This document provides instructions for completing a short-term liquidity analysis report on Apple Computer. The report requires creating two worksheets to calculate average annual balance sheets and financial ratios for 1999-2002. It also requires generating seven line charts in a separate workbook to graph key liquidity metrics over time from 1994-2002. The final part involves half-page responses discussing why balance sheets but not income statements are averaged, and whether Apple's inventory measures should adjust for LIFO reserves or liquidation.

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Activity Instructions: Short-Term Liquidity Analysis Your Activity responses should be both
grammatically and mechanically correct and formatted in the same fashion as the Activity
itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must
appropriately cite all resources used in your response and document them in a bibliography
using APA style. For this Activity, you will complete a preliminary report on Apple Computer's
short-term liquidity. The majority of this report requires computing liquidity measures and
charting them, rather than analyzing liquidity. (The Stand-Alone Project requires a detailed
liquidity analysis of Apple and its competition.) The first two (2) pages of this report consist of
two (2) newly created worksheets (“Average BS” and “Ratios”) in your Apple Solutions
workbook. The next seven (7) pages will consist of selected liquidity charts (one chart per
page, seven (7) charts total in a newly created “PC Charts” workbook). The final page will be
a narrative addressing a few liquidity considerations. The following instructions will facilitate
your report completion. (100 points) (A 3-page response and nine (9) worksheets are
required.) Part A Create a worksheet entitled “Average BS” in your Apple Solution workbook.
Copy and paste Apple’s 1998 to 2002 balance sheets from Supplement I to this new
worksheet. Paste the copied information into the new worksheet two (2) times (one below
the other). For the second set of data, highlight and delete all of the figures. This is the area
where you will compute Apple Computer’s “average-for-the-year” balance sheets for 1999
through 2002. To do this, start your computations by adding the cash balance for 1998 to the
cash account’s balance for 1999 and divide by 2 in order to derive the “average” cash
balance for 1999. Repeat this procedure for all other accounts and years. (Using the copy
function can expedite this process.) (23 points) (A completed “Average BS” worksheet is
required.) Part B Create a worksheet entitled "Ratios" in the Apple Solution workbook. Copy
and paste Apple’s 1999-2002 income statements from Supplement I to this new worksheet.
Then copy and paste the “average” balance sheets, computed in the “Average BS”
worksheet in Part A (above) below the income statement data in the “Ratios” worksheet.
Then compute the following short-term liquidity measures and ratios for 1999-2002 in order
below both sets of data. (36 points) (The “Ratios” worksheet with twelve (12) measures and
ratios is required.) 1. Working Capital 2. Current (Working Capital) Ratio 3. Quick (Acid-Test)
Ratio (exclude deferred income tax assets in this computation) 4. Inventory Turnover 5.
Number of Days In Inventory 6. Accounts Receivable Turnover (assume all sales are credit
sales) 7. Number of Days In Accounts Receivable 8. Inventory Conversion Cycle 9.
Accounts Payable Turnover (use cost of goods sold as the numerator) 10. Number of Days
In Accounts Payable 11. Net Cash Conversion Cycle 12. Liquidity Index (exclude deferred
income tax assets in both the numerator and denominator) Part C Create another workbook
(not another worksheet in the Apple Solution workbook) and title it "PC Charts.” Use the
Chart Wizard in your Excel program to create the following seven "line" chart types, which
you will use to chart Apple's liquidity measures. (Line charts are better for plotting measures
over time.) Each chart should be an independent worksheet in the PC Charts workbook with

2. the tabs appropriately labeled for identification purposes. Plot all graphs from 1994 through
2002. Use data from Appendix A of the text for 1994-1998 measures and your computations
from 1999-2002. (21 points) (A “PC Charts” workbook consisting of seven (7) charts
(worksheets) is required.) 1. Current (Working Capital) Ratio 2. Days in Inventory 3. Days in
Accounts Receivable 4. Inventory Conversion Cycle 5. Days in Accounts Payable 6. Net
Cash Conversion Cycle 7. Liquidity Index Part D Discuss why it is necessary to average the
balance sheet accounts but not income statement ones. (10 points) (A ½-page response is
required.) Part E Discuss whether Apple’s inventory-related measures should be adjusted for
LIFO reserves or LIFO liquidation. (10 points) (A ½-page response is required.) Additional
resources for assignment File attachment Supplement I.xls ( 22 KB; Aug 21, 2012 9:28 am )