Question

consolidated statement of operations for Apple.

1.identfy the company's effective tax rate for 2014.

2. find out the company's net income in 2014. explain how it has changed from 2013.

Millions, except Share data in Thousands, unless otherwise specified D E $156,508 87,846 68,662 C 2 Thousands, unless otherwise specified $182,795 $170,910 3 Net sales 112,258 106,606 4 Cost of sales 70,537 64,304 5 Gross margin 6 Operating expenses: 6,041 4,475 7 Research and development 11,993 10,830 8 Selling, general and administrative 18,034 15,305 9 Total operating expenses 52,503 48,999 10 Operating income 11 Other income/(expense), net 980 1,156 53,483 50,155 12 Income before provision for income taxes 13,973 13,118 13 Provision for income taxes 14 Net income $39,510 $37,037 15 Earnings per share: 16 Basic $6.49 $5.72 17 Diluted $6.45 $5.68 Shares used in computing earnings per 18 share: 19 Basic 6,085,572 6,477,320 20 Diluted 6,122,663 6,521,634 Cash dividends declared per common share $1.82 $1.64 21 22 ... CONSOLIDATED STATEMENTS OF OPE Sheet1 3,381 10,040 13,421 55,241 522 55,763 14,030 $41,733 $6.38 $6.31 6,543,726 6,617,483 $0.38 CONSOLIDATED

Answer 1

Effective tax rate for corporation is arrived at by dividing total tax by the earnings before tax. Care should be taken to include only federal income tax. Other taxes should not be included. However the information about other taxes is not available in the question given above.  

Effective tax rate for 2014 is arrived at below  

Total tax for 2014= $13973 millions

Earnings before tax = $53483 millions

Effective tax rate = 13973/53483 = 26.126 ~ 26.13%

Company's net income for 2014 is $ 39510 millions

Company's net income for 2013 was $ 37037 millions

The net income has increased by $ 2473 millions which is 6.6% increase over 2013.  

The change in net income is normally also seen in relation to change in sales to analyse how the company has fared during 2014 over 2013. This can be done by comparing Net income to sales as below:

This can be analysed as below:

Net Income consists of two main parts, Gross profit and Operating expenses . This will show how the company has performed as gross profit level and operating expenses level. This helps us to identify the reason for change in performance we arrived at in above step of change in net income.

Details 2014 2013 Difference

Net Profit as % of Net Sales 21.61% 21.67% Decrease by 0.06%

Gross profit as % of Net sales 38.59% 37.62% Increase by 0.97%

R&D expenseses % of Net Sales 3.30% 2.62% Increase by 0.68%

Selling & Admn Overheads

as % of Net sales 6.56% 6.33% Increase by 0.23%

Analysis: We see that even though gross profit grew by 0.97% in 2014 over 2013, net profit has infact fell by 0.06%. This is mainly driven by sharp increase in R&D expenses (by 0.68%) and small increase in overheads (by 0.23%) over 2013. Another point to be noted is that increase in net sales in 2014 could have been the result of increase in R&D expenses and this could bring in higher sales in the years to come.

Even though net income as % of net sales has fallen slightly in 2014 over 2013, in absolute numbers it has increased over 2013 by $2473 million (i.e. an increase on 6.67% over 2013). This has resulted in increase in Earnings per share numbers over 2013. Please bear in mind that basic earning per share considers only ordinary shares where as the diluted earning per share considers convertible securities in addition to ordinary stock like warrants, options, convertibles etc.