International Financial Reporting Standards Regulation in Apple Inc - Case Study Example

lе Inс. Your name: Institution name: 1.0 Introduction and Background Information 1.1 Brief Overview Apple Inc. is a company that was incorporated in 1977 which design, manufacture or make and market portable digital music players, personal computers, personal mobile media and communication electronics or devices, and sells related accessories, hardware and software series, third party digital applications and content, and networking solutions (Poornima and Jennifer, 2013). . Apple Inc. Company product and services include IPad, IPhone, Mac, Apple Watch, IPod, Apple TV, iOS, OS x and watch OS operating System, a portfolio of accessory and support offerings, consumer and professional software application, Apple Pay, ICloud and a variety of service. Apple Inc. sells its various products and accessories internationally through its direct sale force, online stores and retail stores, as well as through mobile network carriers, third party wholesalers, retailers and value-added resellers (Poornima and Jennifer, 2013). In addition, Apple Inc. sales various third party compatible computer products and their accessories, including application software and hardware through its online and retail stores (Helft,, 2011). Also, the Tech giant sells to mid-sized and small businesses, government and education customers and enterprise. Apple Inc. Company manages its business services primarily on a geographic basis. Apple Inc. Company operating segments consist of Europe, Americas, Japan, Greater China and Rest of Asia Pacific and Africa (Chen, 2015). The Americas segments include both South and North America. The Europe business segment includes Europeans countries, as well as India, Africa and Middle East (Helft, 2011). The Greater China business segment includes Hong Kong, China and Taiwan (Chen, 2015). The Rest of Asia Pacific segment includes Australia and other countries in those regions (Poornima and Jennifer, 2013). Although operating business segment provide similar hardware and software, product and services, each one of these regions are managed separately to better align the Apples’ strategy with the unique market dynamic. 1.2 Major Development Apple Inc. Company is well known for its brand in mobile phone and other accessories, but this company is moving beyond its smartphone into other businesses that will complement its existing products and services (Helft,, 2011). This in the 2015/2016 financial year, Apple has be reported to acquire 1). Faceshift, a company that makes facial mapping software; 2). PrimeSense, a company that makes motion-detecting camera and its technology was used in the Kinect camera for the first Xbox. Other startup companies that were acquired by Apple include Emotient, Perceptio, Turi and Tuplejump (Poornima and Jennifer, 2013). In addition, the company recently poached HoloLens Engineer Nick Thompson from Microsoft. Thompson worked on the HoloLens for over two years, so his acquisition will help the company with its AR efforts. 1.3 Auditors and Audit Report According to the Auditor’s report, Apple net sales declined 8 per cent during 2015/2016 compared to 2014/2015; this was primarily driven by decrease in iPhone net sales and the effect of weak dollar (Chen, 2015). In 2015/2016 financial year, the company increase to its capital return program by raising the size of its program from 200 billion dollars to 250 billion dollars (Chen, 2015). This included increasing its share repurchase authorization from 140 billion dollars to 175 billion dollars and raising its quarterly dividend from 0.52 dollars to 0.57 dollars per share (Chen, 2015). In 2015/2016 financial year, a total of 29 billion dollars was spent to repurchase shares of its common stock and 12.2 billon dollars was spent to paid total dividends to its shareholders. The 2015/2016 financial year audit report was prepared by Messrs Mahendra Kumbhat & Associates, Chartered Accountants (ICAI Registration No.105770W). According to auditor’s report, no incident of fraud to the Apples audit committee during the year that was under review was reported. 2.0 Accounting Policy and Conceptual Framework Apple Inc is a U.S. registered company with its headquarter in Cupertion, California. ASC 205, Presentation of Financial Statements, provides the baseline guidance for presentation of financial statements for all GAAP reporting companies (Kieso, 2007). 