FIN 470 Extra Credit Assignment Optional Extra Credit Assignment is to write a detailed summary and critique (5-6 pages double space) on two issues that have been discussed in much detail over the past few years, which are mortgage-backed securities and the credit default swaps. You will need to find at least 8-10 articles on the above-mentioned issues to help form your argument. -The first 2-3 pages should be used to explain exactly what mortgage backed securities (MBS) and credit default swaps (CDS) are and provide a summary of the 8-10 articles you found on the two topics. The remainder of the paper is to critique the articles and compare it to items we have gone over in class. Also build an opinion of how MBS and CDS will impact banks as well as the overall economy. You must attach a reference page including all sources used in the paper. -Can earn up to 12 points on your lowest test grade, although it will be difficult to obtain a grade of 12 without significant work. This means that it will be doubtful for anybody to receive a perfect 10 score (to do a good job will need to spend at least 8 and maybe more on this, so do not wait until the last minute). Obviously the better and more articles you choose the better your grade will be. -Papers that I deem not worth at least a grade of 6 or 50% will be given a grade of 0. In other words, don’t waste my time with an extremely poor effort. Also, make sure to proof read your work and do not turn in your first or second draft. -The due date for the extra credit is one week before the final exam. Common-size and Horizontal Analysis Total assets of JC Penny Company for the financial year 2014/2015 were 10.4 billion dollars. This was a decline from the previous year 2013/2014 by 11.83%. This change may be attribute to decline in current assets majorly the inventories and cash. During the financial year 2014/2015 the company ranks above its close competitors such Dillards in terms of total assets. This is great basis for attracting investors who may be willing to invest in the industry. However the company is not on top of the industry in terms of asset base as it ranks below its competitors such as Macys who had a total asset of 20.6 billion dollars. JC Penny is there for the main center for investment in the industry if a decision was to be made on the basis of balance sheet strength. Total liabilities of the company declined in the financial year 2015 to 8.49 billion dollars from 8.71 billion dollars in the previous year which had increased from $ 6.6 billion in 2013. The increase in total liabilities by 31.8% in the financial year 2014 was majorly associated with increase in long term borrowing made during the year. The long term debt was used to support the firm’s investment activities of the company. Total shareholder equity declined from $ 3.087 billion in 2014 to $1.914 billion. Despite the increase in additional paid in capital by $ 35 million, there is a decline in the total sha ...

1. FIN 470 Extra Credit Assignment
Optional Extra Credit Assignment is to write a detailed
summary and critique (5-6 pages double space) on two issues
that have been discussed in much detail over the past few years,
which are mortgage-backed securities and the credit default
swaps. You will need to find at least 8-10 articles on the above-
mentioned issues to help form your argument.
-The first 2-3 pages should be used to explain exactly what
mortgage backed securities (MBS) and credit default swaps
(CDS) are and provide a summary of the 8-10 articles you found
on the two topics. The remainder of the paper is to critique the
articles and compare it to items we have gone over in class.
Also build an opinion of how MBS and CDS will impact banks
as well as the overall economy. You must attach a reference
page including all sources used in the paper.
-Can earn up to 12 points on your lowest test grade, although it
will be difficult to obtain a grade of 12 without significant
work. This means that it will be doubtful for anybody to
receive a perfect 10 score (to do a good job will need to spend
at least 8 and maybe more on this, so do not wait until the last
minute). Obviously the better and more articles you choose the
better your grade will be.
-Papers that I deem not worth at least a grade of 6 or 50% will
be given a grade of 0. In other words, don’t waste my time with
an extremely poor effort. Also, make sure to proof read your
work and do not turn in your first or second draft.
-The due date for the extra credit is one week before the final
exam.
Common-size and Horizontal Analysis
Total assets of JC Penny Company for the financial year
2014/2015 were 10.4 billion dollars. This was a decline from
the previous year 2013/2014 by 11.83%. This change may be

2. attribute to decline in current assets majorly the inventories and
cash. During the financial year 2014/2015 the company ranks
above its close competitors such Dillards in terms of total
assets. This is great basis for attracting investors who may be
willing to invest in the industry. However the company is not on
top of the industry in terms of asset base as it ranks below its
competitors such as Macys who had a total asset of 20.6 billion
dollars. JC Penny is there for the main center for investment in
the industry if a decision was to be made on the basis of balance
sheet strength.
Total liabilities of the company declined in the financial year
2015 to 8.49 billion dollars from 8.71 billion dollars in the
previous year which had increased from $ 6.6 billion in 2013.
The increase in total liabilities by 31.8% in the financial year
2014 was majorly associated with increase in long term
borrowing made during the year. The long term debt was used to
support the firm’s investment activities of the company.
Total shareholder equity declined from $ 3.087 billion in 2014
to $1.914 billion. Despite the increase in additional paid in
capital by $ 35 million, there is a decline in the total
shareholder equity. This decline is associated with increase in
accumulated loss by $437 million. The share price of the
company has not done very well it went down 12.78% and has
underperformed the S&P 500, in part reflecting the company's
sharply declining earnings per share when compared to the
previous year. The fact that the stock is now selling for less
than others in its industry in relation to its current earnings is
not reason enough to justify a buy rating at this time. This
means that investors will be attracted to other companies in the
industry.
Looking at the total assets of Macys for the financial year
2014/2015 were 21.4 billion dollars which was a little decline
from the previous year in 2013/2014 by 1%. During the
financial year in 2014/2015, the company had the highest total
assets comparing to other 2 companies, JC Penny and Dillards.
During 2013/2014 the total assets of Macys increased from 20.9

3. billion dollars to 21.6 billion dollars which was a little increase
by 3% also. From 2013, Macy’s total assets go up and down due
to the cash and cash equivalents and in their inventories.
Total liabilities of Macys increased in the financial year 2015 to
16.1 billion dollars from 15.4 billion dollars in the previous
year which had increased from 14.9 billion dollars in 2013. It is
keep increasing maybe due to the long term debt which it
supported the company’s investment activities. Macys long-term
debt were 6.8 billion dollars in 2013 and suddenly increases in
2015 by 7.3 billion dollars which it increased by 8% from the
previous year from 6.7 billion dollars.
The Total shareholder equity also declined from 6.2 billion
dollars in 2014 to 5.4 billion dollars in 2015. There was a
decrease in additional paid in capital by 58% which went from
2.5 billion dollars to 1.04 billion dollars. Because of an increase
in accumulated loss by 407 million dollars, the total
stockholders’ equity declined.
Total assets of Dillards for the financial year in 2013 were 4.4
billion dollars and by the time it gets to 2015, the company
increased a little by 4.17 billion dollars which were 3% increase
from previous year, from 4.05 billion dollars. Out of other 3
companies, Dillards had the lowest total assets, but they show
constant increase in their total assets. Dillards cash and cash
equivalents constantly increasing from 2013 to 2015 by 124
million dollars to 404 million dollars. Their inventories also
constantly increase from 2013 to 2015 which made the
company’s total assets to increase.
The total liabilities of Dillards has decreased from 2.08 billion
dollars to 2.06 billion dollars by 1% in 2013 to 2014. In 2015,
the total liabilities increased by 4% from 2.06 billion dollars to
2.15 billion dollars.
Total shareholder equity increased from $1.99 billion dollars to
$2.01 billion dollars in financial year 2014/2015. In financial
year 2013/2014, total shareholder equity increased from $1.97
billion to $1.99 billion. In financial year 2012/2013, total
shareholder equity decreased from $2.05 billion to $1.97

4. billion. This decline is associated with increase in accumulated
loss by $8 million dollars.
Cash and cash equivalent s include cash short -term investments
that are highly liquid investments with original maturities of
three months or less. Cash short -term investments consist
primarily of short -term U.S. Treasury money market funds and
a portfolio of highly rated bank deposits and are stated at cost,
which approximates fair market value due t o t he short-term
maturity. Cash in banks and in transit also include credit card
sales transact ions that are settled early in the following period.
Since May 2012, the Company has not paid a dividend. The
major reason for this is poor returns and the 2013 senior secured
term loan and 2014 senior asset -based credit facility, the
company is therefore subject to restrictive covenant s regarding
our ability to pay cash dividends. During the financial year
2024/2015, the company completed an offering of $400 million
aggregate principal amount of 8.125% Senior Unsecured Notes.
Depreciation and amortization expense in 2014 increased $30
million to $631 million, or 5.0%, compared to $601 million in
2013. This increase is a result of the investment and
replacement of store fixtures in connection with the
implementation of the company’s prior strategy. Depreciation
and amortization expense for 2013 excludes $37 million of
increased depreciation as a result of shortening the useful lives
of department store fixtures that were replaced during 2013 with
the build out of the home department and other attractions.
The company sold its investment in three joint ventures for $32
million, resulting in a net gain of $23 million. During the
second quarter of 2013, JC Penney sold its investment in one
joint venture for $55 million, resulting in a net gain of $62
million. The gain for this transaction exceeded the cash
proceeds as a result of distributions of cash related to financing
activities in prior periods that were recorded as net reductions
in the carrying amount. This disposal of investment in turn
reduces total assets of the company. This weakens the financial
position of the company and therefore investors may be swayed

5. away to its competitors or other industries. This disposal
indicates cash flow problems and uncertainty in the going
concern of the company.
References
Beasley, N. (1948). Main Street Merchant: The Story of the JC
Penney Company. Whittlesey House.
Growth, Profitability, and Financial Ratios for JC Penney Co
Inc (JCP) from Morningstar.com. Retrieved from
http://financials.morningstar.com/ratios/r.html?t=JCP
JC Penney Balance Sheet analysis over time. (n.d.). Retrieved
from
http://www.macroaxis.com/invest/symbolRatiosCompareOverTi
me/JCP?t=bs
http://www.sec.gov/Archives/edgar/data/1166126/00011661261
5000013/jcp-0131201510k.htm
MacyMACY'S INC (M) - INCOME STATEMENTCommon-
Size AnalysisHorizental AnalysisFiscal year ends in January.
USD in millions except per share data.2011-012012-012013-
012014-012015-012011-012012-012013-012014-012015-
012011-122012-132013-142014-
15Revenue2500326405276862793128105100%100%100%100%
100%6%5%1%1%Cost of
revenue148241573816538167251686359%60%60%60%60%6%5
%1%1%Gross
profit101791066711148112061124241%40%40%40%40%5%5%
1%0%Operating expensesSales, General and
administrative8260828184828440835533%31%31%30%30%0%
2%-0%-1%Other operating expenses25-25588870%-
0%0%0%0%-200%-120%1660%-1%Total operating
expenses8285825684878528844233%31%31%31%30%-
0%3%0%-1%Operating
income189424112661267828008%9%10%10%10%27%10%1%5
%Interest Expense5794474373903952%2%2%1%1%-23%-2%-
11%1%Other income (expense)54-1222-150%0%-0%0%-0%-

