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Apple Case
The amount listed for total shareholder’s equity (book value) on Apple’s balance sheet is far less
than the market value of its equity.
We can’t observe the economic value of the firm but it is likely to be
similar to the market value, so it is also is much greater than shareholders’ equity.
1.
For each asset and liability listed on Apple’s balance sheet, consider reasons why the economic
value might differ from the value listed on the balance sheet.
For example, why might the
economic value of inventories differ from the number in the balance sheet.
Keep in mind that the
values may differ due to 1) accounting rules that call for recording a value that is different from
the economic value, 2) the difficulty of estimating the value of the assets or liabilities or 3)
intentional manipulation.
Cash and cash equivalents balance= economic
Short-term, a large amount invested in securities.
Account receivable (concern) doubtful accounts allowance. 1. bad estimation 2. Deliberately
manipulation. If they have finance plan, maybe take time to collect money.3. If one big company fails
to pay back, affecting account receivable a lot.
Inventories: Cost of sales 141billion. Revenues 229billion.
Future revenue from inventories. May be
better reflect the value of inventories. Inventory is comprised of raw material, work in process,
finished goods. Assign arbitrary value to these three.
Inventory method, LOFT, FIFO, Apple use first in first out. For tech company, the cost goes down.
Lost, stolen, shipping cost.
Long-term debts, the number on the balance sheet depends on the amortization schedule. Economic
values change if the interest rate change. The cost of satisfy the liability, the present value would be a
little different. 100 million, if the interest rate changes by 2-4%, then the value will change by 5-10%,
the value could be off by 10 million dollar.
Pension liability, require estimation, could be incorrect.
Law suit.
Stock options.
2.
Consider what assets or
liabilities
that are not listed on the financial statements may involve an
unrecorded economic asset or liability.
Internally developed intangible assets:
Pension liability, require estimation, could be incorrect.
Law suit.
Stock options.
3.
What assets or liabilities are the most likely to be responsible for the huge difference between the
economic value and book value of Apple?
Internally developed intangible assets


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