2.1.1 Financial Statement Under US GAAP regulations, financial statement can be presented in a “single step” or “double step” format. Either: a. In a single-step format, expenses and losses are group together; also gains and revenues are grouped together. These amounts are then totaled together to show either net income or loss. b. Apple Inc. Company uses multiple-step format to present it financial statement (Heffes, 2008). In a multiple-step format, subtotals are used to shoe decision useful line items such as operating income and gross margin separately from net income or loss and non-operating income. There is no required format under IFRS for the presentation of financial statement. A company is only required to select a method of presenting its expenses by either function or nature; this is encouraged on the face of the statement or in the notes (Heffes, 2008). In IFRS, additional disclosure of expenses by nature will required if functional presentation has been used, as a minimum of presentation of the following items in the financial statement: financial costs; revenue; tax expense; profit or loss for the period; share of post-tax results of joint ventures; and post-tax or loss. 2.1.2 Fixed Assets Under GAAP, Apple Inc. Company accounts for all its fixed assets. While non-current assets will be recognized at a cost and they will be carried at cost less cumulative impairment and accumulated depreciation losses (Kieso, 2007). Apple Inc. cannot make any upward adjustments due to the changing circumstances because it is prohibited under the GAAP regulations. 2.1.3 Off-setting assets and liabilities Under GAAP, Apple Inc. is permitted to offset assets and liabilities where parties owe each other determinable amounts, and in situation where there is an intention to offset assets and liabilities. Under IFRS, Apple Inc. would not be permitted to offset their assets and liabilities, except where specifically permitted by a IFRS standard. In IFRS, Apple Inc. would only offset assets and liabilities where it has legally enforced right to offset the recognized amount and the company intends to settle transactions on a net basis or to settle liability and realize assets simultaneously (Kieso, 2007). A master netting agreement, in the absence of the intention to realize or settle net liability and asset simultaneously, is not sufficient to permit net presentation of derivative financial instruments even if it creates a legally enforceable right of offset. 2.1.4 Cash flows An entity that an account for derivative instrument as a fair value cash flow hedge may classify the cash flows from these hedging activities in the same group as the cash flows from the hedged items, provided that it meets the following requirement set in ASC 230-10-45-27: the accounting policy is disclosed (Hickley and York, 2011). But under the IFRS regulation will require Apple to classify its cash flow from hedging instruments in the same group as the cash flows from the item that are being hedged. 2.1.5 Current/non-current distinction (general) Under GAAP Apple Inc, management can choose to present either non classified or classified balance sheet. This requirement is similar to IFRS if a classified balance sheet is presented. The minimum guidelines to be included in the balance sheet will be provided by the SEC (Hickley and York, 2011). In addition, Apple can classify its liabilities as non-current in the balance sheet provided that agreements to reschedule payments or refinance on a long term basis is completed before the financial statements has been issued. Under the IFRS regulations, Apple would be required to make distinction between their current and non-current assets. Where the distinction has been made, assets will be classified as current assets if they are: consumed or held in the normal course of the company’s operating cycle; or cash equivalents or cash. Both liabilities and assets will be classified as current where they are expected or held for trading within 12 months of the balance sheet presentation. Apple will also be required to classified their interest bearing liabilities as current assets when they are due to be settled or realized within one year of the balance sheet presentation, even if the original term was for a period of more than one year. An agreement to reschedule or refinance payments on long term basis that has been completed after the balance sheet has been presented will not result in non-current classification of the financial liabilities even if it has been executed before the financial statements has been presented. 2.1.6 Exceptional/significant items Under GAAP regulations the term exceptional items is not being used, but significant items can be disclosed on in the income statement when they have been arrived from the income from operations (Heffes, 2008). In addition, significant items can be described in the notes. Under IFRS regulations, Apple will be required to separately disclose items of expense and income that are of such nature, size or incidence that their separate disclosure is required to explain the performance of the company for that period (Hickley and York, 2011). These disclosures may be in the notes or on the face of the income statement. IFRS does not define or use the term “exceptional items”. 