6. 20%-3150%-102%-850%Income before income
taxes132019682102229023905%7%8%8%9%49%7%9%4%Provi
sion for income
taxes4737127678048642%3%3%3%3%51%8%5%7%Net income
from continuing
operations84712561335148615263%5%5%5%5%48%6%11%3%
Net
income84712561335148615263%5%5%5%5%48%6%11%3%Net
income available to common
shareholders84712561335148615263%5%5%5%5%48%6%11%3
%Earnings per
shareBasic22.963.293.934.30%0%0%0%0%48%11%19%9%Dilu
ted1.982.923.243.864.220%0%0%0%0%47%11%19%9%Weight
ed average shares
outstandingBasic4224244063783552%2%1%1%1%0%-4%-7%-
6%Diluted4274244123853622%2%1%1%1%-1%-3%-7%-
6%EBITDA3049350035883700382112%13%13%13%14%15%3
%3%3%MACY'S INC (M) - BALANCE SHEETCommon-Size
AnalysisHorizental AnalysisFiscal year ends in January. USD in
millions except per share data.2011-012012-012013-012014-
012015-012011-012012-012013-012014-012015-012011-
122012-132013-142014-15AssetsCurrent assetsCashCash and
cash
equivalents146428271836227322467%13%9%11%10%93%-
35%24%-1%Total
cash146428271836227322467%13%9%11%10%93%-35%24%-
1%Receivables3923683714384242%2%2%2%2%-6%1%18%-
3%Inventories4758511753085557551623%23%25%26%26%8%
4%5%-1%Prepaid
expenses2854653614204931%2%2%2%2%63%-
22%16%17%Total current
assets6899877778768688867933%40%38%40%40%27%-
10%10%-0%Non-current assetsProperty, plant and
equipmentLand170216891736169616648%8%8%8%8%-1%3%-
2%-2%Fixtures and
equipment5752527549094811482828%24%23%22%22%-8%-

7. 7%-2%0%Other
properties7408744274987489690236%34%36%35%32%0%1%-
0%-8%Property and equipment, at
cost148621440614143139961339472%65%67%65%62%-3%-
2%-1%-4%Accumulated Depreciation-6049-5986-5947-6066-
5594-29%-27%-28%-28%-26%-1%-1%2%-8%Property, plant
and equipment,
net8813842081967930780043%38%39%37%36%-4%-3%-3%-
2%Goodwill3743374337433743374318%17%18%17%17%0%0
%0%0%Intangible assets6375985615274963%3%3%2%2%-6%-
6%-6%-6%Other long-term
assets5395576157467433%3%3%3%3%3%10%21%-0%Total
non-current
assets137321331813115129461278267%60%62%60%60%-3%-
2%-1%-1%Total
assets2063122095209912163421461100%100%100%100%100%
7%-5%3%-1%Liabilities and stockholders'
equityLiabilitiesCurrent liabilitiesShort-term
debt4541103124463762%5%1%2%0%143%-89%273%-
84%Accounts
payable1980159322042437252610%7%10%11%12%-
20%38%11%4%Deferred income
taxes3644084074003622%2%2%2%2%12%-0%-2%-10%Taxes
payable1863715505194831%2%3%2%2%99%48%-6%-
7%Accrued liabilities40954252020892%0%3%2%10%-100%
--4%302%Other current
liabilities16722788124813878%13%6%6%0%67%-55%11%-
100%Total current
liabilities5065626350755726553625%28%24%26%26%24%-
19%13%-3%Non-current liabilitiesLong-term
debt6971665568066728726534%30%32%31%34%-5%2%-
1%8%Deferred taxes
liabilities124511411238127310816%5%6%6%5%-8%9%3%-
15%Other long-term
liabilities182021031821165822019%10%9%8%10%16%-13%-
9%33%Total non-current

8. liabilities100369899986596591054749%45%47%45%49%-1%-
0%-2%9%Total
liabilities151011616214940153851608373%73%71%71%75%7
%-8%3%5%Stockholders' equityCommon
stock54440%0%0%0%0% --20%0%0%Additional paid-in
capital5696540838722522104828%24%18%12%5%-5%-28%-
35%-58%Retained
earnings2990401551086235734014%18%24%29%34%34%27%2
2%18%Treasury stock-2431-2434-2002-1847-1942-12%-11%-
10%-9%-9%0%-18%-8%5%Accumulated other comprehensive
income-725-1061-931-665-1072-4%-5%-4%-3%-5%46%-12%-
29%61%Total stockholders'
equity5530593360516249537827%27%29%29%25%7%2%3%-
14%Total liabilities and stockholders'
equity2063122095209912163421461100%100%100%100%100%
7%-5%3%-1%
J C PennyJC PENNEY CO INC (JCP) - INCOME
STATEMENTCommon-Size AnalysisHorizental AnalysisFiscal
year ends in January. USD in millions except per share
data.2011-012012-012013-012014-012015-012011-012012-
012013-012014-012015-012011-122012-132013-142014-
15Revenue1775917260129851185912257100%100%100%100%
100%-3%-25%-9%3%Cost of
revenue107991104289198367799661%64%69%71%65%2%-
19%-6%-4%Gross
profit6960621840663492426139%36%31%29%35%-11%-35%-
14%22%Operating expensesSales, General and
administrative5617525145354096399932%30%35%35%33%-
7%-14%-10%-2%Other operating
expenses5119698418165703%6%6%7%5%90%-13%-3%-
30%Total operating
expenses6128622053764912456935%36%41%41%37%2%-14%-
9%-7%Operating income832-2-1310-1420-3085%-0%-10%-
12%-3%-100%65400%8%-78%Interest
Expense231227226001%1%2%0%0%-2%-0%-100% -Other
income (expense)-2000-466-440-0%0%0%-4%-4%-100% -

9. --6%Income before income taxes581-229-1536-1886-7483%-
1%-12%-16%-6%-139%571%23%-60%Provision for income
taxes203-77-551-498231%-0%-4%-4%0%-138%616%-10%-
105%Net income from continuing operations378-152-985-1388-
7712%-1%-8%-12%-6%-140%548%41%-44%Net income from
discontinuing ops11Net income389-152-985-1388-7712%-1%-
8%-12%-6%-139%548%41%-44%Net income available to
common shareholders389-152-985-1388-7712%-1%-8%-12%-
6%-139%548%41%-44%Earnings per shareBasic1.64-0.7-4.49-
5.57-2.530%-0%-0%-0%-0%-143%541%24%-55%Diluted1.63-
0.7-4.49-5.57-2.530%-0%-0%-0%-0%-143%541%24%-
55%Weighted average shares
outstandingBasic2362172192493051%1%2%2%2%-
8%1%14%22%Diluted2382172192493051%1%2%2%2%-
9%1%14%22%EBITDA1323516-767-8193237%3%-6%-7%3%-
61%-249%7%-139%JC PENNEY CO INC (JCP) - BALANCE
SHEETCommon-Size AnalysisHorizental AnalysisFiscal year
ends in January. USD in millions except per share data.2011-
012012-012013-012014-012015-012011-012012-012013-
012014-012015-012011-122012-132013-142014-
15AssetsCurrent assetsCashCash and cash
equivalents1691751211131191.3%1.5%1.2%1.0%100.0%4%-
31%-7%5%Short-term
investments245313328091402119918.8%11.7%8.3%11.9%1007.
6%-46%-39%73%-14%Total
cash262215079301515131820.1%13.2%9.5%12.8%1107.6%-
43%-38%63%-
13%Receivables3344135742.6%3.6%0.6%0.0%0.0%24%-86%-
93%-
100%Inventories3213291623412935265224.6%25.5%23.9%24.9
%2228.6%-9%-20%25%-10%Deferred income
taxes1061931720.0%0.0%1.1%1.6%144.5% - -82%-
11%Prepaid
expenses2012452491861891.5%2.1%2.5%1.6%158.8%22%2%-
25%2%Total current
assets6370508136834833433148.8%44.5%37.7%41.0%3639.5%

10. -20%-28%31%-10%Non-current assetsProperty, plant and
equipmentLand3153123103092742%3%3%3%3%-1%-1%-0%-
11%Fixtures and
equipment2271217321322356217517%19%22%20%21%-4%-
2%11%-8%Other
properties5499565657916269631642%50%59%53%61%3%2%8
%1%Property and equipment, at
cost8085814182338934876562%71%84%76%84%1%1%9%-
2%Accumulated Depreciation-2854-2965-2880-3315-3617-22%-
26%-29%-28%-35%4%-3%15%9%Property, plant and
equipment, net5231517653535619514840%45%55%48%49%-
1%3%5%-8%Equity and other
investments0000260%0%0%0%0% - - - -Intangible
assets0005354980%0%0%5%5% - - --7%Prepaid pension
costs00066300%0%0%6%0% - - --100%Other long-term
assets1441116774515140111%10%8%1%4%-19%-36%-
80%166%Total non-current
assets6672634360986968607351%56%62%59%58%-5%-
4%14%-13%Total
assets130421142497811180110404100%100%100%100%100%-
12%-14%21%-12%Liabilities and stockholders'
equityLiabilitiesCurrent liabilitiesShort-term
debt02310673280.00%2.02%0.00%5.70%0% --100% --
96%Capital leases002627280%0%0%0%0% - -4%4%Accounts
payable1133102211629489979%9%12%8%10%-10%14%-
18%5%Taxes payable0111091800%1%0%1%1% --100% --
12%Accrued liabilities010380110711080%9%0%9%11% --
100% -0%Other current
liabilities151435413950012%3%14%0%0%-77%294%-100% -
Total current
liabilities2647275625832846224120%24%26%24%22%4%-
6%10%-21%Non-current liabilitiesLong-term
debt3099287129564839532224%25%30%41%51%-
7%3%64%10%Capital leases00062380%0%0%1%0% - - --
39%Deferred taxes
liabilities11928883883353639%8%4%3%3%-26%-56%-

11. 14%8%Pensions and other benefits0001871850%0%0%2%2% -
- --1%Other long-term
liabilities6448996834453415%8%7%4%3%40%-24%-35%-
23%Total non-current
liabilities4935465840275868624938%41%41%50%60%-6%-
14%46%6%Total
liabilities7582741466108714849058%65%68%74%82%-2%-
11%32%-3%Stockholders' equityCommon
stock01081101521520%1%1%1%1% -2%38%0%Additional
paid-in capital3925369937994571460630%32%39%39%44%-
6%3%20%1%Retained earnings22221412380-1008-
177917%12%4%-9%-17%-36%-73%-365%76%Accumulated
other comprehensive income-687-1209-1118-628-1065-5%-
11%-11%-5%-10%76%-8%-44%70%Total stockholders'
equity5460401031713087191442%35%32%26%18%-27%-21%-
3%-38%Total liabilities and stockholders'
equity130421142497811180110404100%100%100%100%100%-
12%-14%21%-12%
DillardsDILLARDS INC (DDS) - INCOME
STATEMENTCommon-Size AnalysisHorizental AnalysisFiscal
year ends in January. USD in millions except per share
data.2011-012012-012013-012014-012015-012011-012012-
012013-012014-012015-012011-122012-132013-142014-
15Revenue62546400675266926780111112.3%5.5%-
0.9%1.3%Cost of
revenue3976404242474224427364%63%63%63%63%1.7%5.1%
-0.5%1.2%Gross
profit2277235825042468250836%37%37%37%37%3.6%6.2%-
1.4%1.6%Operating expensesSales, General and
administrative1677167917061659169127%26%25%25%25%0.1
%1.6%-2.8%1.9%Other operating
expenses3322832602552515%4%4%4%4%-14.8%-8.1%-1.9%-
1.6%Total operating
expenses2009196219661914194232%31%29%29%29%-
2.3%0.2%-2.6%1.5%Operating
income2693975395545664%6%8%8%8%47.6%35.8%2.8%2.2%

