financial case study

1

ABSTRACT

In this report, the financial health of three leaders in Computer Manufacture

industry, i.e; Apple, Dell and HP is analyzed and compared for the years 2010 and

2011. The report also discusses a financial comparison of Computer Manufacture

Industry (Apple, Dell, and HP) and Service Industry (Systemax, PCMI and Pc

connection) for the years 2010 and 2011. Using the Income Statement, Balance

Sheet and Cash flow statement of each company, this report highlights the key

financial characteristics of each computer manufacture company for the year 2010-

11 and sheds light on the difference in the financial situation of Computer

manufacture industry and Service industry.

1. INTRODUCTION

In order to better analyze the financial performance of the Computer

Manufacture Industry, three leaders of the industry are targeted and evaluated.

1.1 Apple Inc., formerly Apple Computer, Inc., is an American multinational

corporation headquartered in Cupertino, California that designs, develops, and

sells consumer electronics, computer software and personal computers. Its best-

known hardware products are the Mac line of computers, the iPod music player,

the iPhone smartphone, and the iPad tablet computer. Its software includes the OS

X and iOS operating systems, the iTunes media browser, the Safari web browser,

and the iLife and iWork creativity and production suites. The company was founded

on April 1, 1976, and incorporated as Apple Computer, Inc. on January 3, 1977.

Apple is the world's second-largest information technology company by revenue

after Samsung Electronics, and the world's third-largest mobile phone

maker after Samsung and Nokia. As of November 2012, Apple maintains 394 retail

stores in fourteen countries as well as the online Apple Store and iTunes Store. It is

the second-largest publicly traded corporation in the world by market

capitalization. As of September 29, 2012, the company had 72,800 permanent full-

time employees and 3,300 temporary full-time employees worldwide.

1.2 Dell Inc. (formerly Dell Computer) is an American multinational computer

technology corporation based in Round Rock, Texas, United States, that develops,

sells, repairs and supports computers and related products and services. Bearing the

name of its founder, Michael Dell, the company is one of the largest technological

corporations in the world, employing more than 103,300 people worldwide. Dell is

listed at number 44 in the Fortune 500list. It is the third largest PC vendor in the

world after HP and Lenovo.

2

Dell has grown by both increasing its customer base and through acquisitions since

its inception; notable mergers and acquisitions. As of 2009, the company sold

personal computers, servers, data storage devices, network switches, software, and

computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and

other electronics built by other manufacturers. The company is well known for its

innovations in supply chain management and electronic commerce, particularly its

direct-sales model and its "build-to-order" or "configure to order" approach to

manufacturingdelivering individual PCs configured to customer specifications.

1.3 Hewlett-Packard (NYSE: HPQ) or HP is an American multinational information

technology corporation headquartered in Palo Alto, California, United States. It

provides products, technologies, software, solutions and services to consumers,

small- and medium-sized businesses (SMBs) and large enterprises, including

customers in the government, health and education sectors. The company was

founded in a one-car garage in Palo Alto by William "Bill" Redington

Hewlett and Dave Packard. HP is the world's leading PC manufacturer. It specializes

in developing and manufacturing computing, data storage, and networking hardware,

designing software and delivering services. Major product lines include personal

computing devices, enterprise, and industry standard servers, related storage

devices, networking products, software and a diverse range of printers, and other

imaging products. HP markets its products to households, small- to medium-sized

businesses and enterprises directly as well as via online distribution, consumer-

electronics and office-supply retailers, software partners and major technology

vendors. HP also has strong services and consulting business around its products

and partner products. It is the world's largest PC vendor by 2012 unit sales.

2. OBJECTIVE

The Objective of this case study is to analyze, compare and summarize the financial

performance and behaviour of the three leading companies within the Computer

manufacture industry and then to compare the financial situation of Computer

manufacture industry as a whole with Service industry. (Based on the data from

Group 7).

3. FINANCIAL STATEMENT ANALYSIS (APPLE, DELL, HP; )

In Millions of U$ dollars;

Apple Inc. - Income Statement Analysis

The following table and graph shows a decrease of 84.9% in Net income in 2011

with respect to 2010 and an increase of 37.1% in Total Operating expense in 2011

with respect to 2010.

