Financial Statement Analysis

Signature Assignment: A

Financial Statement

Analysis – A Comparative Analysis of Apple, Inc. and Microsoft, Inc.

Description

This course contains a Course Project, where you will be required to submit one draft of the project at the end of Week 6, and the final completed project at the end of Week 8. Using the financial statements for Apple Inc. and Microsoft, Inc., respectively, you will calculate and compare the financial ratios listed further down this document and prepare your comments about the two companies’ performances based on your ratio calculations. The entire project will be graded by the instructor at the end of the final submission in Week 8, and one grade will be assigned for the entire project.

Financial Statement

Below is the link for the financial statements for Apple Inc. for the fiscal year ending 2021.

https://investor.apple.com/investor-relations/default.aspx

Links to an external site.

When you arrive at this website, please do the following.

First, select SEC Filings, next select Annual Filings using the drop-down arrow labeled All Filings and then select 2021, using the drop-down arrow labeled Year,

You should select the 10-K dated 10/29/2021 and choose to download in PDF, HTML, or Excel format. The PDF format is the best format for searching.

Below is the link for the financial statements for Microsoft, Inc. for the fiscal year ending 2021.

Links to an external site.

https://www.microsoft.com/en-us/Investor/sec-filings.aspxLinks to an external site.

Once on the page, filter out the “Annual Filings” and “2021” year, which will bring up the link to the 10-K report. Click on Documents for the 10-K dated 07/29/2021. Finally, click on the .pdf link next to the Form 10-K. This will open the 10-K in HTML format which is searchable.

A

Sample Project TemplateLinks to an external site.

is available for download. The sample project compares the ratio performance of Nike and Under Armour using the 2014 financial statements of Nike and Under Armour provided at their websites.

Overall Requirement

For the Final Submission:

Your final Excel workbook submission should contain the following. You cannot use any other software but Excel to complete this project.

A Completed Worksheet Title Page tab, which is really a cover sheet with the names of each team member, the course, the date, your instructor’s name, and the title for the project.
1. A Completed Worksheet Profiles tab which contains a one-paragraph description regarding each company with information about their history, what products they sell, where they are located, and so forth.
2. All 16 ratios for each company with the supporting calculations and commentary on your Worksheet Ratio tab. Supporting calculations must be shown either as a formula or as text typed into a different cell. The ratios are listed further down this document. Your comments for each ratio should include more than just a definition of the ratio. You should focus on interpreting each ratio number for each company and support your comments with the numbers found in the ratios. You need to specifically state which company performed better for each ratio.
3. The Summary and Conclusions Worksheet tab is an overall comparison of how each company compares in terms of the major category of ratios described in Chapter 13 of your textbook. A nice way to conclude is to state which company you think is the better investment and why.
4. The Bibliography Worksheet tab must contain at least your textbook as a reference. Any other information that you use to profile the companies should also be cited as a reference as well as the links to the financial statements.

Required Ratios for Final Project Submission

1. Earnings per Share of Common Stock
2. Current Ratio
3. Gross Profit Rate
4. Profit Margin
5. Inventory Turnover
6. Days in Inventory
7. Accounts Receivable Turnover
8. Average Collection Period
9. Asset Turnover
10. Return on Assets (ROA)
11. Debt to assets Ratio
12. Times Interest Earned Ratio
13. Dividend Yield [For the purposes of this ratio, use obtain the dividend per share information from each company’s statement of stockholders’ equity. Obtain the stock prices for each company from Yahoo Finance. Use the closing price as of 9/24/21 for Apple, and 06/30/21 for Microsoft. ]
14. Return on Common Stockholders’ Equity (ROE)
15. Free cash flow
16. Price-Earnings Ratio (Obtain the stock prices for each company from Yahoo Finance. Use the closing price as of 9/24/21 for Apple, and 06/30/21 for Microsoft.)

Note: The Excel files uploaded as the assignment submission should not include any unnecessary numbers or information (such as previous years’ ratios, ratios that were not specifically asked for in the project, etc.).

Please upload your final submission to the Week 8 Assignments page by the Saturday ending Week 8.