12. Interest Expense747270581%1%1%0%1%-2.7%-2.8%-100.0%
-Other income (expense)747211-5731%1%0%-1%0%-2.7%-
84.7%-618.2%-105.3%Income before income
taxes2693974804965114%6%7%7%8%47.6%20.9%3.3%3.0%Pr
ovision for income taxes84-631451731791%-1%2%3%3%-
175.0%-330.2%19.3%3.5%Other income-55111-
0%0%0%0%0%-200.0%-80.0%0.0%0.0%Net income from
continuing operations1804643363243323%7%5%5%5%157.8%-
27.6%-3.6%2.5%Net
income1804643363243323%7%5%5%5%157.8%-27.6%-
3.6%2.5%Net income available to common
shareholders1804643363243323%7%5%5%5%157.8%-27.6%-
3.6%2.5%Earnings per share0%0%0%0%0% - - -
-Basic2.688.676.987.17.790%0%0%0%0%223.5%-
19.5%1.7%9.7%Diluted2.678.526.877.17.790%0%0%0%0%219.
1%-19.4%3.3%9.7%Weighted average shares
outstanding0%0%0%0%0% - - - -
Basic67544846431%1%1%1%1%-19.4%-11.1%-4.2%-
6.5%Diluted67544946431%1%1%1%1%-19.4%-9.3%-6.1%-
6.5%EBITDA60672881181182110%11%12%12%12%20.1%11.4
%0.0%1.2%DILLARDS INC (DDS) - BALANCE
SHEETCommon-Size AnalysisHorizental AnalysisFiscal year
ends in January. USD in millions except per share data.2011-
012012-012013-012014-012015-012011-012012-012013-
012014-012015-012011-122012-132013-142014-
15AssetsCurrent assetsCashCash and cash
equivalents3432241242374048%5%3%6%10%-35%-
45%91%70%Total cash3432241242374048%5%3%6%10%-
35%-
45%91%70%Receivables26293231571%1%1%1%1%12%10%-
3%84%Inventories1290130412951345137429%30%32%33%33
%1%-1%4%2%Other current assets43354247541%1%1%1%1%-
19%20%12%15%Total current
assets1702159214921660188839%37%37%41%45%-6%-
6%11%14%Non-current assetsProperty, plant and
equipmentLand74696768682%2%2%2%2%-7%-

13. 3%1%0%Fixtures and
equipment1600146813211245118337%34%33%31%28%-8%-
10%-6%-5%Other
properties3133313930663082312072%73%76%76%75%0%-
2%1%1%Property and equipment, at
cost48074676445443954371110%109%110%108%105%-3%-
5%-1%-1%Accumulated Depreciation-2212-2236-2167-2261-
2342-51%-52%-54%-56%-56%1%-3%4%4%Property, plant and
equipment, net2596244022872134202959%57%56%53%49%-
6%-6%-7%-5%Other long-term
assets772742702562522%6%7%6%6%256%-1%-5%-2%Total
non-current
assets2672271425572391228261%63%63%59%55%2%-6%-6%-
5%Total
assets43744306404940514170100%100%100%100%100%-2%-
6%0%3%Liabilities and stockholders' equityLiabilitiesCurrent
liabilitiesShort-term debt49770001%2%0%0%0%57%-100% -
-Capital leases222110%0%0%0%0%0%0%-50%0%Accounts
payable49245246946553111%10%12%11%13%-8%4%-
1%14%Deferred income taxes911361121372%3%3%3%0%49%-
18%22%-100%Taxes payable616864492151%2%2%1%5%11%-
6%-23%339%Accrued
liabilities137931211171383%2%3%3%3%-32%30%-
3%18%Deferred revenues42Other current liabilities9Total
current liabilities83187076777888519%20%19%19%21%5%-
12%1%14%Non-current liabilitiesLong-term
debt89781581581581521%19%20%20%20%-
9%0%0%0%Capital leases1198760%0%0%0%0%-18%-11%-
13%-14%Deferred taxes
liabilities3423152562301948%7%6%6%5%-8%-19%-10%-
16%Other long-term
liabilities2062452332282505%6%6%6%6%19%-5%-
2%10%Total non-current
liabilities1456138413111280126533%32%32%32%30%-5%-5%-
2%-1%Total
liabilities2287225420792059215152%52%51%51%52%-1%-8%-

14. 1%4%Stockholders' equityCommon stock11110%0%0%0%0%
-0%0%0%Additional paid-in
capital80582993293593818%19%23%23%22%3%12%0%0%Ret
ained
earnings2653310731003413373561%72%77%84%90%17%-
0%10%9%Treasury stock-1356-1846-2032-2333-2624-31%-
43%-50%-58%-63%36%10%15%12%Accumulated other
comprehensive income-17-39-31-24-31-0%-1%-1%-1%-
1%129%-21%-23%29%Total stockholders'
equity2087205219701992201948%48%49%49%48%-2%-
4%1%1%Total liabilities and stockholders'
equity43744306404940514170100%100%100%100%100%-2%-
6%0%3%
The Technology Industry: Apple, Samsung,
and Microsoft

15. Part I-Introduction
Objective
Financial statements form the basis for understanding the
financial position of a business
and analyzing them is very important since they and their
accompanying notes contain a wealth
of useful information regarding the financial position of a
company, the success of its operations,
the policies and strategies of management, and insight into its
future performance. For example,
this information is crucial for the potential investors and
shareholders of Apple Inc., Microsoft
Corporation, and Samsung in order to understand how these
companies are performing so they
know how well their investments are doing. We acted like
potential investors in regards to
analyzing the financial statements of Apple Inc. and some of its
biggest competitors such as
Microsoft and Samsung, in order to determine how well they
performed compared to other big

16. companies in the technology industry.
First we will give a description of each firm and its
management, along with a discussion
of the technology industry and the competitive environment the
tech industry faces. Following
this will be an analysis of each company’s balance sheet,
income statement, and cash flow
statement. Next will be an analysis of each firm’s liquidity,
asset, profitability, leverage, and
market ratios along with a conclusion determining which
company performed best overall.
Summary of Findings
Our analysis has shown that Apple is performing best overall
compared to its
competitors, Microsoft and Samsung. Apple has seen an
increase in net income and cash from
operations each year as well as has seen an increase in net sales
from its newly released products.
Microsoft has also seen an increase in its net income and net
sales accounts, although their
numbers are much lower for each account when compared to
Apple and they haven’t seen as big

17. as increase in cash from operations each year; however, their
cash used in investing is decreasing
each year and is lower than the amount Apple spent. While
Samsung is holding its own against
its competitors, they are not doing as well as Apple or
Microsoft with a decrease in net sales and
net income from 2013 to 2014, however they have seen a
decrease in funds used for financing
and investing activities, which is beneficial for this company.
So far from our analysis, it seems
that Apple is the least risky choice out of the three to invest in
and that potential investors might
be most interested in them. However, this conclusion as well as
the changes in these previously
listed accounts on the financial statements for each company
will be discussed in full later on.
Part II Firm, Industry, and Environment
Description of Firm and Its Management –Apple Inc.
Apple Computer made its debut on April 1, 1976 when it was
officially founded by Steve
Jobs, Steve, Wozniak, and Ron Wayne. Apple’s first product
that year was the Apple I, a “$666
circuit board that didn’t come with a case, keyboard or monitor”
(Langberg, 2014). Jobs received

18. an order for 50 Apple I computers and by January 1977 the
company had set up headquarters in
Cupertino, California and became one of the fastest-growing
corporations in U.S. history
(Langberg, 2014). In April of 1977, the Apple II was introduced
where it became an instant
success and after going public in 1980, Apple Computer was
valued at $1.6 billion, making Jobs
worth $218 million at the age of 25 (Blumenthal, 2012).
Following the success of Apple II, the company toyed with
several other products
including the Macintosh computer, a huge hit, and the Lisa,
which was noted as a failure, due
largely in part to its $9,995 price tag (Tynan, 2014). Major
changes were to come to Apple after
John Sculley was made the new CEO in 1983 when following a
showdown with the Apple board
and Sculley, Jobs was fired from his operational duties in the
Mac division (Blumenthal, 2012).
Roughly a decade would pass before Steve Jobs would return to
Apple. When Jobs returned to
the company in 1997, Apple faced the threat of bankruptcy with

19. stock shares worth less than $5.
A $150 million bailout, courtesy of Microsoft, was needed to
save the company from going
under (Tynan, 2014).
While making computers was the company’s original activity,
Apple now boasts many
products and services including: the iTunes Store, App Store,
iPhone, iPad, Mac and iPod
compatible products, and other soft wares and accessories. In
2011, Apple “became the most
valuable publicly traded company on earth, surpassing Exxon
Mobile. . . [and] remains number
one today” (Tynan 2014) and in 2012, CNN noted Apple as one
of the most profitable brands in
the United States (Lamb, 2015).
Many facets of Apple, including its management practices,
customer service, and overall
company vision have helped to contribute to this growing
industry domination. When developing
a new product, the project is led by teams or groups of
handpicked people that can contribute
various perspectives and skills to achieve a greater overall level
of innovation for the company.

20. “For instance. . . Steve Jobs built a top management team of
superb technologists, marketers,
designers, and others who kept the company’s innovative juices
flowing” (Daft, 2015). Steve
Jobs believed in assigning the best people to the most important
projects, putting the most
qualified at the helm of meeting his standards of quality and
vision for Apple’s products (Yarow,
2012).
Microsoft Corporation
Microsoft Corporation is a leading developer of personal-
computer software systems and
application. This company also publishes books and multimedia
titles, offers e-mail services, and
sells electronic game systems, portable media players, and
offers numerous more products and
services. While it has sales offices located throughout the
world, Microsoft is headquartered in
Redmond, Washington. Microsoft has also opened research and
development labs in many other
countries including England, China, Germany, India, Egypt, and
Israel.