3

In the same way, the Cost of Revenue and the Total revenue of Apple increased

38.6% and 39.7% respectively in 2011compared to the previous year. We can see

that Apple made a significant investment in Research & Development area in 2011.

And, there are no dividends paid both in 2010 and 2011.

I/S Apple 2011 2010

Net Income 14,013 25,922

Total Operating Expense 74,459 46,840

Research & Development 2,429 1,782 Cost of Revenue, Total

(CGS) 64,431 39,541

Total Revenue 108,249 65,225

Dividends paid 0 0

Apple Inc. Balance Sheet Analysis

The following table and chart shows that the assets of Apple Inc. are balanced with

its liabilities and equity combined, in 2010 and 2011.

In 2011, Apple increased its Assets by 35.4%, its liabilities increased by 31.1% and

total equity by 37.6% with respect to 2010 and thereby maintained a balance.

B/S Apple 2011 2010

Total Assets 116,371.00 75,183.00

Total Liabilities 39,756.00 27,392.00

Total Equity 76,615.00 47,791.00

108,249

64,431

2,429

74,459

14,013.00

65,225

39,541

1,782

46,840

25,922.00

0 20,000 40,000 60,000 80,000 100,000 120,000

Total Revenue

Cost of Revenue, Total (CGS)

Research & Development

Total Operating Expense

Net Income

$

Apple Inc - Income Statement

2010

2011

4

Apple Inc Cash flow Statement Analysis

Apples cash flow from operating and financing activities increased significantly in

2011but there is a sharp decline in its cash from investing activities. Thus, this

resulted in its net cash flow to suffer 75.9% in 2011 compared to previous year.

Apples depreciation increased by 43.4% in 2011, which is due to its higher inventory

turnover than in previous year,

C/F Apple 2011 2010

Cash from Operating Activities 37529 18595

Cash from Investing Activities -40419 -13854

Cash from Financing Activities 1444 1257

Net Cash Flow Per Year -1446 5998

Depreciation 1814 1027

27,392.00 39,756.00

47,791.00

76,615.00

0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

2010 2011

Apple Inc - Total Assets

Total Equity

Total Liabilities

5

Dell - Income Statement Analysis

The following table and graph shows how in 2011 the Net Income has increased

83% with respect to 2010. In the same way, the total revenue of Dell increased in

16% with respect to the previous year. Also, there are not dividend are paid neither

2010 nor 2011.

18595

-13854

1257

37529

-40419

1444

-50000

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

Cash from OperatingActivities

Cash from InvestingActivities

Cash from FinancingActivities

$ Apple inc - Cash flow

2010

2011

5998

-1446

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

2010 2011

Apple Inc - Net Cash flow

Net Cash flow

6

I/S DELL 2011 2010

Net Income 2,635.00 1,433.00

Total Operating Expense 57,989.00 50,730.00

Research & Development 653.00 617.00 Cost of Revenue, Total

(CGS) 50,098.00 43,641.00

Total Revenue 61,494.00 52,902.00

Dividends paid 0 0

Dell - Balance Sheet Analysis

In 2011, DELL Inc. Balance Sheet shows an increase of Assets and Liability of

14.7% and 10.1% respectively. Thus, DELLs Total equity has also an increment of

37.7%.

B/S DELL 2011 2010

Total Assets 38,599.00 33,652.00


Total Equity 7,766.00 5,641.00

0

61,494.00

50,098.00

653.00

57,989.00

2,635.00

0

52,902.00

43,641.00

617.00

50,730.00

1,433.00

0 20000 40000 60000

Dividends paid

Total Revenue




Net Income

Dell- Income Statement

2010

2011

7

Dell - Cash Flow Analysis

There is no much variation between the cash flow of operating activities between

2010 and 2011 in Dells Cash Flow statement. On the other hand, the cash from

Investing Activities 2011 were reduced more than half in comparison with the

previous year. Thus, the cash flow in 2011 has a growth of 44%. Also, depreciation

increased in 2011 by 13.5%.

