Apple manufactures iPhone, its mobile brand, iPad, Mac, the personal computer brand, iPod, the Apple TV brand, a few software applications, a couple of operating systems, and some accessories. The company also sells digital applications through the Apple’s own app store, iBooks store and Macintosh app store. The Company sells its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. The company also sells third-party mobiles, related computer hardware and software, and related accessories. These products are sold via the company’s online and retail stores.
Apple values its inventories at lower of cost, first in first out method or market value. However, if the cost of the inventories exceeds their market value, provisions are made currently for the difference between the cost and the market value.
Gross margin for the company for the year 2013 is computed as follows: Net sales (= $170,910 million) – cost of sales (= $106,606 million) = gross margin ($64,304 million). The gross margin percentage for the year comes out to gross margin / net sales * 100 = $64,304 million / $170,910 million * 100 = 37.6%. As compared to the industry average of 40%, the gross margin ratio for Apple for the year 2013 is lower. This shows that Apple is incurring higher than industry costs to generate the amount of sales.
Inventory turnover ratio for 2013 = net sales for 2013 / average inventory for 2012 and 2013 = $170,910 million / ($1,764 million + $791 million) = 133.78. Industry average for inventory turnover ratio is 40. This means that Apple is utilising its inventory better to generate higher sales and is better than industry average
The number of days sales in inventory is calculated as 365 / inventory turnover ratio = 365 / 133.78 = 2.73 days. As this is lower than the industry average of 9 days, it shows that Apple is better at managing its inventory and converting it to sales.
eBay’s net accounts receivable at the end of December 31, 2013 and December 31, 2012 were $899 million and $822 million respectively.
For the year ended December 31, 2013, allowance for doubtful accounts (including authorized credits) as a percentage of gross accounts receivables is calculated as $106 million / (899 + 106) * 100 = 10.55%.
For the year ended December 31, 2012, allowance for doubtful accounts (including authorized credits) as a percentage of gross accounts receivables is calculated as $89 million / (822 + 89) * 100 = 9.77%.
Based on my knowledge about eBay, I feel that the allowance for doubtful accounts of around 10% is reasonable. The company has a broad base of customers and it is very difficult to imagine that a large number of customers will not pay up on the receivables. Also, as the company has mentioned in the 10-K, the allowance is calculated after taking into account historical rate of defaults as well as some assumptions about the future defaults. This shows that a diligent process is applied by the company to calculate the allowance for doubtful accounts, which seems reasonable to me. A higher allowance will negatively affect the company’s profitability.
The total amount of goodwill reported on Yahoo’s balance sheet for the year ended December 31, 2013 was $4,680 million. Goodwill as a percentage of total assets for the year was $4,680 million / $16,805 million * 100 = 27.85%.
Goodwill is the largest asset for Yahoo as the industry in which the company operates works on brand value and reputation. This asset is intangible, however, forms a very important component of the company’s valuation. Similar companies like Google and Microsoft too have significant portion of their balance sheet as goodwill. A declining goodwill or a higher impairment charge on the goodwill signifies that the company’s reputation is declining and the future cash flows may be endangered.
The change in goodwill from 2012 to 2013 was $4,680 million - $3,827 million = $853 million. This change was due to $938 million fresh acquisition of goodwill during the year mainly from Americas segment which signifies that the brand value for the company improved in this segment during the year. However, $64 million goodwill was impaired from EMEA segment during the year. A further $21 million decline was due to foreign currency translation adjustments.
Yahoo had three categories of intangible assets. These three categories were ‘Customer, affiliate, and advertiser related relationships’, ‘Developed technology and patents’ and ‘Trade names, trademarks, and domain names’. They formed 1.23%, 0.83% and 0.42% of total assets respectively.
Yahoo has indicated that the useful lives of ‘Trade names, trademarks, and domain names’ is from one year to indefinitely. Estimated useful life is determined by the company after estimating the number of years for which trademark is an asset for the company. On the other hand, legal life of the trademark is the life according to patents and other legal statutes, and may be different from useful life.
As on February 2, 2014, Home Depot’s long term liabilities included $14,691 million of long term debt and ‘other long term liabilities’ formed another $2,042 million.
a) The $3 billion notes were issued for only $2.958 billion as the coupon on these notes (5.875%) might have been lesser than the market yields at that time. In such a case, the market value of the notes is less than the par value, $3 billion in this case.
b) On June 16 and December 16 each year, Home Depot would have to pay coupon percentage / 2 * face value = 5.875% / 2 * $3 billion = $88.125 million. So, Home Depot will pay $88.125 million interest on the bond June 16 and December 16 every year.
McDonald’s had issued only common stock as on December 31, 2013.
The common stock issued by the company had par value of $0.01 per share. The number of authorized common stock shares were 3.5 billion, out of which 1,660.6 million were issued by the company.
As part of the financing activities, the company paid $1,777.8 million during the year 2013 to purchase treasury stock.
During the year 2013, the company paid out $3,114.6 million in cash as common stock dividend.