21. Founded in 1975 by Bill Gates and Paul Allen, Microsoft got its
name when the two
boyhood friends from Seattle derived the name from the words
microcomputer and software
(Hall, 2015). Shortly afterward Microsoft purchased an
operating system from a different
company and modified it to become the MS-DOS (Microsoft
Disk Operating System). This
system was released in 1981 and by the early 1990s it had sold
more than 100 million copies,
defeated other rival operating systems, including one from IBM,
the OS/2 (Hall, 2015). Later
released in 1990, Microsoft’s new operating system, Windows,
gained a wide following and by
1993 was selling at a rate of one million copies per month (Hall,
2015). As a result of
Microsoft’s success, by the mid-1990s this corporation had
become one of the most powerful
and profitable companies in American history by consistently
earning profits of 25 cents on
every sales dollar. Microsoft also reached a net income of $2
billion by 1996 and $14 billion by
2009 (Hall, 2015).
In 2000, cofounder Bill Gates stepped down as CEO of

22. Microsoft and left the job to
Steve Ballmer who stayed until he was replaced by Microsoft
executive Satya Nadella in 2014.
There was some concern that Gates’s departure would hurt
Microsoft’s preeminent position in
this industry, however, the company retained its top spot in both
business and consumer
segments, including operating systems, productivity software,
and online gaming services.
Microsoft’s core strengths and most of its profits were to be
found on its business side, where it
set global standards with its products. Nevertheless, Microsoft’s
management understood that the
company also had to have a major, even if not a dominant,
presence in consumer markets as
improvements in information technology continued to blur the
line between personal computing
and business computing (Hall, 2015).
Samsung
Samsung was founded by Byung-Chull Lee on March 1, 1938. It
started as small export
business out of Korea and grew into the company it is today,

23. specializing in digital media and
appliances. At the beginning, since Samsung was only an export
business, they focused only on
trade export and selling goods such as fish, fruits, and
vegetables. It later developed its own flour
mills and confectionery machines along with its own
manufacturing and sales operations which
would eventually evolve into the global corporation we are all
familiar with today (Samsung).
Samsung electronics is a major source of digital media and
technological advances. This
company is one of the world’s leading producers of cell phones
and holds 31.3 % of the market
(Byeong-Wan, 2013). Within the last year, Samsung has
evolved their products to make them
more customized to the needs and wants of their target market.
Since the launch of the extremely
successful Galaxy, Samsung has also produced a smart watch,
which is a watch/phone
combination, and a phablet, or phone/tablet. These products
were made with the intent to better
satisfy the diverse population and meet the needs of individuals
by expanding the range and
capabilities of the line of smartphones that Samsung has to

24. offer. The new advertisements
available for consumer viewing imply that Samsung may have
finally reached a level of
technological perfection (Samsung releases smartwatch, 2013).
Samsung is currently the leading company in the electronic
industry, with 23.7% of the
world market. In 2011 they were named the world’s most
sustainable technology company by
Dow Jones. However, they have several prominent competitors
in the electronics industry.
Nokia, who is currently ranked number two in the world market,
held the number one spot for 14
years straight and was just recently beaten out by Samsung.
Apple holds the number three
position with 15% of the world market. (Sackitey, 2013). Each
and every one of these companies
strive to be the global leader in digital media and
telecommunications.
Along with the customization of their products, Samsung has
also divided their
operations into two separate organizations. The two
organizations include digital media and

25. communications, and device solutions. The division of the
company allows them to better
coordinate the nine different independent business units that
they are responsible for keeping in
operation. It also allows them to better understand the
breakdown of their target market and
focus the different wants and needs of their primary consumers.
Samsung continues to promote
trendy devices that simplify our lives and prepare our society
for the future.
Samsung fosters the idea of innovation and technological
advancements. This is a large
part of their success and how they continue to create new and
improved products for the current
markets and future generations. Samsung’s goal is to improve
the everyday life of their
customers with these new products and ideas. The company as
well as its management is ever
evolving and vital to the overall success and growth of the
company.
Competitive Environment
As one of the most competitive markets in the US, the firms in
the technology industry
have to work diligently to stay ahead of their rivals. Some of

26. the top competitors in the
technology industry include: Apple, Microsoft, Google,
Amazon, IBM, Hewlett Packard, and to
some degree, Sony and Samsung. With new product and services
being released every year by
firms and their rivals, it becomes imperative that these
companies release products that seek to
gain an edge in their respective markets. Even though Apple is a
strong competitor in the
smartphone and PC markets and has a lot of content for its
customers, its competitors are
innovating and becoming big rivals because of their investment
in content as well such as
delivering and streaming music, movies, TV shows, and books
to their users (Bajarin, 2009).
Other smaller, but no less important threats to Apple include
“big-box stores like Costco and
Walmart” that pull customers away from going directly to an
Apple retail store and competition
from other technological giants like Microsoft that is currently
promoting tablet computers
designed to be superior to the MacBook (Bajarin, 2012).
Competition among these firms is

27. important to consumers because it reduces costs, encourages
innovation among tech companies,
and creates more choices for customers.
While a threat of new entrants into the tech industry is possible,
it can be difficult for
these new companies to gain popularity because of firms like
Apple and their top-of-the line
products, customer-brand loyalty and brand equity, and
continuous efforts to put the customer
first. Because tech companies usually offer their suppliers a
steady market of goods and services,
it makes it difficult for companies to enter this market.
Customer loyalty, along with initial
investment costs act as barriers against possible new entrants to
this industry (Bajarin 2012).
Even though tech products have maintained a high popularity,
for example, Apple’s
iPhones and iPads, the threat of product substitution can be a
real problem for tech companies.
For most of Apple’s products (and other tech industry firms),
there is a non-Apple alternative
that comes close, and, in some cases, even performs better and
costs less. (Gideon, 2010). For

28. example, some customers with a lower budget might turn to
Samsung for a tablet that costs less
than the iPad. The same goes for the possibility that a customer
would pick a less costly
smartphone over the iPhone. With such similar substitutes,
competition among these firms
increases, which could lead to a decrease in profitability.
In the tech industry, customers can be price takers and price
setters. Customer demand for
lower costing products can increase competition among
companies to keep the cost of their
products down in order to increase sales. However, because
firms like Apple have so many
customers, these customers are price takers because they have
low bargaining power. Like buyer
power, supplier power is a low threat for companies like Apple
because, for the most part, these
firms do not face a big threat from supplier bargaining power.
This is because just as these
suppliers are relying on these tech firms for their sales, so are
their suppliers relying on them,
which causes low bargaining power for suppliers (Bajarin
2009).

29. Economic Climate and Outlook
The technology industry is booming as Apple, Google and
Amazon.com were among the
companies that increased their workforce by at least 50 percent
in the past two years (Perlberg,
2012). Because of the resilient demand for Internet services,
software and electronics, US
companies, with a market value of more than $100 million,
almost 50 increased employment by
more than half in the most recently reported two-year period
(Perlberg, 2012). Also, because of
consumer’s constant desire for new technology, tech companies
will try to design and reinvent
new and better technologies in order to gain competitive
advantages over other rival firms and as
the desire grows, so will the industry. In order to stay ahead of
the game and manage the growth
in this industry, firms are focusing innovation for the future.
Although growth will cause an
increase in funding the research and development for new
technologies, the industry will have
one of the fastest growth rates at 6.3% in 2015 and 6.1% in
2016 (Bartels, 2015).

30. One firm in the tech industry seems to be doing extremely well
in the current market as
the sales of Apple’s devices have risen astronomically over the
past several years, and the
company has grown to become one of the world's biggest
component purchasers (Goldman,
http://www.sfgate.com/search/?action=search&channel=technol
ogy&inlineLink=1&searchindex=gsa&query=%22Apple%22
2011). For the December 2014 to March 2015 quarter, Apple
posts a $58 billion revenue, up
from last year’s quarter amount of $45.6 billion. Gross margin
was up to 40.3 percent and
international sales accounted for 69 percent of the quarter’s
revenues. Apple’s sales for its
iPhones and Mac computers are also on the rise from last year’s
quarter sales (Brooks, 2015).
Apple has been on a major roll of late. AAPL stock has risen
more than 40% in 2014. Its market
cap of nearly $657 billion is the largest by far of any company
in the world. Now Apple is set up
for record profits in 2015. Sales of the iPhone 6 show no signs
of letting up, and the company
has a completely new product category on the horizon in the
Apple Watch. (Zeiler, 2014). With

31. Apple Watch soon to be on the market, its sales estimates vary
widely. While it is hard to say for
sure how much profit will be generated from its sales, but
AAPL should see at least $4.5 billion
in new revenue. And with projected margins at about 40%, there
is a possibility of the Apple
Watch adding upwards of $0.30 more in earnings per share.
(Zeiler, 2014).
Other Factors
Although the tech industry is not governed by any government
regulations, the
regulations in Section 508 of the Rehabilitation Act does
establish strict accessibility standards
that every technology product must be measured against before
a federal agency can consider
purchasing it. Because of this, any technology company that
wants to do business with the U.S.
government, one of the world’s largest markets for electronic
and information technology, must
make sure their products are up to standards. (Redmond. 2002).
Within the last few years, labor relations among the tech
industry have been scrutinized
after Apple was forced to call on the Fair Labor Association

32. (FLA) to assess the working
conditions and labor practices at its partners’ facilities in China.
The FLA completed inspections
for Foxconn, Apple’s largest supplier, which assembles the iPad
and iPhone. And while working
http://moneymorning.com/tag/apple-stock/
http://moneymorning.com/tag/apple-stock/
conditions have improved at three of the facilities, working
hours continued to exceed legal
limits, even exceeding the legal limit of 36 overtime hours per
month and a lot of times the
workers are still underpaid for the work they complete. Some
inspections have also found that
there have been many underage workers in these facilities
working long hours as well. However,
Apple has been working with Foxconn in order to make sure
that that they comply with the FLA
standard of 60 hours per week but also make progress toward
the Chinese legal limit of 49 hours
per week (Guglielmo, 2013). Since this incident, Apple has
continued its audits and has
scheduled follow up visit to its overseas facilities to ensure
these issues do not continue. Apple’s

33. goal is to continue to create a healthy and safe workplace for
each of its workers and make sure
that Foxconn’s conditions meet their high standards.
Companies in the tech industry have been hit with many
lawsuits over time, one most
recently being against Apple filed by Smartflash claiming that
Apple’s software infringed its
patents related to accessing and storing downloaded songs,
videos, and games. A federal jury in
Texas found that Apple’s iTunes software infringed three
patents owned by patent licensing firm
Smartflash LLC and has since been ordered to pay $532.9
million (Chung, 2015). Apple is said
to file an appeal soon. Another lawsuit filed in December 2014
alleged that Apple failed to
disclose to people that as much as 23.1 percent of the advertised
storage space on 8 GB and 16
GB devices would be consumed by iOS 8 (Kleinman, 2014). The
lawsuit claims that there was
also a discrepancy between the advertised amount of space
available for users on a device and
the actual space available and that Apple pushed users to buy
more space on the iCloud. Another
recent lawsuit was filed against Apple in October 2014 over

34. defective MacBooks. Three
MacBook owners claimed their 2011 MacBook Pros had
defective graphics cards that Apple has
not adequately fixed or compensated them for. The cards would
repeatedly fail, leading to
system crashes and on-screen glitches. In some cases, Apple
replaced the motherboards, but had
yet to respond to the suit. In addition to these suits, the
company consistently faces legal
litigations, some as recent as December of last year.
Another incident of litigation within this industry occurred on
August of 2012. Samsung
was found guilty of infringing Apple patents such as the shape
of the iPhone, software features
and on screen icons. Apple was awarded $1.05 billion in
damages as a result of this lawsuit
(Vascellaro, 2012). This judgment affected the production and
design of Samsung’s current line
of smartphones and tablets and required them to alter their
existing plan and layout for all
upcoming devices. Although negatively impacted by this court
decision, Samsung has continued