C/F DELL 2011 2010

Cash from Operating Activities 3,969.00 3,906.00

Cash from Investing Activities -1,165.00 -3,809.00

Cash from Financing Activities 477 2,012

Net Cash Flow Per Year 3,278.00 2,283.00

Depreciation 970.00 852.00

30,833.00 28,011.00

7,766.00

5,641.00

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

45,000.00

2011 2010

Dell - Total Assets

Total Equity

Total Liabilities

8

3,969.00

-1,165.00

477

3,906.00

-3,809.00

2,012

-5,000.00

-4,000.00

-3,000.00

-2,000.00

-1,000.00

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

Cash fromOperating Activities



Dell - Cash Flow

2011

2010

3,278.00

2,283.00

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

2011 2010

Dell - Net Cash Flow Per Year

NET CASH FLOW PER YEAR

9

HP Income statement Analysis

As shown in the income statement of Hewlett Packard, the total Revenue in 2011

had a 0.96% growth comparing to the year of 2010. However the net income in 2011

is lower than 2010, due to lower operation expenses in 2010.

I/S HP 2011 2010

Net Income 7,074.00 8,761.00

Total Operating Expense 117,568.00 114,554.00

Research & Development 3,254.00 2,959.00

Cost of Revenue, Total (CGS) 97,418.00 95,852.00

Total Revenue 127,245.00 126,033.00

Dividends paid 796.204 705.248

7.07

117.57

3.25

97.42

127.25

8.76

114.55

2.96

95.85

126.03

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00

Net Income




Total Revenue

Thousands

I/S - HP

2010

2011

10

HP Balance sheet Analysis

The balance sheet of Hewlett Packard shows that, the total assets in 2011 had a

4.03% growth comparing to the year of 2010. The total liabilities increased 8.14%,

but the Total equity has declined 4.51%.

B/S - HP 2011 2010

Total Assets 129,517.00 124,503.00


Total Equity 38,625.00 40,449.00

HP Cash flow Analysis

From the Cash Flow Statement of Hewlett Packard, the cash from operating

activities in 2011 had a 6.01% growth comparing to the year of 2010. The cash from

investing expenses decreased 22.89%. However, the cash from financing increased

46.24%. The final result of the C/F is a negative value. The company is working on

debt.

C/F HP 2011 2010

Cash from Operating Activities 12,639.00 11,922.00

Cash from Investing Activities -

13,959.00 -

11,359.00

Cash from Financing Activities -1,566.00 -2,913.00

NET CASH FLOW PER YEAR -2,886.00 -2,350.00

90,892.00 84,054.00

38,625.00 40,449.00

0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

2011 2010

Total Assets - HP

Total Equity

Total Liabilities

11

12,639.00

-13,959.00

-1,566.00

11,922.00

-11,359.00

-2,913.00

-20,000.00

-15,000.00

-10,000.00

-5,000.00

0.00

5,000.00

10,000.00

15,000.00

Cash from OperatingActivities



CASH FLOW - HP

2011

2010

-2,886.00

-2,350.00

-3,500.00

-3,000.00

-2,500.00

-2,000.00

-1,500.00

-1,000.00

-500.00

0.00

2011 2010

NET CASH FLOW PER YEAR - HP

NET CASH FLOW PER YEAR

12

4. COMPARISON OF FINANCIAL STATEMENTS WITHIN INDUSTRY

Liquidity Ratios

The following graph shows Apple in 2010 reaching 2 times of its current assets.

Then Apples ratio decreases in 2011 to 1.6 times. On the other hand, Dell has its

highest current asset ratio in 2010 near 1.5 times and HP in 2011 with 1.1 times.

Profitability Ratio

All companies have a positive earnings ratio; therefore, a positive profit ratio.

Nevertheless, it is Apple, which has had the highest profitability.

2.01

1.61 1.49

1.28

1.01 1.1

1.96

1.58 1.42

1.22

0.86 0.97

0.00

0.50

1.00

1.50

2.00

2.50

Apple2010

Apple2011

DELL2010

DELL2011

HP2010

HP2011

Liquidity Ratios

Current Ratio

Quick Ratio

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Apple2010

Apple2011

DELL2010

DELL2011

HP2010

HP2011

21.5% 23.9%

4.3% 2.7%

5.6% 7.0%

24.7%

29.4%

8.7% 6.0%

6.9% 8.0%

Profit vs. Earning Ratio

Profit Ratio

Earning Power

13

Asset Ratio

The inventory Turnover is high for all companies. However, Dell and HP are able to

maintain similar level in years 2010 and 2011. On the other hand, Apple has an

increased of 80 time from 2010 to 2011. This indicates that inventory level is high as

its response time to its customers.