2.2.0 Accounting Issue or Challenges US GAAP regulations has many similarities with IFRS regulations in regards to the presentation of financial statement, but there exist few significant differences cause variances in how some financial instruments are reported. Under GAAP regulations, the treatment of deferred liabilities and tax assets is different. Under IFRS regulations, Apple will be required to separate deferred tax account into non- current and current portion (Hickley and York, 2011). This regulation is determined based on the classification of liability and asset used for financial reporting and presentation purpose (FASB, 2010). Under GAAP, Apple Inc. included short term and cash in their financial statement. In addition, bank overdrafts were also excluded. Under IFRS regulations, Apple Inc. will required to include cash and short term, highly liquid investment into the financial statement. In addition, they will also be required to include bank overdrafts in certain situation. Under GAAP regulations, Apples Inc. will be required to classified component of a transaction on the basis of the pre-dominant source of the cash flows. But under IFRS regulation, Apples Inc, will be required to separate components of a single transaction and classified it as investment, or operation or financial components. When reporting cash flow from operating activities (Kieso, 2007). In GAAP regulations, Apple Inc. can use direct or indirect method. In addition, Apple Inc. will be needed to reconcile net cash flows from its operating activities. But under IFRS regulations, net income is reconciled to net cash flows from the company’s operating activities only under the indirect method. Under, GAAP regulation, Apple Inc. is not required to present comparative periods. But, under IFRS regulation, Apples Inc. is required to present to present most recent two years. Under GAAP regulation, separate disclosure of cash flows is not required (Hickley and York, 2011). If Apples Inc. elects to report its cash flow from discontinued operations, Apples is required to report them separately by category. Under IFRS regulations, disclosure of cash flows from discontinued operations under, each category is required either on the face of cash flow statement or in the notes. 3.0 Financial analysis 3.1 Comparison between Apple and Samsung Apple is well known as an innovative company but how well does the future of Apple stack up to its rival, Samsung. The following is the in-depth analysis of the two companies’ i.e. Apple and Samsung. 3.1.1 Financial Statement Intangible assets put have Apple in the forefront of the minds of investors and consumers alike. But now, it faces its biggest threat from its international rival, Samsung which in the past two financial years has gained market share (Kane, and Sherr, 2016). In 2015, Samsung sold 64 million units and made more money than Google makes from all its businesses. Despite this impressive sale, Samsung is still nowhere near Apple’s revenue generations. Apple sold 5 million iPhone 6 in a weekend, and it will continue to outsell Samsung for some time (Kane, and Sherr, 2016). But it not safe to conclude that Apple will forever remains the market leader in smartphone. Year on year, Apple grew its revenues from 108.2 billion dollars to 156 billion dollars. Although Samsung revenue grew about 4 billion dollars to 45.6 billion dollars it was no match to that of Apple (Kane, and Sherr, 2016). Apple’s ROE and ROA currently standing at 36.90 per cent and 14.2 per cent, respectively. Samsung posts slightly more modest numbers, at an ROE of 22.8 per cent and ROA of 10 per cent (Kane, and Sherr, 2016). In both cases, these ratios are above industrial averages, but what makes them more meaningful is that Apple’s uses little debt. This is one area that has been troubling Samsung’s managements. Samsung recent debt to total capital ratio stood at 9.08 per cent, this was sharp increase from its previous financial years at 5.46 per cent (Kane, and Sherr, 2016). However, in terms of efficiency, Apple reported worst performance with their 19.32 days accounts receivable. This is due to Apple’s partnerships with different data service providers that have different and are not strict in term of credit and payment policies (Kane, and Sherr, 2016) . 