35. to achieve technological advancements and remain a top
competitor in the tech industry.
Part III Common Size and Horizontal Analysis of the Balance
Sheet
Apple Inc.
The analysis for the balance sheet of Apple, Microsoft, and
Samsung seeks to discuss and
interpret the changes that have occurred for these accounts from
the years of 2012 to 2014. As of
2014, Apple’s cash and cash equivalencies totaled 5.97% of
total assets, a -2.91% decrease from
the previous year. In 2012, Apple’s cash totaled roughly $107
million and increased to $142
million in 2013. However, their cash decreased to $138 million
in 2014. Though this decrease in
cash is not particularly substantial enough to hurt the company,
it may be worrisome for
stakeholders as the company’s total assets value $231 million.
The reason for this decrease in
cash and its equivalencies resulted from Apple’s increase in
their investments for research and
development in preparation for the release of the Apple Watch
and its related services.
With regard to short-term marketable securities, the changes to

36. the figures for this
category is similar to that of cash and cash equivalencies. In
2012, this account encompassed
10.44% of the total assets for Apple. In the following year, they
increased to make up 12.7% of
the total assets. From 2012 to 2013 there was a 43% increase
from $183 million in 2012 to $262
in 2013. However, in 2014, there was a -57.27% percent change,
leaving the company’s short-
term marketable securities at roughly $112 million. This
substantial change for this category
resulted from a decrease in focus on short-term investments and
instead a primary focus on the
acquisition of Beats Music and Beats Electronics that occurred
towards the end of 2014.
Taking a look at accounts receivable, it can be determined that
this account has steadily
increased over the last three years. In 2012, accounts receivable
accounted for 6.21% of Apple’s
total assets. From years 2012 to 2013 there was a 19.87%
increase in accounts receivable. This
produced a total accounts receivable of $109 million for 2012
before increasing to $131 million

37. by 2013. From years 2013 to 2014, data shows an increase of
33.26%, an almost doubled
increase from the prior year. In 2014 accounts receivable
totaled $174 million. From this data it
can be concluded that Apple is gradually allowing other
companies to lend from them and/or is
doing business on a credit basis.
Transitioning over to discuss long-term debt, Apple contained
0% debt from 2012 to
2013. From years 2013 to 2014 Apple experienced a 70.91%
spike in debt that increased the debt
from $169 million in 2013 to $289 million in 2014. Causes for
this major increase in debt
resulted from their investments in other projects such as the
new iPad Air 2 and iPad minis, the
acquisition of Beats Electronics in 2014, and accounts
receivable from other companies.
Microsoft Corporation
Next, data for Microsoft will be analyzed to determine
transitions in percentage changes.
Concerning cash and cash equivalents, the company has
experienced a dramatic shift in their
financial status. In 2012, cash totaled 5.72% of total assets with

38. almost $7 million in cash or its
equivalents. The following year experienced an even more
dramatic change with a 45.17%
decrease that resulted in only $3 million in cash. From 2013 to
2014 the company practically
doubled its cash from $3 million to $8 million, a roughly
127.89% jump from the year prior.
Reasons for this change in cash and cash equivalents resulted
from increases in sales from server
products, Xbox Platform, Commercial Cloud, and Surface or
from various product launches such
as the Windows 8.1.
For inventories of Microsoft, 2012 saw the company with $1
million that would increase
70.36% in 2013 to result in $2 million of inventory. This
percentage increased only 37.25% from
years 2013 to 2014, leaving the company with almost $3 million
in inventories. This increase in
inventories for Microsoft resulted from the higher demand of
products as the volume of the Xbox
and Surface products being sold increased.
Properties and equipment also faced a similar increase in the

39. last three years. In 2012
Microsoft’s properties totaled 6.82% of total assets that resulted
in $8 million. From years 2012
to 2013 the company experienced a 20.82% increase that left
2013 with $10 million in properties
and equipment. From 2013 to 2014 the company again saw an
increase, this time of 30.23% that
resulted in $13 million for Microsoft. The increases in
properties and equipment that Microsoft
has undergone has resulted from investing in new facilities to
produce their products, such as
Commercial Cloud, Xbox, and Surface, to keep up with the
higher demand as well as updated
technology with which to make these products and conduct
business in the company.
With regards to other long-term assets, the company
experienced a 57.37% change from
2012 to 2013. This change increased from $1 million in 2012 to
$2 million in 2013. Though not
a significant change for Microsoft, the percent change increased
by 43.06% from 2013 to 2014.
This increase resulted in a change from $2 million in 2013 to $3
million in 2014. Increases made

40. to the account of long-term assets resulted from investments in
various projects such as the
acquisition of Nokia Devices and Services in 2014.
Looking at the current portion of long-term debt, in 2012
Microsoft had $1 million for
this account. From 2012 the company experienced a 143.62%
increase from $1 million to $3
million in 2013. More significantly was the 100% decrease that
the company experienced from
years 2013 to 2014 that lowered the current portion of long-
term debt from its position of $3
million in 2013 to $0 in year 2014. From the data it can clearly
be concluded that the company
increased its long-term debt in years 2012 and 2013, but
completely eradicated it by year 2014.
When analyzing the retained earnings account it can be
concluded that this account
experienced the most dramatic shift in percent change. In year
2012 the company retained
$566,000 that increased 1,648.23% to $9 million in 2013. Years
2013 to 2014 also experienced
an increase, though not as significant, of 78.98% that brought
the total of remained earnings from

41. $9 million to $17 million. This increase in retained earnings is
in attempt to reinvest that money
back into the company in order for it to expand and build its
new facilities as well as to pay off
its debt related to acquiring Nokia Devices and Services.
Samsung
In the year 2014 Samsung’s cash and cash equivalents totaled
approximately $15,998
million dollars which is 7.31% of their total current assets. This
is a -.30 decrease from the year
2013 where it totaled to be $15,431 million. In 2012 the cash
totaled $17,544 million dollars.
This is actually $2,113 million dollars more than they had in the
year 2013. This number is quite
substantial and may have been troublesome for stakeholders if
the numbers did not start to
increase once again in 2014. The decline in 2013 is in relation
to the release of competitor
products such as the iPhone 6, iPhone 6 Plus, iPad Air 2, or
Apple Watch. However, the increase
in the following year was due to the release of the updated
version of the Samsung Galaxy.

42. Pertaining to short term investments, there was nothing but
increases across the years
2012-2014. In 2012, short term investments made up 9.61% of
Samsung’s total investments. In
the following year they increased to make up 17.15% of the
total investments. This is a very
substantial increase for the company that would look very
promising to investors and
stakeholders. In 2014 there was another increase of 0.94% in
short term investments, totaling
$39,603 million. This company seems to maintain, and even
increase stability in short term
investments during this time period.
Samsung’s trade receivables experienced a slight decrease each
year from the years 2012-
2014. In 2012, trade receivables totaled 14.73% or $24,904
million of their total assets. In 2013,
this number decreased to 13.02% or $26,415 million. It
decreased again in 2014 to 10.72%
totaling $23,458 million. This information shows that Samsung
is doing less business on credit
and not incurring any additional debts that are not being repaid.
When looking at long-term borrowing for the company,
Samsung incurred 2% or $3,383

43. million in the year 2012. In 2013 this percentage was decreased
to 0.46% and then decreased
again in 2014 to .04%, totaling $97 million. This substantial
decrease in long-term debt was
largely due to profit pulled in from the release of updated
versions of the Samsung Galaxy. The
ability to decrease the amount of money owed is another
promising aspect of the company to
current and future investors.
Part IV Common Size and Horizontal Analysis of Income
Statement
Apple Inc.
In recent years Apple has maintained a steady amount of
growth for net sales. In year
2012 the company averaged about $156 million in sales. Their
sales increased 9.2% from 2012
to 2013, earning the company a net sales of $170 million. This
resulted from growth in net sales
of iPhone, iTunes, software, and services, and the iPad. The

44. growth Apple saw in 2013 reflects
the strong sales of the iPhone 5, strong continuing sales of
iPhone 4 and 4s, the introduction of
iPhone 5c and 5s, strong performance of the iPad Mini and
fourth generation iPad, and continued
growth in their online sales of apps, digital content, and
services. The following year net sales
would increase by 6.95%, leaving the company with $182
million in 2014. This growth was
driven by increases in net sales of the iPhone, Mac computers,
iTunes, software and services, and
accessories. This increase in net sales was primarily helped due
to the successful introduction of
iPhone 5s and 5c in the latter half of calendar year 2013 as well
as the successful launch of
iPhone 6 and 6 Plus beginning in the fourth quarter of 2014.
Apple’s cost of goods sold account behaved similarly to that of
net sales. In 2012 the
company retained $87 million for cost of goods sold and it
accounted for 56.13% of total net
sales. This amount increased by 21.36% from 2012 to 2013,
earning $106 million for this
account. This growth in 2013 was driven by iPhone and iPad
introductions at or near the

45. beginning of 2013. In 2014, cost of goods sold held 61.41% of
total net sales and from years
2013 to 2014 this account increased 5.30%, thus producing $112
million for year 2014. This
increase in cost of goods sold has resulted from the production,
launch, and selling of new
products produced by Apple in the last few years such as iPhone
6, iPhone 6 Plus, and iPad Air.
Like net sales and cost of goods sold, the account of research
and development has
experienced growth in recent years. It totaled 2.16% of total net
sales in 2012 and the company
retained $3 million for this account. In 2013 this account
totaled approximately $4 million and
subsequently increased by 32.36% from 2012. This substantial
increase resulted from the
development of new products such as the iPhone 5s and iPhone
5c, iOS 7, iTunes Radio, and
iPhoto, iMovie and iWork apps for iOS. In 2014 the research
and development totaled $6 million
and had an increase in percentage of total net sales of 3.30%
compared to 2013’s 2.62% and

46. 2012’s 2.16%. Similar to 2013, Apple saw a huge jump in this
account in 2014 with a 35%
increase from 2013. This consistent growth in the account of
research and development in 2014
has resulted from the developing of new products and services
such as the iPad Air 2, iPad mini
3, and the Apple Watch, iOS 8, and Apple Pay.
For other income, the account totaled $522,000 and held a
measly 0.33% of total net
sales. However, 2013 made up for this with a 121.46% increase
from 2012, totaling $1.2 million
and holding 0.68% of total net sales. All of the Company’s
operating segments experienced
increased income in 2013, with growth being particularly strong
in the Americas, Greater China
and Japan operating segments. While this account had a huge
jump from 2012 to 2013, it seems
to be very volatile as it suffered a 15.22% decrease from 2013
to 2014, leaving the account with
$980,000 and a 0.54% of total net sales for 2014. This shift for
this account reflects income from
other non-mainstream Apple products for such ventures. While
there was some growth in this
area, it was partially offset by declines in income of Mac

47. computers and iPods.
In 2012 Apple’s net income totaled more than $41 million and
totaled 26.67% of total net
sales. This total decreased by 11.25% from 2012 to 2013,
bringing net income to $37 million in
2013. This resulted from an increase in operating expenses and
a decrease in income from slower
sales of previously popular items such as the Mac and iPods.
However, by 2014 net income
increased 6.68% and totaled $39 million. This increase in net
income for the company serves as a
direct result of earning produced from sales of the iPhone 6 and
its advanced model, the iPhone 6
Plus, as well as the various new models of the iPad and iPad
mini.
Microsoft Corporation
From 2012 to 2014, Microsoft Corporation’s net sales have
gradually increased. In 2012
the company retained $73 million for this account. This amount
increased 5.6% from 2012 to
2013, earning the company $77 million for 2013. This increase
in sales stems from more sales

