Account analysis


For this Activity, you will complete a preliminary report on Apple Computer’s capital structure and market valuation. The majority of this report requires computing ratios and charting them, rather than analyzing capital structure and market values. (The Stand-Alone Project requires detailed capital structure and market valuation analysis of Apple and its competition.) The first page of this report should create additional worksheet named “Ratios” in the Apple Solutions Workbook. The next four (4) pages will consist of selected capital structure and valuation charts (one chart per page, four (4) charts) added to the “PC Charts” workbook. The final two (2) to three (3) pages will be a Word document addressing a few capital structure and valuation considerations. Follow these instructions to facilitate report completion.


Your Activity responses should be both grammatically and mechanically correct and formatted in the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document them in a bibliography using APA style. (100 points) (A 3-page narrative response, four (4) charts, and the “Ratios” worksheet are required.)


Use the following data in computing market-related ratios.


Part A  Compute the following capital structure and valuation ratios for 1999-2002 in the “Ratios'” worksheet of your Apple Solution workbook.  (20 points)  (The “Ratios” worksheet with eight (8) new ratios is required.)

            1.         Debt to Capital Ratio

            2.         Debt to Equity Ratio

            3.         Long-Term Debt to Capital Ratio (Ignore the deferred tax liability in this computation.)

            4.         Long-Term Debt to Equity Ratio (Ignore the deferred tax liability in this computation.)

            5.         Z-Score

            6.         Price to Earnings Ratio

            7.         Price to Cash Flow Ratio

            8.         Price to Equity Ratio


Part B  Using your “PC Charts” workbook, create the following four (4) “line” chart types plotting each measure over time from 1994 through 2002 using the data from Appendix A of the text for 1994-1998 measures and your computations from 1999-2002.  (20 points)  (The “PC Charts” workbook with the four (4) additional charts is required.)

            1.         Debt to Capital Ratio

            2.         Debt to Equity Ratio

            3.         Z-Score

            4.         Price to Earnings Ratio


 Part C Assess the impact of Apple’s debt load and earnings performance on its debt to capital and debt to equity ratios from 1999 through 2002.  (20 points)  (A 1-page response is required.)


 Part D Though you are not required to compute earnings coverage ratios in Part A above, discuss whether Apple would have been able to cover its fixed contractual expenses in 2001 and 2002.  How about in 1999 and 2000?  (20 points)  (A 1-page response is required.)


Part E  Discuss whether the evidence is sufficient to convince investors that Apple’s future earnings will be more than or less than what they were in 2002.  (20 points) 


(A 1-page response is required.)

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