Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 14 Financial Statement Analysis 679

FINANCIAL ANALYSIS AND REPORTING CASES

The condensed income statements through income from operations for Apple Computer Co.

andDell Inc.are reproduced below for a recent fiscal year (in millions):

Apple

Computer Co. Dell Inc.

Sales $8,279 $49,205

Cost of goods sold 6,020 40,190

Gross profit $2,259 $ 9,015

Operating expenses:

Selling, general, and administrative expenses $1,421 $ 4,298

Research and development expense 489 463

Other expenses 23

Total operating expenses $1,933 $ 4,761

Income from operations $ 326 $ 4,254

Prepare comparative common-size statements, rounding to one decimal place. Interpret the

analyses.

Marriott International, Inc.andHilton Hotels Corp.are two major owners and managers of

lodging and resort properties in the United States. Abstracted income statement information for

the two companies is as follows for a recent year (in millions):

Marriott Hilton

Net income $596 $238

Interest expense 99 274

Income tax expense 100 127

Balance sheet information at the end of the period is as follows (in millions):

Marriott Hilton

Total liabilities $4,587 $5,674

Total stockholders’ equity 4,081 2,568

Total liabilities and stockholders’ equity 8,668 8,242

The average liabilities, stockholders’ equity, and total assets for the year were as follows (in millions):

Marriott Hilton

Average total liabilities $4,462 $5,808

Average total stockholders’ equity 3,960 2,404

Average total assets 8,422 8,212

1. Determine the following ratios for both companies. (Round to two decimal places.)
   a. Rate earned on total assets
   b. Rate earned on total stockholders’ equity
   c. Number of times interest charges earned
   d. Ratio of liabilities to stockholders’ equity


2. Determine the leverage formula for both companies.


3. Analyze and compare the two companies, using the information in (1) and (2).

Ford Motor Companyis the second largest automobile and truck manufacturer in the United

States. In addition to manufacturing motor vehicles, Ford also provides vehicle-related financ-

ing, insurance, and leasing services. Historically, people purchase automobiles when the econ-

omy is strong and delay automobile purchases when the economy is faltering. For this reason,

Ford is considered a cyclical company. This means that when the economy does well, Ford usu-

ally prospers, and when the economy is down, Ford usually suffers.

Case 14-1

Vertical analysis

Case 14-2

Comprehensive leverage
analysis

Case 14-3

Profitability and stockholder
ratios