48. from their server and tools as well as from new products such as
Windows 8. From 2013 to 2014
the total increased 11.54% making net sales $86 million in
2014. This increase in net sales in
2014 resulted due to higher sales from server products, Xbox,
Commercial Cloud, and Surface.
Cost of goods sold has also experienced growth in recent years.
In 2012 the company
retained $17 million for this account and accounted for 23.78%
of total net sales. The following
year the account increased by 15.51% from 2012, earning the
company $20 million for 2013.
This increase in cost of goods sold was from increased product
costs associated with Surface and
Windows 8, payments made to Nokia related to joint strategic
initiatives, royalties on Xbox Live
content, and retail stores expenses. From 2013 to 2014 this
amount increased by 33% to $26
million and totaled 31% of total net sales. This increase in the
cost of goods sold account has
resulted mainly due to higher volumes of Xbox consoles and
Surface devices sold.
With regards to research and development, has experienced less
growth than the former

49. two accounts mentioned. In 2012 the company retained $9
million for this account, accounting
for 13.31% of total net sales. Research and development
increased by 6.12% from 2012 to 2013
totaling $10 million. This increase was due mainly to higher
headcount-related expenses, largely
related to their entertainment and devices division. From 2013
to 2014 the account increased by
9.32% to total $11 million for the account and holding only
13.11% of net sales. This growth for
research and development is a direct result from increased
investment in new products and
services in their devices engineering group and an increase in
their applications and services
engineering group.
For other income Microsoft has experienced an exceptional
decline in recent years. In
2012 the company had $504,000 for this account, totaling a
meager 0.68% of net sales. By 2013
it had decreased 42.86% to total $288,000 for the account. This
substantial decrease resulted
from a major decline in the x86 PC market. The following year
the account decreased 78.82%

50. leaving the company with $61,000 for other income for 2014,
only accounting for 0.07% of net
sales. This decrease is the result of fewer investments in outside
projects and a steady increase
each year in investments for the research and development
division.
Using the income statement it can be noted that net income for
Microsoft in 2012 was
$17 million, totaling 23.03% of total net sales. This amount
increased the following year by
28.77% to total $21 million for 2013 and an increase to 28.08%
of net sales. This increase in net
income stems from the success of the Windows 8, Surface, and
the new Office. By 2014 the total
had increased only a meager 0.97% allowing the company to
retain $22 million and holding
25.42% of net sales. This increase in net income comes from
increases in revenue from the
various Microsoft products and services including server
products and Xbox. The increase was
also due to their Commercial Cloud that had revenue double due
to a wider variety of cloud-
based offerings.

51. Samsung
The analysis for the income statement for Samsung seeks to
interpret and converse the
changes that have occurred between the years of 2012 and 2014.
During all three years the cost
of goods sold stayed within less than a 3% difference of each
other. This means the gross profit
also stated within less that a 3% range between the three years.
The only truly significant change
in percentage that Samsung experienced within this time frame
was in 2013 when their gross
profit has a 24.05% increase which brought it to $86,227,952
and held a total of 40% of net
sales. Samsung acquires both general and administrative
operating expenses every year which
directly effects their operating profit. This fluctuates yearly but
had the largest percentage change
in 2014 which was a 31.80% decrease, bringing the account
down to $23 million and 12.14% of
net sales. The previous year there was a 28.53% increase which
was due to the fact that both

52. general and administrative selling and operating expenses also
increased by 21.19% while it was
in the negative the following year.
In every year between 2012 and 2014 all non-operating incomes
were more than the non-
operating expenses which kept Samsung in the positive except
for in 2012 where expenses only
exceeded the income by 1%. This would look very promising to
any investors because it shows
that the company is capable of keeping its spending lower than
its income in order to increase
profits. There was a 58.79% change in 2013 and a 56.85%
change in 2014 in non-operating
income while only holding a meager 1.06% and 1.84% of net
sales in 2013 and 2014. However,
in 2013 the change in other non-operating expenses was only
3.95% and 40.35% which is still
significantly lower than the amount of income for that year. A
concern that investors may have
with Samsung however is the profit before income tax. In 2013
this was increased by 30.16%,
totaling $36,353,908 and 16.78% of net sales, but in 2014 it
dropped tremendously. The

53. percentage change was negative 27.16%, totaling $26,479,560
and 13.52% of net sales. These
are very substantial numbers that are mainly due to the fact that
Samsung experienced a higher
volume in sales and profits in 2013 because of their efforts to
uncover new opportunities and
possibilities through innovative and transformative technologies
including their smartphones and
tablets.
Samsung’s net income varied over the time period shown. While
the highest year, 2013, was
13.33% of net sales and totaled $28,877,821, the lowest was
2014 at 11.35% or $22,223,194.
Even though this is only a 1.98% gap it still may look
discouraging for investors or stakeholders.
In 2013 the percentage change in net income was 29.72% which
is fairly promising, however, it
was followed by a 23.04% decrease in in 2014. While their
success of their Galaxy S series of
smartphones helped their net income increase in 2013, the
decrease in income from other
services and products such as their tablets caused the heavy
decrease in 2014. Because of the

54. innovation Samsung saw, there was a boost in the company in
2013 but it quickly slowed down
and sales, as well as profits, decreased in 2014. This was not
particularly due to any failures but
simply the slowing down of the innovative process of producing
new ideas and products.
Part V Cash Flow Analysis
Apple Inc.
Looking at accounts receivable for Apple in recent years it can
be noted that the company
has experienced both a decline and incline for this account. In
2012 this account retained
negative $5 million as well as making up only negative 10.92%
of the cash from operations. The
following year this account decreased 60.87% to total $2
million for accounts receivable as well
as representing a mere negative 4.05% of cash from operations.
From 2013 to 2014 accounts
receivable increased a dramatic 94.84% from its previous years.
In 2014 accounts receivable
accounted for negative 7.09% of cash from operations at $4
million. From this account it can be

55. noted that from 2012 to 2013 Apple decreased its activity of
selling on credit, but allowed more
of this to happen from 2013 to 2014, causing a dramatic incline
in percentage change and
resulting in no profit received from this account in the last three
years. Similar to accounts
receivable, vendor non-trade receivables also didn’t make a
profit in 2012 and 2014, instead
costing the company over $3 million for both years.
In 2012 inventories for Apple made up negative 0.03% of cash
from operations. This
account retained negative $15,000, but would increase
6,386.67% the following year to total
$973,000, a negative 1.81% of cash from operations in 2013.
From 2013 to 2014 inventories
decreased 92.19% to total $76,000, or negative .13% of the cash
from operations. This decrease
in money spent on inventories results from the company moving
products to stores for sales
purposes. These products that have been placed in retail include
the Apple Watch and iPhones 6
and 6 Plus.
Taking a glance at the cash from operations account it can be
noted that the company has

56. experienced an increase over the last three years. In 2012 this
account contained $50 million that
would increase 5.53% the following year. In 2013 cash from
operations totaled $53 million, a
slight increase from the previous year. The following year the
company increased its account
11.27% to total $59 million. This gradual increase in operations
occurs because of sales of
recently launched products as well as general operations that
occur in Apple brand stores. Cash
from operations also gained profits from other accounts such as
other current assets, deferred
revenue, and net income. This steady increase in cash from
operations is very beneficial to the
company as having excess cash will help them pay for their
investments and help pay off their
debts.
With regards to payments for acquisition of property, plant,
and equipment the company
has experienced growth in the past three years. Despite having a
negative balance of $350,000
for this account and occupying only negative .69% of total cash

57. from operations. The next year
this account increased 41.71% to total a negative $496,000 as
well as a negative .92% of cash
from operations. From 2013 to 2014 the account shifted
659.07% to result in negative $3 million.
This increase in acquisition of property, plant, and equipment
indicates that despite taking on
new assets, the company has yet to see a profit from these
investments and instead is spending
more to invest in them each year.
Cash used for investments has experienced a steady decrease in
past years. In 2012 the
account contained negative $48 million, negative 94.83% of the
balance sheet. From 2012 to
2013 the account decreased 29.97% to total negative $33
million. The following year the account
decreased again by 33.15%, allowing the company to retain
negative $22 million. Apple also
didn’t receive any profit from its marketable securities or
intangible assets, but instead used $217
million and $9 million on both accounts. However, not all
accounts were in the negative, as
Apple made a profit from its business acquisitions ($189
million) and from the maturities of

58. marketable securities ($18,810 million). Totaling up the
amounts from each account, this data
indicates that the company has not experienced any profit from
investments made in recent
years, but has managed to decrease the cash spent on investing
each year. Even though they
haven’t seen a profit from investing yet, it shouldn’t be
worrisome as the excess cash from
operations can help the company cover their debts.
In 2012 proceeds from issuance of common stock totaled
$665,000; this account
represented 1.31% of the cash from operations. The following
year the account decreased by
20.30% leaving the company with $530,000 in 2013. The
following year issuance of common
stock accounted for 1.22% of total cash from operations,
increasing common stock by 37.74%
with $730,000 in 2014. Despite the decrease Apple experienced
from 2012 to 2013, the increase
that occurred the following year shows that the company
increased profits from issuing common
stock from 2013 to 2014. Similar to issuance of common stock,

59. Apple made a profit from
issuance of long-term debt, making about $16 million in 2013
and $12 million in 2014.
Cash used for financing has experienced a growth in recent
years. In 2012 the company
retained negative $1 million that increased 864.61% the
following year. In 2013 the company
retained negative $16 million that accounted for negative
30.52% of the cash from operations.
The following year this account increased 129.25% to total
negative $37 million. This change in
the account represents an increase in cash used for financing
over the past three years to pay out
dividends, repurchase common stock, and pay taxes.
Cash and cash equivalents experienced both an increase and
decrease through years 2012
to 2014. In 2012 this account represented 1.83% of the cash
flow from operations with $931,000
for this account. The following year this account increased by
277.34%, allowing the company to
retain $3 million, or 6.55% of the cash flow from operations. In
2014 the account declined by
111.81% producing negative $415,000 for this account; this
amount represented negative 0.69%

60. of the cash from operations. The growth of cash and cash
equivalents from 2012 to 2013
represents a positive period of growth for the company, yet the
decline from 2013 to 2014 is
more worrisome to investors as it denotes that the company has
a less stable financial position
with which to back up its assets.
As a whole, Apple is doing very well with having an increasing
amount of cash from
operations each year while decreasing the amount of funds spent
each year for investing. And
although the amount of money spent on financing has increased
each year, it will not be a
problem for Apple as they have ample amounts of cash from
operations to help pay off these
debts.
Microsoft Corporation
Next, data from Microsoft Corporation’s cash flow statements
will be analyzed. While
analyzing the company’s cash flow percentages, it can be noted
that Microsoft has experienced a

61. decline in net recognized losses on investments. In 2012 the
company totaled a loss of $200,000,
roughly negative .63% of the cash flow from operations. This
amount increased the following
year by 140%, leaving the company with $80,000 in net gains
on investments, and totaled .28%
of the cash flow from operations. From 2013 to 2014 net losses
was negative $109,000, a
negative 236.25% from the year prior. This unsteady shift in net
profits from investments can be
worrisome for stock holders as it shows the company is more
likely to lose money invested in
outside projects than they are to gain it.
Accounts receivable has also not received a profit for the past
three years. 2012 saw a
total of negative $1 million for this account. The following year
it increased 56.31% to total
almost negative $2 million. This total that occupied negative
6.27% of the cash flow from
operations and decreased by 38.02% in 2014. In 2014 the
company retained roughly $1 million
in accounts receivable. This details that the company allows
consumers and other companies to
purchase on credit, which in some cases may be troubling to

