• Memo two to three pages to your supervisor explaining your findings and your recommendations for where improvements are needed to increase financial health. Be sure to include the following:
  • Areas within the company that are both above and below industry standards
  • An explanation of the limitations of using ratio analysis
  • The qualitative factors that play a role in improving the company's financial health

In the memo, suggest some specific ways in which the company can plan to improve below-industry-average ratio performance over time. Suggest annual targets over the next three years to catch up with or surpass industry averages. Explain why your recommendations should be effective.

Supporting Document: The Financial Ratios can be used to address this question.

Financial Ratios
Company Name:	Apple Computer, Inc.
Financial Ratio	Formula	APPLE Company Result	Industry Average
Profitability
Profit Margin	Net income/Annual Sales	20.91%	25.70%
Operating Margin	Operating Earnings (Income)/Sales	24.36%	24.70%
Return on Total Assets	Net income/Total assets	17.73%	16.30%
Basic Earning Power (BEP)	EBIT/Total Assets	20.47%	16.80%
Return on Common Equity	Net income/Stockholders' equity	87.87%	34.00%
EBITDA Coverage	EBITDA/Total Interest Payment	25.76	22.7
Asset Management
Days Sales Outstanding *	Accounts receivable/(Annual sales/365)	9.20	24
Inventory Turnover	COGS/Inventory	24.51	15.6
Fixed Assets Turnover	Annual Sales/Fixed assets	0.85	1.5
Total Assets Turnover	Annual Sales/Total assets	0.85	1.0
Liquidity
Current Ratio	Current Assets/Current Liabilities	1.4	1.1
Quick Ratio	(Cash & Equivalents+Markeatable Securities+Accounts Receivables)/Current Liabilities	0.9	1.1
Debt Management
Total Debt/Total Assets	(Short-term Debt + Long-term Debt) / Total Assets	0.46	0.52%
Times Interest Earned	EBIT/Interest charges	22.08	25.45
Market Value
Price/Earning (P/E)	P/E	46.27	38.1
Market/Book	Market price per share/Book Value per Share	38.52	29.38%
* Calculation is based on 365-day year.
		From 10K SEC Filings
	Operating Earnings (Income)	$66,880
	Current Assets	$143,713
	Current Liabilities	$105,392
	Short Term Debt	$49,960
	Long Term Debt	$99,700
	Total Assets	$323,888
	Cash & Equivalents	$38,016
	Markeatable Securities	$52,927
	EBIT	$66,288
	EBITDA	$77,344
	Interest Payments or Charges	$3,002
	Annual Sales	$274,515
	Inventory	$4,061
	Accounts Receivable	$6,917
	Fixed Assets	$323,888
	Net income	$57,411
	Stockholders Equity	$65,339
	Cost of Goods Sold (COGS)	$169,559
	Average Inventory	$2,030
	Current Share Price	$151.76
	Earnings per Share	$3.28
	Book Value	$3.94