3.1.2 Balance Sheet Apple is famously known for sitting on copious amount of cash. Apple maxed out in 2015 178 billion dollars, which is a figure that is larger than its market capitalization (Kane, and Sherr, 2016). Meanwhile Samsung year end had 5 billion dollars in cash which is enough to take care of its short term obligations for the next three years. It hard to imagine where Apple or Samsung’s balance sheet could improve, their current ratios do vary (Kane, and Sherr, 2016). With Samsung having a distinct edge over Apple i.e. 1.35 for Apple and 2.21 for Samsung. Apple’s working capital is 5 billion dollars, Samsung working capital stood at 10 billion dollars, Here Samsung wins the liquidity war. 3.2 Profitability Analysis The condition or state of yielding a gain or financial profit, in other words, Profitability is a tool that measures the effectiveness of a company has used its available resources. Profitability is often measured by price to earnings ratio (Woolridge and Gray, 2006). A class of financial metrics has been used to assess a company’s ability to generate earnings to its expenses and other costs incurred by a company during a specific period of time. 3.2.1 Gross Profit Margin (Gross Margin) Apple Inc. Sumsang Gross Margin=Gross Profit/Revenue 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 84,263/215,639= 39.075% 93,626/233,715= 40.06% 37.8% 39.8% Gross profit margin is the percentage of sales left after the company has subtracted the production cost of goods or products sold to the customers from the total sales (Woolridge and Gray, 2006). Gross profit margin measures the percentage of sales remaining to pay overhead expenses and provide the company with a profit. Gross profit margin ratio can be used to show the profitability of the business without taking into consideration the indirect costs. In addition, it can be used to show how efficiently the company can produce and sell its products. From our calculation Apple is more profitable than Sumsang because its percentage profit margin is higher as compared to that of Sumsang. 3.2.2 Net Profit (Net Margin) Apple Inc. Sumsang Net Profit Margin=Net Income/Net Sales 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 45,687/215,639 = 21.19% 53,394 /233,715= 22.85% 11.19% 13.04% Net profit margin is used to show how much money has been left after direct and overhead expenses have been deducted from the gross profit (Woolridge and Gray, 2006). If the company’s net profit margin is low as compared to a high gross profit margin, this will imply that the company selling, administration and distribution departments are not efficient in relation to their controlled expenditures. In our calculations, there is a decrease in net profit margin from 22.85% in 2014/2015 financial year to 21.19% in 2015/2016 financial year, which is a bad result; especially the decrease in gross profit margin ratio. 3.2.3 Return on Assets Apple Inc. Sumsang Return on Assets=Net Profit/ Average Total Assets 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 45,687/321,686= 14.2% 53394/290,345= 18.4% 5,705/52359= 10.9% 5271/50796= 10.4% The return on assets ratio is used to measure the net income produced by total assets during a period by comparing net income to the average total assets (Woolridge and Gray, 2006). In other words, the return on assets is used to measure how efficiently a company can manage its assets to produce profits during the financial period. As compared to Sumsang which Return on Assets increased 0.5% in the same period. Higher return on assets is better for companies since its help investors and management to see how well the company can convert its investments in assets into profit. Therefore, Apple is a stable company to invest in as compared to Sumsang. 3.2.4 Return on equity Apple Inc. Sumsang Return on Equitys= Net Income/Shareholder's Equity 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 36.90% 46.25 % 22.8 % 15.07% Return on equity (ROE) is a measure of business efficiency as well as profit. A rising return on equity will suggests that the business in increasing its ability to generate more profits without injecting more capital (Woolridge and Gray, 2006). ROE also indicates how well the business’s is using the shareholders’ capital. In other words, the higher return on equity the better for the company; but a falling return on equity will present a problem to the shareholders. Apple realized a reduction in return on equity while Sumsang realized an increased in return on equity. Apple reduced ROE was contributed to reduced earnings on the iPhone six plus that was recently launched. In addition, the reduced share buybacks have also artificially affected Apple’s ROE. This mean Apple is able to generate more profit with shareholders money as compared to Samsung. 