62. investors as it means less actual
cash on hand to support company stability. In this case, it may
be somewhat worrisome that the
company has yet to see any profit from accounts receivable.
Similar to accounts receivable,
inventories has not made a profit the past two years with 2012
being the last year they made a
profit. Other accounts that didn’t make a profit include other
current assets, other non-current
assets, and unearned revenue.
Regarding cash from operations, the company has experienced
both incline and decreases
in its cash positions in the last three years. In 2012 the company
retained $31 million in cash
from operations. Net income made up a good portion of this
profit from operations with a $22
million profit. The following year the company experienced a
decline of 8.83%, leaving the
company with $28 million for 2013. This amount increased
11.79% from 2013 to 2014 to total
$32 million in cash. This steady change in this account
represents consistency in the cash flow

63. for the company and is a positive for the company since they
will have more money to pay for
investments like capital expenditures and it will help them be
able to pay off their debts.
The amount of money acquired as a result of issuing common
stock has also decreased in
recent years. In 2012 the company retained $1 million or 6.05%
of the total cash from
operations. This amount decrease 51.33% the following year to
total $931,000, a mere 3.23% of
the cash from operations. The following year once again saw a
decrease, this time of 34.80%,
leaving the company with $607,000 in earnings from common
stock. This consistent decrease
leaves the company with less extra cash, yet resulted from the
reacquisition of treasury stock.
In the years from 2012 to 2014, Microsoft did not receive a
profit from financing and
instead used about $8 million each year to help pay off debts.
Microsoft received a profit from
accounts such as proceeds from issuance of debt ($10 million in
2014 and $5 million in 2013),
common stock issued ($607,000 in 2014, $931,000 in 2013, and
$2 million in 2012), and excess

64. tax benefits ($271,000 in 2014, $209,000 in 2013, and $93,000
in 2012) over the past three
years. Accounts that made up its debt include repayments of
debt (about $4 million in 2014 and
$1 million in 2013), common stock repurchased ($7 million in
2014 and about $5 million in
2013 and 2012), and common stock cash dividends paid (about
$9 million in 2014, $7 million in
2013, and $6 million in 2012).
In recent years Microsoft has used less cash for investing.
Years 2012 to 2014 represent
negative growth of this account with a 3.93% decline in 2012
and a 20.91% decline in 2013. In
2014 the account totaled negative $18 million, roughly negative
58.43% of the total cash from
operations. This consistent decrease denotes that the company is
spending less cash from outside
investments, yet this factor isn’t one that stock holders should
be troubled by since cash from
operations remains positive and is consistently growing and can
be used to help pay for these
investments. Accounts that make up this debt include additions
to property and equipment ($5

65. million in 2014, $4 million in 2013, and $2 in 2012),
acquisition of companies and purchases of
intangible assets ($6 million in 2014, $1.5 million in 2013, and
$10 million in 2012), and
purchases of investments ($73 million in 2014, $75 million in
2013 and $57 million in 2012).
However some investing activities have gained a profit over the
years including maturities of
investments (about $5 million in 2014 and 2013 and about $15
million in 2013), and sales of
investments ($60 million in 2014, $52 million in 2013, and
about $30 million in 2012.
Change in cash and equivalencies has experienced both growth
and decline in recent
years. Negative $2 million represented this account for 2012,
occupying negative 8.45% of the
cash flow from operations. The following year the account
increased by 17.29% to total negative
$3 million in 2013. Despite the growth the previous year, this
account increased 255.23% to total
$4 million for cash and cash equivalencies in 2014. This change
represents adjustments made to
cash and its equivalencies that consist of assets.

66. Over all, Microsoft is doing very well. While their cash from
operations has seen a slight
decrease from 2012 to 2013, from 2013 to 2014 there has been a
steady increase of cash. Also
their cash used for financing is quite low compared to investing
and is slowly decreasing each
year which means they are using their cash from operations to
help pay off these debts and as a
result each year are having to pay off less and less debts. While
their cash used for investing is
quite high compared to its financing, they have seen a decrease
in funds used each year to pay
for their investments, which is a good sign for Microsoft and its
investors.
Samsung
When looking at the statement of cash flows for
Samsung you can easily see that their
cash from operating activities has consistently increased over
the three year period from 2012 to
2014. In 2012 they had a positive cash balance of $50,856. In
2013 this grew even more and
increased to $53,666 and then increased again reaching 59,713
in the year 2014. They also had

67. extreme consistency with their current and non-current
liabilities which almost doubled with
each year. Although their accounts receivable did not increase
every year, it still shows that the
company is paying off its debts. While this is technically an
expense, it would look very
promising to current and future shareholders of the company.
The cash flow from investing activities for Samsung,
although in the negative, is still very
promising for shareholders and the company. They started in
2012 with $-48,227. The following
year it was decreased more than $10,000 reaching $-33,774. In
2014 the cash flow from
investing was decreased yet again to $-22,579. Even though
Samsung is still in the negative for
investing activities, they are quickly and consistently working
to accomplish positive numbers.
They have had a very significant amount of proceeds come in
from the maturities of marketable
securities which has a lot to do with the decreasing the amount
of negative cash flow happening
over the three year time frame.
It appears that Samsung’s major downfall is their

68. financing activities. The amount of cash
flow has decreased significantly from the 2012 to 2014 time
period. In 2012 the company only
had a negative balance of $-1,698. In 2013 this number grew to
$-16,379. This is nearly a
$15,000 decrease. The cash from financing was decreased yet
again in 2014 reaching $-37,549
which is an even bigger decrease than the previous year. It
looks as though they repurchased a lot
of common stock and paid a significant amount of dividends
throughout the three year period.
They had very little proceeds coming in from issuance of
common stock and paid at least $1,000
in equity awards each year.
Samsung as a whole seems to still be staying afloat due to
the fact that they have had an
increase in the cash and cash equivalents every year except for
2014 which was only a slight
decrease of $415. This means that during the years 2012 and
2013 they ended the year with more
money than they had originally started with. Even though the
cash flow from Samsung’s

69. financing activities may be a downfall and bothersome to
shareholders, it could just as quickly
increase as it decreased and thus far has been outweighed by the
positive outcomes in both
investing and operating activities. Based on this particular cash
flow statement it would appear
that Samsung is maintaining stability and growth.
Part VI Ratio Analysis
Apple Inc.
The ratio analysis of Apple Inc. seeks to discuss the liquidity,
asset, leverage, and
profitability ratios and explain how this affects the company.
From a liquidity perspective, Apple
is remaining relatively stable, but without comparing them to
industry averages, it will be more
difficult to see where they stand compared to some of their
competitors. Beginning with the
current ratio, Apple has seen a positive increase from 2012 to
2013, however, have also seen a
decrease from 1.68 in 2013 to 1.08 in 2014. This decrease isn’t
good for the company since they
won’t be able to cover their debt requirements as they come due
as easily. Similar to the current

70. ratio, the quick ratio has seen an increase from 1.48 in 2012 to
1.64 in 2013, but also saw a
decline from 1.64 in 2013 to 1.05 in 2014. This cause in
decrease has resulted because of the
increase in total liabilities that Apple has accumulated over the
last three years. While this
deterioration of the quick and current ratio may seem bad for
the company, these ratios should be
examined in relation to the firm’s trends and compared to other
firms to determine if it could be
worrisome for Apple and its investors. While most of the
liquidity ratios saw a decrease over the
years, days in inventory held and days payable outstanding saw
an increase from 2013 to 2014.
While it isn’t necessarily a good thing for the days in inventory
to increase, their low number of
6 days in 2013 and 7 days in 2014 is a sign of efficient
management since it shows how well
Apple is able to manage its inventory which could indicate that
their inventory sells fast and so
Apple has few funds tied up in inventory. Like days in
inventory held, days payable outstanding
has seen an increase from 77 days in 2013 to 98 days in 2014.

71. Delaying payment of payables can
be desirable for Apple because the firm could earn a return on
the cash held back.
According to their asset ratios, Apple is doing relatively stable,
but could definitely be
performing better. While all their asset ratios decreased from
2013 to 2014, these will be
discussed to determine how it will affect the company. While,
Apple’s inventory turnover is
down to 53.18 from 111.06 in 2012 and 60.43 in 2013, this ratio
is high and Apple is doing
better in this area than Microsoft and Samsung despite its
inventory not selling as fast in 2014
compared to 2013 and 2012. Apple also didn’t convert
receivables into cash in 2014 as much as
it did in 2013 and 2014, converting it only 10.47 times
compared to 13.04 in 2013 and 16.72 in
2012. This resulted from an increase in accounts receivable
from 2012 to 2014. In regards to
fixed asset turnover and total asset turnover, Apple saw a
decrease in both accounts from 2013 to
2014. Fixed asset turnover was down to 8.86 in 2014 from 10.30
in 2013 along with total asset
turnover which decreased from 0.89 in 2012 to 0.79 in 2014.

72. These low ratios can indicate that
Apple’s investment is too heavy in their assets and that their
management of the company’s
assets aren’t as efficient as in 2012 and 2013.
Looking at the leverage ratios, Apple has seen a steady
increase in most of its ratios. The
debt ratio has increased each year from 32.86% in 2012 to
40.31% in 2013 and 51.89% in 2014.
Long-term debt to total capitalization has also seen an increase
from 12.07% in 2013 to 20.63%
in 2014. Debt to equity increased as well from 0.49 in 2012 to
0.68 in 2013 and 1.08 in 2014.
These three ratios measure the extent of Apple’s financing with
debt and the increase in all three
imply a slightly riskier capital structure. While their debt could
be questionable for investors, if
their debt is used successfully, if their operating income is more
than enough to cover their debt,
then the returns to shareholders are magnified through financial
leverage, which is beneficial to
investors. While these debt ratios could be worrisome at first
glance, when considering the

73. increase in cash from operations each year, Apple will have
more than enough to cover its debt.
With regards to profitability ratios, Apple has seen an increase
in most of its ratios from
2013 to 2014. Gross profit only saw a small increase from
37.62% in 2013 to 38.59% in 2014.
Similar to gross profit, operating profit margin saw a very slight
increase from 28.67% in 2013 to
28.72% in 2014 while net profit saw a small decrease from
21.67% in 2013 to 21.61% in 2014.
These increases represent that Apple is able to control the costs
of inventories, operating
efficiency, and operating expenses well. While Apple has seen a
decline in return on total assets
from 23.70% in 2012 to 19.09% in 2013 and 17.04% in 2014,
they have seen a positive increase
in return on equity from 29.98% in 2013 to 35.42% in 2014.
While the return on assets wasn’t as
high as in 2013 and 2012, Apple is still managing its total
investment in assets relatively well.
They have also increased their return on equity and so have
increased the return to common
shareholders, which is very beneficial for its investors.

