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.aspxLinks 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.Open this document with ReadSpeaker docReader 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.
- 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.
- 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.
- 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.
- 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
- Earnings per Share of Common Stock
- Current Ratio
- Gross Profit Rate
- Profit Margin
- Inventory Turnover
- Days in Inventory
- Accounts Receivable Turnover
- Average Collection Period
- Asset Turnover
- Return on Assets (ROA)
- Debt to assets Ratio
- Times Interest Earned Ratio
- 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. ]
- Return on Common Stockholders' Equity (ROE)
- Free cash flow
- 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.).
Title Page
| 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. | ||||||
Profiles
| 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. |
Ratios
| 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 | Under Armour | Interpretation and comparison between the two companies' ratios (reading Chapter 13 will help you prepare the commentary) | ||||||
| 5/31/14 | 12/31/14 | 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. | ||||||
| Earnings per Share of Common Stock (basic – common) | As given in the income statement | $ 3.05 | $0.98 | |||||
| Current Ratio | Current assets | $13,696 | = | 2.72 | $1,549,399 | = | 3.67 | |
| Current liabilities | $5,027 | $421,627 | ||||||
| Gross Profit Rate | Gross profit | $12,446 | = | 44.8% | $1,512,206 | = | 49.0% | |
| Net sales | $27,799 | $3,084,370 | ||||||
| Profit Margin | Net income | $2,693 | = | 9.7% | $208,042 | = | 6.7% | |
| Net sales | $27,799 | $3,084,370 | ||||||
| Inventory Turnover | Cost of goods sold | $15,353 | = | 4.1 | $1,572,164 | 3.1 | ||
| Average inventory | $3,716 | $502,860 | ||||||
| Days in Inventory | 365 days | 365 | = | 88 | 365 | = | 117 | |
| Inventory turnover | 4.1 | days | 3.1 | days | ||||
| Accounts Receivable Turnover | Net credit sales | $27,799 | = | 8.5 | $3,084,370 | = | 12.6 | |
| Average net accounts receivable | $3,276 | $244,894 | ||||||
| Average Collection Period | 365 days | 365 | = | 43 | 365 | = | 29 | |
| Accounts receivable turnover | 8.5 | days | 12.6 | days | ||||
| Asset turnover | Net sales | $27,799 | = | 1.54 | $3,084,370 | = | 1.68 | |
| Average total assets | $18,070 | $1,836,412 | ||||||
| Return on Assets (ROA) | Net income | $2,693 | = | 14.9% | $208,042 | = | 11.3% | |
| Average total assets | $18,070 | $1,836,412 | ||||||
| Debt to assets ratio | Total Liabilities | $7,770 | = | 41.8% | $744,783 | = | 35.5% | |
| Total Assets | $18,594 | $2,095,083 | ||||||
| Times-Interest Earned Ratio | Net income + interest expense + income tax expense | $3,577 | = | 108.4 | 347,545 | = | 65.1 | |
| interest expense | $33 | 5,335 | ||||||
| Dividend Yield | Dividend per share of common stock (Yahoo Finance 12/24/2015) | $1.28 | = | 2.0% | $0.00 | = | 0.0% | |
| (Please follow the Course Project instructions to calculate the current dividend yield.) | Market price per share of common stock (Yahoo Finance 12/24/2015) | $63.18 | $81.20 | |||||
| Return on Common Stockholders' Equity (ROE) | Net income – preferred dividends | 2,693 | = | 24.6% | 208,042 | = | 17.3% | |
| Average common stockholders' equity | 10,952.50 | 1,201,827.00 | ||||||
| Free cash flow | Net cash provided by operating activities minus capital expenditures minus cash dividends | = | $1,324 | = | $78,505 | |||
| in millions | in thousands | |||||||
| Price-Earnings Ratio | Market price per share of common stock as of 5/30/2014 for Nike and 12/31/2014 for Under Armour | $76.91 | = | 25 | $67.90 | = | 69 | |
| (Please see the Course Project instructions for the dates to use for this ratio.) | Earnings per share | $3.05 | $0.98 | |||||
Summary
| 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. |
Bibliography
| 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 https://s1.q4cdn.com/806093406/files/doc_financials/2014/index.html |
| 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/static-files/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 |
Leave a Reply