3.2.5 Earnings per share Apple Inc. Sumsang Earnings per share=(net income – dividends on preferred stock) / average outstanding common shares 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 8.31 9.22 138.85 187.38 Earnings per share reveals about the financial health of a company. Higher earnings per shares show a good sign for a particular company (Woolridge and Gray, 2006). Apples Inc. Earnings per shares reduced but from 9.22 in 2015 to 8.31 in 2016 as compare to that of Sumsang which earnings per shares by decrease increased by 48.53 in the same period. Therefore, an investor will go for Sumsang because its earnings per share are high. 3.2.6 P.E Ratio Apple Inc. Sumsang P.E Ratio= Share price/earnings per share 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 13.64 11.98 8.67 6.94 P/E ratio it used to measure the number of years its takes for a company to earn back the price they paid for their stock (Woolridge and Gray, 2006). The number of years it takes for Apples Inc. to earn back the price they paid for their stock increased from 11.98 to 13.64. Also, the P.E ratio for Sumsang also increased from 6.94 to 8.67. This means both companies’ earnings have declined. But a shareholder would want the company to earn back the price they paid as soon as possible. Therefore Apple Inc. stocks would be more attractive to shareholders than Sumsang. stocks because they have higher P/E ratio. 3.2.7 Dividend payout Ratio Apple Inc. Sumsang Dividend Payout Ratio 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 0.26 0.22 0.13 0.07 Dividend payout ratio is used to measure the percentage of the company’s earnings paid out as divided (Woolridge and Gray, 2006). Both Apple and Samsung are profitable because they have lower payout ratio which means the two companies have more room to increase their dividends payout. 3.3 Liquidity Liquidity ratio is used to measure the capability of a company to meet its short term financial obligation when they fall due. Liquid ratio is realized by diving cash and other liquid assets by the current liabilities and short term borrowings (Woolridge and Gray, 2006). To a company, liquid ratio will present the number of times the short debt obligations is covered by the liquid assets and cash. If the value of liquid ratio is greater than one, it means the company can fully meet it short term obligations, and the company is less likely to fall into financial problems. 3.3.1 Current Ratio Apple Inc. Sumsang Current Ratio=total current assets/total current liabilities 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 1.35 1.11 2.21 2.16 Current ratio is used to measure the liquidity of a company at a certain period. The current ratio should be analyzed over a period of time (Woolridge and Gray, 2006). The increase in current ratio may suggest improved liquidity of the business or there is a conservative approach to working capital management. While a decrease current ratio will suggest a deteriorating liquidity position of the company or there is a learner working capital cycle of the business through adoption of efficient business management practices. From our calculation, the two companies are able to meet their short-term obligations without having to resort to external borrowing. This means, both Apple and Sumsang have improved their ability to meet short-term financial obligations. 3.3.2 Quick Ratio Apple Inc. Sumsang Quick Ratio= (Total current assets-inventory)/Total current liabilities 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 1.33 1.08 1.73 1.61 Quick ratio is used to measure position of the company and its short term liquidity. Quick ratio shows the extent of cash and current assets that are readily converted into cash in comparison to the short term obligations of the company (Woolridge and Gray, 2006). Quick ratio for Apple and Sumsang has increased in the period 2014/2015-2015/2016. But, Sumsang is able to settle 1.7 times its current liabilities instantaneously as compare to Apple that can only be able to settle 1.33 times its current liabilities. 3.3.3 Operating Cash flow to current Debt Ratio Apple Inc. Sumsang Operating Cash flow to Current Debt Ratio 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 0.77 0.65 1.42 1.48 Cash to Debt Ratio is used to measure the financial strength of a company (Woolridge and Gray, 2006). From our calculation Apple cannot be able to pay off its debt using the cash in hand because its cash flow to debt ratio is less than 1. While Sumsang can be able to pay off its debts using the cash in hand because its cash flow debt ratio is more than 1. 3.4 Efficiency Analysis Efficiency analysis used to measure how well a company utilizes its assets to generate revenue (Woolridge and Gray, 2006). This ratio looks at the time it takes the company to collect cash from customer. Efficiency analysis is used by the management to help improve the company. 3.4.1 Account Receivable Turnover Apple Inc. Sumsang Account Receivable Turnover =Account receivable/ Revenue 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 16,849/215639=7.8% 15,754/233715=6.7% 7.84 8.38 Sumsang operates higher receivable turnover ratio than Apple. This suggests that Sumsang operates more on cash basis compared to Sumsang. This also means Sumsang collection of accounts receivable is efficient than that of Apple. This also shows Sumsang has high quality customers that pay off their debts quickly as compared to Apple. 