For the Draft:

Create an Excel spreadsheet or use the project template to show your computations for the first 10 ratios listed above. The more you can complete regarding the other requirements, the closer you will be to completion when Week 8 arrives. Supporting calculations must be shown either as a formula or as text typed into a different cell. If you plan on creating your own spreadsheet, please follow the format provided in the Nike and Under Armour template file.

Please upload your draft submission to the Week 6 Assignments page by the Sunday at the end of Week 6.

Other Helpful Information:

If you feel uncomfortable with Excel, you can find many helpful tutorials on Excel by performing a Google search.

Chapter 13 contains ratio calculations and comparison comments for two fictitious companies Chicago Cereal and Giant Mills so you will likely find this information helpful.

1. Yahoo Finance (external site) Links to an external site.provides historical stock quotes.

APA style must be used to complete the references on your Bibliography tab. The Library contains information on APA formatting.

Complete your Title page on this tab.
Please include the names of your team members, the
course, the date, your instructor’s name, and the title
for the project.
Complete one paragraph, profiling each company’s business, including
information such as brief histories, where each company is located, number
of employees, the products each company sells, and so forth. Please
reference any websites that you used for the profiles on the Bibliography tab.
NIKE, Inc. designs, develops, markets, and sells athletic apparel, footwear,
equipment, and accessories. NIKE’s headquarters are in Beaverton, Oregon.
They were founded in 1964 as Blue Ribbon Sports, Inc. but, in 1971, they
changed their name to NIKE, Inc. According to Yahoo! Finance, NIKE has
76,700 full-time employees. NIKE is known for their celebrity endorsements
including basketball icon, Michael Jordan. NIKE had 2014 net product sales of
$27.8 billion.
Under Armour, Inc. develops, markets, and distributes performance apparel,
footwear, and accessories. Under Armour was founded in 1996 and is
headquartered in Baltimore, Maryland. According to Yahoo! Finance, Under
Armour has 7,000 full-time employees. Under Armour was founded by Kevin
Plank, a former University of Maryland college football player. Under Armour
had net product sales of $3.1 billion for 2014.
Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab, and also include your commentary.
The 2014 financial statements used to calculate these ratios are available in the Investor Relations sections of the Nikeand Under Armour websites.
NIKE
Interpretation and comparison between the two companies’ ratios (reading
Chapter 13 will help you prepare the commentary)
Under Armour
The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio
tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember
that each ratio below requires a comparison.
5/31/2014
Earnings per Share of Common Stock (basic – common)
Current Ratio
Gross Profit Rate
Profit Margin
12/31/2014
As given in the income statement
$
Current assets
Current liabilities
$13,696
$5,027
Gross profit
Net sales
$12,446
$27,799
=
3.05
$0.98
2.72
$1,549,399
$421,627
=
3.67
=
44.8%
$1,512,206
$3,084,370
=
49.0%
=
6.7%
Net income
Net sales
$2,693
$27,799
=
9.7%
$208,042
$3,084,370
Inventory Turnover
Cost of goods sold
Average inventory
$15,353
$3,716
=
4.1
$1,572,164
$502,860
Days in Inventory
365 days
Inventory turnover
365
4.1
=
88
days
365
3.1
=
117
days
Net credit sales
Average net accounts receivable
$27,799
$3,276
=
8.5
$3,084,370
$244,894
=
12.6
365 days
Accounts receivable turnover
365
8.5
43
days
365
12.6
=
29
days
Asset turnover
Net sales
Average total assets
$27,799
$18,070
=
1.54
$3,084,370
$1,836,412
=
1.68
Return on Assets (ROA)
Net income
Average total assets
$2,693
$18,070
=
14.9%
$208,042
$1,836,412
=
11.3%
Accounts Receivable Turnover
Average Collection Period
Debt to assets ratio
Times-Interest Earned Ratio
Dividend Yield
(Please follow the Course Project instructions to calculate the current dividend yield.)
Return on Common Stockholders’ Equity (ROE)
=
3.1
Total Liabilities
Total Assets
$7,770
$18,594
=
41.8%
$744,783
$2,095,083
=
35.5%
