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2-1LEARNINGOBJECTIVESLO1 Describe information conveyed by the financial statements. (p. 2-3)LO2 Explain and illustrate linkages among the four financial statements. (p. 2-20)LO3 Illustrate use of the financial statement effects template to summarize accounting transactions. (p. 2-22)Introducing Financial Statements and Transaction AnalysisM o d u l e2APPLEThe Financial Times reported in August of 1980 that:Apple Computer, the fast growing Californian manufacturer of small computers for the consumer, business and educational markets, is planning to go public later this year. [It] is the largest private manufacturer in the U.S. of small computers. Founded about five years ago as a small workshop business, it has become the second largest manufacturer of small com-puters, after the Radio Shack division of the Tandy company.On December 12, 1980, Applehad its initial public offering at a price of $22. During the next 24 years (through fiscal 2004), Apple reported cumulativeincome of $3.8 billion on $128.5 billion in sales, a 3% net profit margin, and its market capitalization (share price 3common shares outstanding) was just over $15 million at the end of fiscal 2004. However, for its 2012 fiscal year alone, Apple reported income of $41.7 billion on sales of $156.5 billion, which represented a 26.6% net profit margin. In fact, over the past decade, Apple reported cumulative income of $103.2 billion on sales of $482.1 billion, which is a 21.4% profit margin. Its market capitalization at the end of fiscal 2012 was $627 billion, greater than Google, IBM, Microsoft, Oracle, Cisco, and Intel. Apple’s meteoric rise over that decade is the result of a number of iconic product introductions: iPod and iTunes in 2001, iPhone in 2007, and iPad in 2010. The rise in the mar-ket value of Apple stock has mirrored its product successes. However, 2012 saw a pullback in stock price as cash and other liquid nonproductive assets began to pile up; some saw Apple as a giant ship without a rudder.Information in financial statements helps us assess a company’s financial strength and judge the performance of managers and the company as a whole. This module defines and explains the components of each financial statement: the balance sheet, the income statement, the statement of cash flows, and the statement of stockhold-ers’ equity. We begin with a preview of Apple’s financial condition and performance through a review of its financial statements. Apple’s balance sheet is quite liquid due to a solid record of generating operating cash flow. Apple ended its 2012 year with $121 billion of cash and marketable investments. 20092010201120122013$700$600$500$400$300$200$100$0$800Apple Stock Price
2-2Courtesy of Getty ImagesLiquidity is important for companies like Apple that must react quickly to opportunities and changing market condi-tions. Like other technology companies, much of Apple’s production is subcontracted. Consequently, Apple’s property, plant and equipment make up only 9% of its assets.