3.4.2 Days Account receivable turnover Apple Inc. Sumsang Days Account Receivable Turnover =(Account receivable/ Revenue ) *365 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 26.67 26.31 51.86 48.88 Days account receivable turnover is the length of time it takes to receive the money for goods its sells. This is useful for determining how efficient the company (Woolridge and Gray, 2006). From our calculation, Apple Inc. customers take a maximum of 26 days to pay their debts while Sumsang customers take a maximum of 52 days to pay their debt. This means that Apple Inc. can effectively ramp up production to consumer demand and will never be limited by cash flow. 3.4.3 Inventory turnover Apple Inc. Sumsang Inventory Turnover=Cost of Goods sold/Average inventory 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 58.64 62.82 7.04 7.47 Inventory turnover ratio measures the number of times inventory is sold and replaced during the year (Woolridge and Gray, 2006). It is a good indicator of inventory quality, inventory management and buying practices. In our calculation, Sumsang spent less number of days to sell its product as compared to Apple Inc. which spent more days to sold its product. 3.4.4 Days in inventory Apple Inc. Sumsang Days in Inventory =365/ Inventory turnover 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 365/58.64=6.22 365/62.82=5.81 51.86 48.88 The days of inventory is used to measure how a company performance. This measure gives investors an idea of how long it takes a company to turn its inventory into sales. From our calculation, its takes Apple Inc. shorter time to turn its inventory into sales as compare to Sumsang which takes an average of 52 days to do so. 3.4.5 Asset turnover Apple Inc. Sumsang Asset Turnover =revenue/Total Assets 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 0.71 0.9 0.93 1.16 Asset Turnover measures how quickly a company turns over its asset through sales (Woolridge and Gray, 2006). This simply means, it measures the ability of the company to generate sales from its assets. This ratio show Sumsang is more efficiency when it involves sales generations as compared to Apple. 3.5.0 Coverage/solvency Analysis This ratio is used to measure the ability of the company to meet its long term debts. Also, it provides an assessment of the likelihood of a company to continue congregating its debt obligations. 3.5.1 Debt to Total Assets Apple Inc. Sumsang Debt to Total Assets =Long term debt/ Total Assets 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 0.23 0.18 0.1 0.1 A ratio greater than 1 indicates that a company may be at risk of not being able to pay back its debts. Both Apple and Sumsang are safe from the risk of nonpayment if their debts are subjected to sudden increases in interest rates, as is the case with variable-rate debt. 3.5.2 Time interest earned Apple Inc. Sumsang Time Interest earned=Operating Income/Interest Expense 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 41.23 97.18 20.17 54.23 Time interest earned ration is used to measure the ability of a company to pay off its interest expenses with available earnings (Woolridge and Gray, 2006). This ratio is used to calculate how many times a company’s operating income can be used to settle the interest expenses. From our calculations, Sumsang has a better long-term financial strength as compared to Apple Inc. because a higher times interest earned ratio indicates that the company’s interest expense is low relative to its EBIT. 3.5. 3 Cash Debt coverage ratio Apple Inc. Sumsang . Cash Debt coverage ratio=Cash/ Total Debt 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 0.65 0.77 1.62 1.54 The cash to debt ratio is use measure the ability of a business to support its debt from its operating cash flows. From our calculation, Apple Inc is more likely to be able to support its existing debt load as compared to Sumsang. because it has higher percentage of cash to debt ratio. 3.5.4 Book Value per share Apple Inc. Sumsang Book Value per share=(Total equity-Preferred stock)/ Share outstanding (EOP) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 2015/2016 (USD $ in millions) 2014/2015 (USD $ in millions) 24.03 21.40 17.54 16.65 Book value per share is used to compare the number of share outstanding to the amount stockholders’ equity (Woolridge and Gray, 2006). This measure is usually used by investors who are evaluating the price of a company’s stock. Both Apple Inc. and Sumsang stock price are over performing because the two stocks markets value per share is higher than the book value per share. 