Net income + interest expense + income tax expense
interest expense
$3,577
$33
=
108.4
347,545
5,335
=
65.1
Dividend per share of common stock (Yahoo Finance 12/24/2015)
Market price per share of common stock (Yahoo Finance 12/24/2015)
$1.28
$63.18
=
$0.00
$81.20
Net income – preferred dividends
Average common stockholders’ equity
2,693
10,952.50
Free cash flow
2.0%
=
=
Net cash provided by operating activities minus capital expenditures minus cash dividends
=
0.0%
24.6%
208,042
=
1,201,827.00
17.3%
$1,324
=
in millions
Price-Earnings Ratio
(Please see the Course Project instructions for the dates to use for this ratio.)
Market price per share of common stock as of 5/30/2014 for Nike and 12/31/2014 for Under Armour
Earnings per share
$76.91
$3.05
=
25
$78,505
in thousands
$67.90
$0.98
=
69
You all get the chance to play the role of financial analyst below. The summary should
be a comparison of each company’s performance for each major category of ratios
listed below. Focus on major differences as you compare each company’s performance.
A nice way to conclude is to state which company you feel is the better investment and
why.
Liquidity: NIKE has the advantage for the current ratio. NIKE has $3.05 in current assets for every dollar in
current liabilities while Under Armour has only 98 cents in current assets for every dollar in current
liabilities. NIKE has the advantage for the inventory turnover ratio, but Under Armour has the advantage
for the accounts receivable turnover ratio. NIKE turns over its inventory 4.1 times to Under Armour’s 3.1
times. Under Armour has the advantage for the accounts receivable turnover ratio as Under Armour
collects on its receivables 12.6 times to Nike’s 8.5 times.
Solvency: Under Armour has less debt than NIKE as evidenced by Under Armour’s 35.5% debt-to-assets
ratio as compared to NIKE’s 41.8% debt-to-assets ratio. NIKE can cover its interest expense 108.4 times
with income before interest and taxes, while Under Armour can only cover its interest expense 65.1 times
with their income before interest and taxes. NIKE has free cash flow of $1.3 billion while Under Armour has
$78.5 million in free cash flow.
Profitability: Under Armour has the advantage for the gross profit rate at 49% while NIKE has a 44.8%
gross profit rate percentage. NIKE has the advantage for the profit margin ratio at 9.7% versus 6.7% for
Under Armour. Under Armour has the advantage for asset turnover as they turn their assets 1.68 times to
Nike’s 1.54 times. NIKE has the advantage for both return on assets (ROA) and return on common
stockholder’s equity (ROE). NIKE has an ROA of 14.9% to Under Armour’s 11.3%. NIKE also has the
advantage for return on common stockholders’ equity with an ROE of 24.6% to Under Armour’s 17.3%.
Conclusion: Under Armour has less debt than NIKE as measured by the debt to assets ratio, but NIKE has
a stronger current ratio and times-interest earned ratio. Regarding profitability, NIKE has the advantage for
return on assets (ROA) and return on common stockholders’ equity (ROE). For both a conservative
investor and growth investor, NIKE looks like the better choice.
Your textbook and any information that you use to profile the companies should be cited as a reference below.
Big Charts for Nike. (2014, May 30). Retrieved from
http://bigcharts.marketwatch.com/historical/default.asp?symb=NKE&closeDate=5%2F30%2F14&x=0&y=0
Big Charts for Under Armour. (2014, December 31). Retrieved from
http://bigcharts.marketwatch.com/historical/default.asp?symb=ua&closeDate=12%2F31%2F2014&x=37&y=26
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Financial Accounting: Tools for Business Decision Making
(9th ed.). Hoboken, NJ: John Wiley & Sons, Inc.
Nike’s 2014 Annual Report. (2014). Retrieved from
NKE profile. (2019). Retrieved from https://finance.yahoo.com/quote/NKE/profile?p=NKE
NKE stock price. (December 24, 2015). Retrieved from https://finance.yahoo.com/quote/NKE/profile?p=NKE
Under Armour 2014 Annual Report. (2015). Retrieved from https://underarmourinc.gcs-web.com/staticfiles/13a42846-a519-469e-978b-b3199de9fbe8
UA profile. (2019). Retrieved from https://finance.yahoo.com/quote/UA/profile?p=UA&.tsrc=fin-srch
UA stock price. (December 24, 2015). Retrieved from https://finance.yahoo.com/quote/UA?ltr=1