49
=0.35
f. Debt Ratio
8,440
8,379
14,431
=0.58
=0.58
g. Times Interest
Income from operations
1,689
1,742
Earned
Interest expense
340
338
=4.97
=5.15
There were no changes to the debt ratio. The quick ratio and current
ratio both increased slightly. The current ratio is strong but the quick
ratio is very low. The times interest earned ratio has also declined which
is another negative sign about liquidity. Fortunately, the debt ratio is not
(continued) Comprehensive Problem Kohl’s
Req. 4
a. The two main sources of cash for Kohl’s were Net Income and
Depreciation and Amortization, which is actually a non-cash
expense so it is added back to Net Income.
b. Net cash from operating activities exceeds Net Income. This is
caused by non-cash expenses and changes in current assets other
than cash and current liabilities. The primary cause is depreciation
and amortization expense.
c. The primary source for cash in 2014 from investing was the sales
of investments in auction rate securities. This was also the primary
source of investing cash in 2012. In 2013, the primary source of
cash from investing activities was “Other.”
(continued) Comprehensive Problem Kohl’s
Req. 5
a.
2014
2013
2012
2011
Net sales ……………………
100%
100%
100%
100%
Gross Margin ……………..
36.4%
36.5%
36.3%
38.2%
Operating Income ……….
8.9%
9.2%
9.8%
11.5%
Net Income …………………
4.6%
4.7%
5.1%
6.2%
Gross margin, operating income, and net income all decreased each
year from 2011 to 2014.
b.
2014
2013
2012
2011
Net sales ……………………
101.2%
101.2%
102.5%
100%
Net Income ………………..
74.3%
76.2%
84.5%
100%
Req. 6
a. The closing market price of Kohl’s stock on the balance sheet date,
January 31, 2015 is $61.44.
b. Price-earnings ratio: $61.44 / $4.28 = 14.36
c. If we capitalize fiscal year 2014 net income of $867 million at 8%,
times 201 million outstanding common shares, which equals $12,349
million. Since the estimated value of the company of $10,838 million is
less than the current market capitalization of $12,349 million, we should