Debt Ratios

From the following graphs can be observed that even though all of the three

companies have larger debt to net worth, external financing from loans and sale of

bonds, it is Apple which has bigger debt of assets to vendors.

62.06

139.50

47.27 50.33

16.98 19.49 0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

Apple2010

Apple2011

DELL2010

DELL2011

HP 2010 HP 2011

Inventory Turnover

36.4%

34.2%

15.5%

12.1%

23.7%

17.9%

57.3%

51.9%

77.2%

72.3%

79.3%

55.1%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Apple 2010

Apple 2011

DELL 2010

DELL 2011

HP 2010

HP 2011

Debt Ratios

Debt to Net worth

Debt to Assets

14

Security Ratios

The following graph compares the Earnings per share, short term success of the

company, and the book value of the shares, long term, if the company would be

liquidated.

15.30

27.89

1.50 0.75 3.55 3.97

52.18

82.45

4.41 2.94

19.40 18.35

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Apple2010

Apple2011

DELL2010

DELL2011

HP2010

HP2011

Earning per share vs Book Value

Earnings per share

Book Value

15

5. COMPARISON OF COMPUTER MANUFACTURE INDUSTRY WITH

SERVICE INDUSTRY

The following table 8.1 represents all the important values for calculation of the ratios

for the service industry. To do a comparison with the computer manufacturer industry

our group decided to come up with an average performance of those two industries.

*In millions of $USD SYSTEMAX

PC CONNECTION

PCMI

2010 2011 2010 2011 2010 2011

TOTAL CURRENT ASSETS 766.22 765.24 388.32 357.19 310.54 272.06

TOTAL CURRENT LIABILITIES 411.51 464.37 181.00 152.12 265.27 219.42

INVENTORIES 372.24 370.38 77.44 74.29 79.46 63.58

ACCOUNTS RECEIVABLE 268.98 276.34 297.12 239.50 207.99 183.94

TOTAL ASSETS 889.66 894.1 468.02 420.94

TOTAL LIABILITIES (DEBT) 9.69 10.04 7.23 2.83 104.44 55.69

TOTAL COMMON EQUITY (NET WORTH)

454.29 409.27 273.53 257.64 110.83 107.29

SALES 3,682.0

4 3,589.9

9 2,103.3

0 1,974.2

0 1,455.2

2 1,368.3

1

PROFIT BEFORE TAX, INTEREST 78.68 66.03 47.43 38.39 6.17 12.45

NET INCOME 54.41 42.55 28.79 22.96 3.13 7.57

NUMBER OF SHARES 36.4 36.75 26.36 26.65 12 12.15

MARKET PRICE PER SHARE 389.00 389.00 276.00 275.00 14.00 14.00

DIVIDENDS 0.00 0.00 0.00 0.00 0.00 0.00

EARNINGS PER SHARE 1.49 1.16 1.09 0.86 0.26 0.62

Table 8.1 Values from I/S,B/S,C/F for service industry

The average of the industry ratios is represented on table 8.2. Once comparing the

number on table 8.1, with the respective numbers for Apple, Dell, HO, we get to the

conclusion that the computer manufacturing industry is bigger than the service

industry (i.e. total assets for Apple in 2011 is 116,371.0 but for SYSTEMAX is 894.1).

Even though the there is a difference on the size of the industry, the ratio

comparison result is fair enough, showing that these two sector are doing pretty

good.