4.0 Summary and Recommendation 4.1 Conclusion Based on Apple’s financial analysis, the company has strong and healthy financial muscle. In the last two years, Apple has experience extraordinary growth, at same time the company is able to finance it business activities by its current liabilities only. The company financial structure is one of the best with 100 per cent equity. The company doesn’t have long term debt; this has contributed to the company financial independence. Net income and revenues for the company have also been reported to have increased. While retained earnings reached 9.101 billion dollars in 2007, which indicate indicated the financial power for the company. This has been supported by increase in sales, and 13.9 billion dollars in cash and cash equivalent, Apple Company is able to afford future acquisitions. From its past financial analysis, Apple has improved its key measurement of its profitability. In term of Profit margin, ROE and ROA, apple has managed to strengthen its financial muscle and now it has better financial ratio than its closes competitors such as Sumsang and its overall mobile, software industry. Based on its financial analysis, it can be concluded that Apple has a better performance than the industry average including Samsung. This rapid success has been realized as a result of its sales of its mobile and its computer product line. 4.2 Projections The future for techno giant looks great. Apple has significant momentum on its side: its massive bran power; its product designs, and a strong portfolio that leverages it individual brand to boost the demand of other product brands. I believe that Apple will continue with this momentum of operating without long term debts. In addition, there will be no significant change in net working capital and capital expenditures. 4.3 Benefits of adopting IFRS Apple’s subsidiaries that operate in countries that permit or require IFRS may be able to use one accounting language globally. Apple may also benefit by using IFRS if they wish to raise capital in the international markets. The concept of ‘accounting quality’ is mostly used in academic researchers. Poor quality accounting is characterized by phenomena such as untimely recognition of losses, income smoothing and readiness to recognize good news rather than bad news in accounting. Introduction of IFRS to Apple Inc. will improve accounting quality. Common understandings and emerging good practice will have contributed to steps that enhancing accounting quality. Adoption of IFRS will increase the liquidity of the Apple’s equity market as a whole. Apple will experience increased cross-border investment- both portfolio investment and foreign direct investment- following its adoption. Apple’s adoption of IFRS will reduce the cost of debt capital and equity. In addition, access to international capital will become easier, and decline in the cost of capital. IFRS adoption will have positive effect on comparability of Apple’s published financial information. Overall the increases in comparability tend to occur in the most important areas of financial reporting such as accounting for financial instruments, that outweighing any loss of comparability. Facilitated mergers and acquisitions, and enhance competitiveness References Chen, L. (May 11, 2015). “The World’s Largest Tech Company: Apple Beats Samsung, Microsoft, Google”. Forbes. Archived from the original on May 15, 2015. Retrieved December 30, 2015. Heffes, E. (2008). Global accounting firm CEOs on challenges-transitioning from GAAP to IFRS, and more. In D. L. Street & B. E. Needles Jr. (Eds.), IFRS Digest: What U.S. Practitioners and Entities Need to Know Now (pp. 185-188). New York, NY: American Institute of Certified Public Accountants, Inc Helft, M. (March 2, 2011). "Jobs Returns to Introduce a New iPad". The New York Times. Retrieved March 23, 2011. Hickley, A. and York, N. (2011, August 11). IFRS tiff heats up as us banks weigh in. Global Financial Strategy , Retrieved from http://www.gfsnews.com/article/2693 Kane, Y. I and Sherr, I (November 19, 2016). “Apple: Samsung Copied Design” The Wall Street Journal, Dow Jones & Company. Retrieved August 11, 2012. Kieso, D. (2007). Intermediate Accounting (12th ed.). Hoboken, NJ: John Wiley & Sons. Poornima G and Jennifer S. (September 23, 2013). "Apple polishes forecast after selling 9 million new iPhones". Reuters. Retrieved September 24, 2013. Woolridge, J. R and Gray, G. (2006). Applied Principles of Finance. London: John Wiley & Sons Weygandt, J. J., Kieso, D. E., & Kell, W. G. (2006). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 802. . Kane, Y. I and Sherr, I (November 19, 2016). “Apple: Samsung Copied Design” The Wall Street Journal, Dow Jones & Company. Retrieved August 11, 2012. Read More