Perform horizontal and vertical analysis on income statement
Real World Problem 1: Analyzing Financial Statements
As you move into your career, you will have a 401K and investments that requires knowledge of investing and financial statements. For this assignment, you (and a class mate if desired) will analyze two competitor companies; Amazon(AMZN) and Apple (AAPL).
Instructions: Following the requirements below, please complete a report showing your findings. The report must be completed in Excel and only submit one copy per team. Handwritten copies will not be accepted!
1. For Amazon and Apple annual financial statements for 2015, please complete and SHOWthe following: (Use finance.yahoo.com) to view the Financial Statements.
a. Perform a Horizontal and Vertical Analysis on the Income Statement of each company, for the years 2015 and 2014.(For example, to complete a Horizontal Analysis for 2014, 2013 data will be required)
b. Compare the Horizontal and Vertical Analysis for both companies and answer the following questions?
1. Which company had the higher increase in total revenue from 2014 to 2015?
2. Which company had the higher increase in net income from 2014 to 2015?
3. For every dollar of revenue, Amazon has a profit of _______? For every dollar of revenue, Apple has a profit of ______?
4. Cost of Revenue (COGS) is what percentage of total revenue for the year 2015 forApple? Amazon?
c. Ratios. The following Ratios MUST BE CALCULATED and PRESENTED for Amazon and Apple for the year 2015 and 2014.Current Ratio, Inventory Turnover, Gross Profit Percentage, AR Turnover, Debt to Equity Ratio, and Earnings Per Share (EPS).
d. Based on the ratios calculated Part D, please answer the following questions.
i. Based on the Ratios for each company, which company had the higher Gross Profit Percentage in 2014 and 2015
ii. Which company had the higher Earnings Per Share in 2015? Please assume Apple had5,575,331,000 shares outstanding and Amazon had 470,842,035.
iii. Which company is selling their inventory quicker in 2015? How many days does it take for Apple and Amazon to sell through their inventory in 2015?
iv. Which company had the riskier debt-to-equity ratio in 2014 and 2015? (Please refer to your notes)
v. Which company has the “best” current ratio in 2014 and 2015? (Please refer to your notes)
vi. Which company is collecting their accounts receivable (net receivables) faster in 2015?
2. Analyzing the Statement of Cash Flows
a. By analyzing the Statement of Cash flows for each company, please answer the following questions.
i. Which company had a higher cash flow from operating activities in year 2015?
ii. Which company spent more money on investing? How much more did they spend than their competitor in 2015?
iii. Which company paid the dividends in 2015?
iv. Comment on AMZN and AAPL “Net Borrowings” activity under the Statement of Cash Flows and explain what the activity indicates.
v. Please note any interesting portions of the statement of cash flows that stood out to you.
3. Your thoughts
a. Based on the information you learned above, which company would you consider investing in and why? Please provide a minimum of three reasoning to support your choice.