74. Analyzing the market ratios, Apple has seen an increase in its
earnings per share from
$5.72 in 2013 to $6.49 in 2014. This increase in earnings per
share is beneficial for Apple who
will receive more profits from their common stock. Apple has
seen a major decrease in its price
to earnings ratio from 84.4 in 2013 to 15.5 in 2014. This
decrease is due to the decrease in
market price of Apple’s common stock from 2013 to 2014.
While Apple saw a stable dividend
payout ratio from 2013 to 2014 which stayed around the 28%
mark, it was really low in 2012
with only 6%. This low dividend payout ratio was due to
Apple’s low cash dividends declared
per common share which was only $0.38 in 2012. Apple’s
dividend yield saw an increase from
0.10% in 2012 to 0.30% in 2013 and then to 1.80% in 2014.
This increase in dividend yield and
their dividends per share would be desirable to investors and
potential investors analyzing the
company.
Overall, Apple is performing very well. While they have seen
some decreases in some of

75. their liquidity ratios and have had increases in their liabilities,
Apple has more than enough funds
to cover their debt. Apple also has seen high numbers for their
receivables and inventory
turnover ratios which indicate they are performing well in this
area. After analyzing their
leverage, profitability, and market ratios as well as the others,
Apple is performing well, despite
some decreases in a lot of their ratios.
Microsoft Corporation
From a liquidity perspective, Microsoft is not doing as well as
Apple. They saw a current
ratio of 2.5 in 2014, down from 2.71 in 2013 and 2.60 in 2012.
This means that current assets
only covered current liabilities 2.5 times and will not be able to
cover their current liabilities as
easily as in 2013 and 2012. Similar to current ratio, Microsoft’s
quick ratio has also seen some
deterioration from 2.66 in 2013 to 2.45 in 2014. While this test
is more rigorous than the current
ratio, it also shows the same as the current ratio, that
Microsoft’s current liabilities are increasing

76. each year so they won’t be able to cover these liabilities as
easily. Microsoft has also seen an
increase in the average collection period (from 78 in 2012 to 82
in 2013), days inventory held
(up to 36 in 2014 from 24 in 2012), as well as days payable
outstanding (from 87 in 2013 to 101
in 2014). This means that Microsoft isn’t collecting its accounts
receivable very quickly and isn’t
collecting from its customers very well. Microsoft is also taking
longer to sell its inventory to
customers which could mean that they carry too much inventory
or that their inventory is slow-
moving. With a high number of days payable outstanding,
Microsoft is delaying its payment of
its payables, which could be beneficial for them since they can
earn a return on cash held.
Looking at the asset ratios, Microsoft isn’t doing as well as
Apple. Their accounts
receivable turnover is a low 4.44 in 2014 and has seen a
decrease since 2012 when it was 4.67.
Their inventory turnover and accounts payable turnover ratios
have also seen a steady decrease
from 2012 to 2014. This shows that they aren’t collecting cash
from their accounts receivable

77. very quickly and their inventory isn’t selling as quickly in 2014
compared to 2012. Microsoft is
also taking longer to repay its payables with a decrease from
4.20 in 2012 to 3.62 in 2014.
Similar to the trend in these ratios, Microsoft has also seen a
steady decrease over the three years
from its fixed asset and total asset turnovers. Fixed asset
decreased from 8.92 in 2012 to 6.67 in
2014 along with a decrease in total asset from 0.61 in 2012 to
0.50 in 2014. Since these ratios are
low, it will take a higher amount of investments for the
company to generate more sales. This
decrease in ratios is a result of Microsoft’s sluggish sales
compared to Apple and other
competitors.
Similar to Apple, Microsoft has seen an increase in its leverage
ratios over the three years
from 2012 to 2014. The debt ratio increased from 44.57% in
2013 to 47.92% in 2014 along with
the long-term debt to total capitalization which increased from
13.76% to 18.70% in 2014. Debt
to equity also saw an increase from 0.80 in 2013 to 0.92 in
2014. These increases in leverage

78. ratios indicates a riskier capital structure, however, this
shouldn’t be too worrisome to investors
since Microsoft has seen a steady increase in cash from
operations each year so they should have
no problem paying off their debts.
Regarding its profitability ratios, Microsoft has seen a decrease
in all of its ratios from
2013 to 2014, which might not bode well for this company.
Gross profit margin decreased from
73.99% in 2013 to 68.98% in 2014 along with operating profit
margin which decreased from
34.38% in 2013 to 31.97% in 2014. Net profit margin also saw a
decrease from 28.08% in 2013
to 25.42% in 2014. While its ratios are somewhat higher than
Apple, this decreases show that
Microsoft is not managing its costs of inventories or its
operating efficiency as well as Apple.
While these decreases might be worrisome for Microsoft, they
should be able to turn around
from this since most of the decreases are slight and shouldn’t
hurt the company too bad. Return
on total assets as well as return on equity have both seen a
decline from 2013 to 2014. Return on

79. total assets is down from 15.35% in 2013 to 12.81% in 2014,
which indicates that Microsoft
earned less profit from total assets relative to the amount of its
investments in its total assets.
They are also returning less funds to its common shareholders
since its return on equity is down
from 27.69% in 2013 to 24.59% in 2014. While these decreases
could be worrisome for
Microsoft and its investors, it might be beneficial to look at
these rations over a longer term or
compare them to their competitors to determine how they will
affect the company.
Microsoft’s market ratios stayed relatively stable from 2012 to
2014. They saw an
increase in earnings per share from $2.02 in 2012 to $2.61 in
2013 and $2.66 in 2014. This
increase is beneficial to the company as they will see more
profit from their common stock. They
have also seen an increase in their price to earnings ratio from
13.2 in 2013 to 15.7 in 2014 as
well as their dividend payout ratio from 35% in 2013 to 42% in
2014. This indicates that
Microsoft had a good year from 2013 to 2014 and performed

80. well and so the market is reacting
to this. Unlike the other market ratios which all saw increases,
the dividend yield remained stable
with 2.7% for both 2013 and 2014. This indicates that the
relationship between their cash
dividends and the market price of the common stock remained
stable over these years and didn’t
see much change.
Overall, Microsoft performed well although seeing some
decreases in their liquidity
ratios and increases in their leverage ratios. These decreases
and increases were mainly minor
and shouldn’t be worrisome for the company or its investors.
While they didn’t perform as well
as Apple, Microsoft is still able to stand on its two feet and
remains a top competitor for Apple
and other companies among the tech industry.
Samsung
Samsung’s ratio analysis is provided in order to discuss several
aspects of their company
including their liquidity, asset, leverage and profitability ratios
and why or how they affect the
company as a whole. Looking at Samsung from a liquidity

81. standpoint, they spear to be doing
quite well. They have increased their current ration from 1.86 in
2012 to 2.21 in 2014. This
shows that the company can meet its debt requirements as they
come due and take care of any
financial responsibilities they may have. For example, in 2014,
their current assets covered their
current liabilities 2.21 times. They were also able to get a
decrease in the amount of days they
held their inventory. In both 2012 and 2013 it was 51 days but
in 2014 they were able to decrease
two days down to 49 days. Samsung did experience somewhat of
a roller coaster effect so to
speak in their cash flow liquidity. It was at 1.58 times during
the year 2012, increased in 2013 to
1.94 times but then decreased in 2014 to 1.84. This does not
show consistency but does still
ensure that the company is capable of covering their debts
which is very promising to both
current and future shareholders.
When looking at the activity ratios from the years 2012 to 2014
Samsung also appears to

82. be in a great position. They have increased their account
receivable turnover across the three year
period as well as their inventory turnover. This indicates that
Samsun is in fact collecting
payments for money owed to them and is efficiently and
effectively managing and selling
inventory. Samsung had a huge increase from 2013 to 2014 in
their accounts payable turnover. It
jumped from 7.81 to 16.21. This means that the company is
paying its suppliers. With an
increase of over double the year before, I would say they are
taking care of their debts with fairly
rapid speed and this could potentially help to increase their
production and inventory.
Across the three year time period discussed Samsung
consistently decreased their debt
ratio. In 2012 it was 32.91%, dropped in 2013 to 29.92% and
then decreased again in 2014
reaching 27.05%. This implies that the company is having less
and less of their assets financed
with debt and ultimately owing less money. They have also
decreased their long term debt to
total capitalization each of the three years meaning that they are
using less long term debt for

83. permanent financing. It does appear that they experienced a
decreased in times interest earned
which is a downfall but not one that outweighs all the positive
activity they have happening. In
2012 they were able to cover their interest with operating
earnings by 18.71 times. In 2013 it
dropped to 15.14 times and then they experienced yet another
decrease to 14.94 times in 2014.
Samsung has had several fluctuations throughout the years 2012
to 2014. However, many
of them stay within close range of each other meaning that this
would not necessarily look
negative to a shareholder. For example, their gross profit
margin in 2012 was 37.02%. In 2013
they were able to increase to 39.79%. In 2014 they decreased to
37.79% which is lower than the
previous year but still higher than the percentage in 2012. So
while their profit being generated is
not consistent, it is within a very small range and still shows
potential for increases. In both
operating profit, net profit, and cash flow margins Samsung was
unable to keep the decrease in
2014 from being below 2012’s numbers however but they are

84. still within a very small range of
each other. It looks to me like me like even though Samsung
seems to be successful in the
majority of their operations, they are struggling to truly make a
profit but are still able to have
decent earning per share for their shareholders. In 2012 the
earnings per share was $1.45 which
increased in 2013 to $1.87 and then increased again to $1.96 in
2014. This implies that the
company is staying afloat financially and still has endless
potential.
Part VII Summary and Conclusion
In summary, Apple seemed to perform best over the three year
period from 2012-2014
than did Microsoft or Samsung. On all its financial statements,
Apple shined and stood out
against Microsoft and Samsung with the highest net sales, net
income, cash from operations, as
well as having the best ratio performance, showing that they
would be the best company out of
the three to invest in. Microsoft and Samsung seemed to tie for
second place as they had closer
amounts on their financial statements for accounts such as net
income and cash from operations

85. along with their ratios being close; however, it might be best to
continue to observe these two
companies further in order to discover which would be the
better of the two for potential
investors. Overall the analysis of these companies show that the
tech industry is a good one to
invest in because of the continuous evolvement and expansion
of the companies in this industry.
Part VIII Appendix
This section seeks to visually show some of the information
previously discussed in
earlier sections. It also is used to show visuals that compare
each company, which can better
exhibit how a company is performing and is more pleasing to
the eye than just reading about it.

86. Retrieved from http://bgr.com/2014/02/06/apple-google-
microsoft-revenue-sources/
http://bgr.com/2014/02/06/apple-google-microsoft-revenue-
sources/
Retrieved from http://iautomotive.co/microsoft/microsoft-vs-
apple-charts-2014.html
http://iautomotive.co/microsoft/microsoft-vs-apple-charts-
2014.html

87. Retrieved from http://www.tannerhelland.com/4993/microsoft-
money-updated-2013/
http://www.tannerhelland.com/4993/microsoft-money-updated-
2013/
Retrieved from http://www.statista.com/chart/547/net-profit-
margins-of-apple-and-samsung/
http://www.statista.com/chart/547/net-profit-margins-of-apple-
and-samsung/

88. Retrieved from http://www.statista.com/chart/433/samsung-
expects-record-profits/
http://www.statista.com/chart/433/samsung-expects-record-
profits/
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