16

COMPARISON BETWEEN INDUSTRIES - GROUPS 3 AND 7

Computer Manufacture Service

LIQUIDITY RATIOS

CURRENT RATIO 1.41662166 1.735656363

QUICK RATIO 1.335211151 1.038760433

PROFITABILITY RATIOS

PROFIT RATIO 10.84% 0.99%

EARNING POWER 13.94% 8.07%

RETURN ON INVESTMENT OF ASSETS 10.75% 5.05%

RETURN ON COMMON EQUITY 27.08% 8.62%

ASSET RATIO

INVENTORY TURNOVER 55.93767949 18.85897651

DAYS O RECEIVABLES OUTSTANDING 61.72714556 41.97263819

REVENUE TO ASSETS 1.157959304 5.025960495

DEBT RATIOS

DEBT TO ASSETS 23.30% 9.89%

DEBT TO NET WORTH 65.52% 25.74%

SECURITY RATIO

EARNING PER SHARE 8.826115252 0.915034257

PRICE EARNING 13.20063361 207.3765814

BOOK VALUE 29.95347314 10.28793808

PAYOUT 0.032092263 0

YIELD 0.005 0

Table 8.2 Average performance of industries

5.1 RATIO COMPARISON CHARTS

For analytical purpose, the group decide to generate a comparison chart for

each type o ratio, The liquidity ratios for both sectors are almost the same, showing

that the proportion between the assets and the liabilities are at the same level.

17

The profitability ratios chart, shows that the computer manufactures is way more

profitable than the service industry.

The asset ratios implies that there is a difference between computer and service,

because the inventory turnover and the revenue to assets, they have different

behaviour for each sector. This difference is given by the kind of product that both

sectors offer.

1.41662166

1.735656363

1.335211151

1.038760433

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2


LIQUIDITY RATIOS

CURRENT RATIO

QUICK RATIO

10.84%

0.99%

13.94%

8.07%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%


PROFITABILITY RATIOS

PROFIT RATIO

EARNING POWER

18

The debt ratios chart shows that the service industry is in less debt than the computer manufacturer

The security ratios chart states that the computer manufacturer is the most attractive investment in

case you decide buying stocks, because the book value and the earning per shares are significantly

higher.

55.93767949

18.85897651

1.157959304 5.025960495

0

10

20

30

40

50

60


ASSET RATIOS

INVENTORY TURNOVER

REVENUE TO ASSETS

23.30%

9.89%

65.52%

25.74%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%


DEBT RATIOS

DEBT TO ASSETS

DEBT TO NET WORTH

19

6. DEPRECIATION METHODS USED

Apple Inc.s property, plant and equipment are stated at cost. Depreciation is

computed by use of the straight-line method over the estimated useful lives of the

assets. Capitalized costs related to internal-use software are amortized using the

straight-line method over the estimated useful lives of the assets, which range from

three to five years.

Dell does not disclose it depreciation method, so base on the similar behaviour as

HP in term of inventory turnover and asset ratio, we assume that the depreciation

method use can be either straight-line or accelerated methods over the estimated

useful lives of the assets.

HP states property, plant and equipment at cost less accumulated depreciation. HP

capitalizes additions and improvements and expenses maintenance and repairs as

incurred. Depreciation is computed using straight-line or accelerated methods over

the estimated useful lives of the assets.

8.826115252

0.915034257

29.95347314

10.28793808

0

5

10

15

20

25

30

35


SECURITY RATIOS

EARNING PER SHARE

BOOK VALUE

20

1,027.00

1,814.00

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

2,000.00

2010 2011

Apple Inc - Depreciation

Depreciation

970

852

770

840

910

980

2011 2010

Dell - Depreciation

Depreciation

21

7. CONCLUSION

The computer manufacturing industry has shown to have a strong financial

situation. After analysing the Income statement, Balance Sheet, Cash flow

statements, we reach the conclusion that the companies in the computer

manufacturing sector are very significant to the USA economy. In addition, we can

state that Apple has the higher performance among HP and Dell.

Also in this report, a comparison between the service and the computer

manufacture were made. From the ratio analysis we can see that the performance of

the service industry is satisfying, however there profit margin is below the computer

manufacture.

So, analysing the charts, it is possible to conclude that the Computer

manufacturer industry is doing pretty well compared to the Service industry.

4984

4820

4700

4750

4800

4850

4900

4950

5000

2011 2010

HP - Depreciation

Depreciation

22

8. APPENDIX

25

DELL - INCOME STATEMENT

26

DELL BALANCE SHEET

27

DELL - CASH FLOW STATEMENT

financial case study

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