Equity to millions liabilities equity assets ratio

Info icon This preview shows pages 10–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Equity to millions) Liabilities Equity Assets ratio Apple, Inc ................... $ 75,183 $27,392 36.4% $47,791 63.6% Cisco Systems, Inc . . ......... 81,130 36,845 45.4% 44,285 54.6% Gap, Inc .................... 7,065 2,985 42.3% 4,080 57.7% Procter & Gamble Co• ........ 128,172 66,733 52.1% 61,439 47.9% Target Corporation ........... 43,705 28,218 64.6% 15,487 35.4% k Value vs Market Value Stockholders' equity is the "value" of the company determined _ GAAP and is commonly referred to as the company's book value. This value is different from mpany's market value (market capitalization or market cap), which is computed by multiply- _ the number of outstanding common shares by the per share market value. We can compute le's market cap by multiplying its outstanding shares at September 25, 2010, (915,970,050 s) by its stock price on that date ($292.32), which equals $267.8 billion. This is consider- y larger than its book value of equity on that date of $47,791 million. Book value and market e can differ for several reasons, mostly related to the recognition of transactions and events financial statements such as the following: GAAP generally reports assets and liabilities at historical costs, whereas the market attempts to estimate fair market values. GAAP excludes resources that cannot be reliably measured (due to the absence of a past transaction or event) such as talented management, employee morale, recent innovations and successful marketing, whereas the market attempts to value these. GAAP does not consider market differences in which companies operate, such as competitive conditions and expected changes, whereas the market attempts to factor in these differences in determining value. GAAP does not usually report expected future performance, whereas the market attempts to predict and value future performance. Presently for U.S. companies, book value is, on average, about two-thirds of market value. This :;rans that the market has drawn on information in addition to that provided in the balance sheet and me statement in valuing equity shares. A major part of this information is in financial statement , but not all. It is important to understand that, eventually, all factors determining company et value are reflected in financial statements and book value. Assets are eventually sold and ilities are settled. Moreover, talented management, employee morale, technological innovations, successful marketing are eventually recognized in reported profit. The difference between book -alue and market value is one of timing.
Image of page 10

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2-11 Module 2 I Overview of Business Activities and Financial Statements BUSINESS INSIGHT Apple's Market and Book Values Apple's market value has historically exceeded its book value of equity (see graph below). Much of Apple's market value derives from intangible assets, such as brand equity, that are not fully reflected on its balance sheet, and from favorable expectations of future financial performance (particularly in recent years). Apple has incurred many costs, such as R&D, advertising, and promotion, that will probably yield future economic benefits. However, Apple expensed these costs (did not capitalize them as assets) because their Apple's Market and Book Value future benefits were uncertain and therefore could not be
Image of page 11
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern