Understanding Apple's Balance Sheet

For investors in Apple, Inc. (AAPL), the investment has certainly been fruitful. For those who are late to the
party and are considering investing in the Cupertino-based consumer products giant, a good place to start
gauging the company is its balance sheet. A companys balance sheet presents a picture of its financial
situation at a certain point in time. For an investor who wants to understand a company and its potential, the
balance sheet is a good guide.
Apples balance sheet is available in the "Investor News Section" of the companys corporate website as its 10-
K filing with the Securities and Exchange Commission. Investors can also access Apples unaudited balance
sheet, which it releases with its quarterly earnings.

Balance Sheet Components

The balance sheet of a company breaks down into its assets (or what it owns), liabilities (or what it owes),
and its shareholders equity (or the money that belongs to shareholders after paying off all liabilities). The
total of its assets is equal to the sum of its shareholders equity plus its liabilities. In the case of Apple, as of
September 27, 2014, this consisted of $231.839 billion on the assets side, total liabilities of $120.292, and
total shareholders equity of $111.547 billion.

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Cash Is King
For Apple, its strong cash position is a major strength. The company holds cash and cash equivalents of $13.8
billion, and also holds $11.23 billion in marketable securities that can easily be converted into cash. Thus, it
has an ample cash chest. A lot of this is held overseas and the company would have to pay US taxes on the
money to bring it into the country. That is why the company prefers to borrow money to engage in its share
buyback program.
Accounts receivable make up $17.4 billion. This represents the amounts owed by the companies it does
business with, such as cellular network carriers, retailers and wholesalers, and government and education
customers. Extending credit in business transactions is a risk, and Apple has credit insurance to limit its risk
to this exposure. Two big customers account for 10 percent of the companys receivables.
Another major asset is Apples $130.16 billion in long-term marketable securities. This includes about $79
billion in corporate securities and about $22 billion in US Treasurys. These investments are subject to
interest rate risk if interest rates start moving up. The company also reports about $20 billion in the
property, plant, and equipment category. This represents the value of what it owns in property and
equipment after accounting for the wear and tear associated with use.
Apple also reports $4.6 billion of goodwill, an intangible asset that represents the companys estimate of the
positive consumer association with its brand name. For the September 2014 period, the company tacked on
$2.2 billion in goodwill connected to its acquisition of Beats Music in July 2014 for $2.6 billion. The
acquisition was mostly financed with Apples readily available cash holding--useful for such acquisitions.

The Liabilities Side

Apples current liabilities are about $63 billion, which includes its $30 billion accounts payable, or the
amount it owes companies it does business with, as well as more than $6 billion in commercial paper it
issued. The company issued commercial paper debt to finance activities such as share buy backs it has
committed to, as well as to pay out dividends.
The company has total long-term debt of more than $28 billion, which includes both fixed-rate debt, on
which the interest rate is fixed, and floating-rate debt, on which the interest rate could move up. In order to
manage the risk that interest rates could move against the company, Apple has also entered into interest rate
swaps. The companys other non-current liabilities, or those that are not due for a while, amount to about
$25 billion.
In addition, Apples shareholder equity position includes about $23 billion, representing its equity base, and
more than $87 billion in the earnings it has generated for its shareholders over time. The company had a
stock split in June 2014, giving out seven shares for every share held by an investor.

Analyzing the Balance Sheet

Another way to understand Apples financial position is to look at certain ratios that give an idea of how the
company manages its business. One major ratio for this purpose is the liquidity ratio, which provides a
measure of how easily the company can pay off its creditors if it had to. This is obtained by taking stock of
Apples current assets versus its current liabilities. In Apples case, this is a healthy 1.08, indicating the
company has enough current assets on hand to cover its current liabilities.
Looking at how much Apple is leveraged, or how much debt it has in relation to its equity position, also
provides investors an idea about how prudently its debt is managed. Too much debt relative to equity
indicates that a company is over-leveraged. This could be a red flag since it will have less breathing room if it
runs into trouble. Apples debt-to-equity ratio of about .32 is certainly a conservative ratio and gives it lots of
breathing room.
As for the companys profitability, it has obtained a healthy return on the equity it has on its balance sheet,
generating a net profit of more than $39 billion on its sales and making for a return on equity of about 35
percent.

The Bottom Line

A reading of Apples balance sheet certainly suggests that it is a well-managed company. It presents its
information in a reader-friendly format and does not have any significant exposure to off-the-balance sheet
items that might obfuscate its true situation. However, investors should note that a companys balance sheet
could deteriorate as its earnings situation and industry position change. Thus, it is important to look at its
most recent balance sheet before investing.

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Reading the Balance Sheet

A balance sheet, also known as a "statement of financial position," reveals a company's assets, liabilities and
owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement,
make up the cornerstone of any company's financial statements. If you are a shareholder of a company, it is
important that you understand how the balance sheet is structured, how to analyze it, and how to read it.
The balance sheet is divided into two parts that, based on the following equation, must equal each other or
balance each other out. The main formula behind balance sheets is:
Assets = Liabilities + Shareholders' Equity
This means that assets, or the means used to operate the company, are balanced by a company's financial
obligations, along with the equity investment brought into the company and its retained earnings.
Assets are what a company uses to operate its business, while its liabilities and equity are two sources that
support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the
amount of money initially invested into the company plus any retained earnings and it represents a source of
funding for the business.
It is important to note that a balance sheet is a snapshot of the company's financial position at a single point
in time.
SEE: Complete Guide To Corporate Finance, What Is A Cash Flow Statement? and Understanding The
Income Statement

Know the Types of Assets

Current Assets
Current assets have a life span of one year or less, meaning they can be converted easily into cash. Such
assets classes include cash and cash equivalents, accounts receivable, and inventory. Cash, the most
fundamental of current assets, also includes non-restricted bank accounts and checks. Cash equivalents are
very safe assets that can be readily converted into cash; U.S. Treasuries are one such example. Accounts
receivables consist of the short-term obligations owed to the company by its clients. Companies often sell
products or services to customers on credit; these obligations are held in the current assets account until they
are paid off by the clients.
Lastly, inventory represents the raw materials, work-in-progress goods, and the company's finished goods.
Depending on the company, the exact makeup of the inventory account will differ. For example, a
manufacturing firm will carry a large amount of raw materials, while a retail firm caries none. The make-up
of a retailer's inventory typically consists of goods purchased from manufacturers and wholesalers.

Non-Current Assets
Non-current assets are assets that are not turned into cash easily, are expected to be turned into cash within
a year, and/or have a lifespan of more than a year. They can refer to tangible assets such as machinery,
computers, buildings, and land. Non-current assets also can be intangible assets such as goodwill, patents or
copyright. While these assets are not physical in nature, they are often the resources that can make or break a
company - the value of a brand name, for instance, should not be underestimated.
Depreciation is calculated and deducted from most of these assets, which represents the economic cost of the
asset over its useful life.

Learn the Different Liabilities

On the other side of the balance sheet are the liabilities. These are the financial obligations a company owes
to outside parties. Like assets, they can be both current and long-term. Long-term liabilities are debts and
other non-debt financial obligations, which are due after a period of at least one year from the date of the
balance sheet. Current liabilities are the company's liabilities that will come due, or must be paid, within one
year. This includes both shorter-term borrowings, such as accounts payables, along with the current portion
of longer-term borrowing, such as the latest interest payment on a 10-year loan.

Shareholders' Equity
Shareholders' equity is the initial amount of money invested into a business. If, at the end of the fiscal year, a
company decides to reinvest its net earnings into the company (after taxes), these retained earnings will be
transferred from the income statement onto the balance sheet and into the shareholder's equity account. This
account represents a company's total net worth. In order for the balance sheet to balance, total assets on one
side have to equal total liabilities plus shareholders' equity on the other.

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Read the Balance Sheet
Below is an example of a balance sheet, circa 2011 of Walmart:

As you can see from the balance sheet above, it is broken into two areas. Assets are on the top, and below
them are the company's liabilities and shareholders' equity. It is also clear that this balance sheet is in
balance where the value of the assets equals the combined value of the liabilities and shareholders' equity.
Another interesting aspect of the balance sheet is how it is organized. The assets and liabilities sections of the
balance sheet are organized by how current the account is. So for the asset side, the accounts are classified
typically from most liquid to least liquid. For the liabilities side, the accounts are organized from short to
long-term borrowings and other obligations.

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Analyze the Balance Sheet with Ratios
With a greater understanding of the balance sheet and how it is constructed, we can look now at some
techniques used to analyze the information contained within the balance sheet. The main way this is done is
through financial ratio analysis.
Financial ratio analysis uses formulas to gain insight into the company and its operations. For the balance
sheet, using financial ratios (like the debt-to-equity ratio) can show you a better idea of the company's
financial condition along with its operational efficiency. It is important to note that some ratios will need
information from more than one financial statement, such as from the balance sheet and the income
statement.
The main types of ratios that use information from the balance sheet are financial strength ratios and activity
ratios. Financial strength ratios, such as the working capital and debt-to-equity ratios, provide information
on how well the company can meet its obligations and how the obligations are leveraged.
This can give investors an idea of how financially stable the company is and how the company finances itself.
Activity ratios focus mainly on current accounts to show how well the company manages its operating cycle
(which include receivables, inventory and payables). These ratios can provide insight into the company's
operational efficiency.
SEE: Ratio Tutorial

The Bottom Line

The balance sheet, along with the income and cash flow statements, is an important tool for investors to gain
insight into a company and its operations. The balance sheet is a snapshot at a single point in time of the
company's accounts - covering its assets, liabilities and shareholders' equity. The purpose of the balance
sheet is to give users an idea of the company's financial position along with displaying what the company
owns and owes. It is important that all investors know how to use, analyze and read this document.

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Breaking Down The Balance Sheet

A company's financial statements - balance sheet, income and cash flow statements - are a key source of data
for analyzing the investment value of its stock. Stock investors, both the do-it-yourselfers and those who
follow the guidance of an investment professional, don't need to be analytical experts to perform a financial
statement analysis. Today, there are numerous sources of independent stock research, online and in print,
which can do the "number crunching" for you. However, if you're going to become a serious stock investor, a
basic understanding of the fundamentals of financial statement usage is a must. In this article, we help you to
become more familiar with the overall structure of the balance sheet.

The Structure of a Balance Sheet

A company's balance sheet is comprised of assets, liabilities and equity. Assets represent things of value that
a company owns and has in its possession, or something that will be received and can be measured
objectively. Liabilities are what a company owes to others - creditors, suppliers, tax authorities, employees,
etc. They are obligations that must be paid under certain conditions and time frames. A company's equity
represents retained earnings and funds contributed by its shareholders, who accept the uncertainty that
comes with ownership risk in exchange for what they hope will be a good return on their investment.

The relationship of these items is expressed in the fundamental balance sheet equation:
Assets = Liabilities + Equity

The meaning of this equation is important. Generally, sales growth, whether rapid or slow, dictates a larger
asset base - higher levels of inventory, receivables and fixed assets (plant, property and equipment). As a
company's assets grow, its liabilities and/or equity also tends to grow in order for its financial position to stay
in balance.
How assets are supported, or financed, by a corresponding growth in payables, debt liabilities and equity
reveals a lot about a company's financial health. For now, suffice it to say that depending on a company's line
of business and industry characteristics, possessing a reasonable mix of liabilities and equity is a sign of a
financially healthy company. While it may be an overly simplistic view of the fundamental accounting
equation, investors should view a much bigger equity value compared to liabilities as a measure of positive
investment quality, because possessing high levels of debt can increase the likelihood that a business will face
financial troubles.

Balance Sheet Formats

Standard accounting conventions present the balance sheet in one of two formats: the account form
(horizontal presentation) and the report form (vertical presentation). Most companies favor the vertical
report form, which doesn't conform to the typical explanation in investment literature of the balance sheet as
having "two sides" that balance out. (For more information on how to decipher balance sheets, see Reading
The Balance Sheet.)
Whether the format is up-down or side-by-side, all balance sheets conform to a presentation that positions
the various account entries into five sections:

Assets = Liabilities + Equity

Current assets (short-term): items that are convertible into cash within one year
Non-current assets (long-term): items of a more permanent nature
As total assets these =
Current liabilities (short-term): obligations due within one year
Non-current liabilities (long-term): obligations due beyond one year
These total liabilities +
Shareholders\' equity (permanent): shareholders\' investment and retained earnings

Account Presentation
In the asset sections mentioned above, the accounts are listed in the descending order of their liquidity (how
quickly and easily they can be converted to cash). Similarly, liabilities are listed in the order of their priority
for payment. In financial reporting, the terms"current"and "non-current" are synonymous with the terms
"short-term" and "long-term," respectively, and are used interchangeably. (For related reading, see The
Working Capital Position.)
It should not be surprising that the diversity of activities included among publicly-traded companies is
reflected in balance sheet account presentations. The balance sheets of utilities, banks, insurance companies,
brokerage and investment banking firms and other specialized businesses are significantly different in
account presentation from those generally discussed in investment literature. In these instances, the investor
will have to make allowances and/or defer to the experts.
Lastly, there is little standardization of account nomenclature. For example, even the balance sheet has such
alternative names as a "statement of financial position" and "statement of condition." Balance sheet accounts
suffer from this same phenomenon. Fortunately, investors have easy access to extensive dictionaries of
financial terminology to clarify an unfamiliar account entry.
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The Importance of Dates
A balance sheet represents a company's financial position for one day at its fiscal year end, for example, the
last day of its accounting period, which can differ from our more familiar calendar year. Companies typically
select an ending period that corresponds to a time when their business activities have reached the lowest
point in their annual cycle, which is referred to as their natural business year.
In contrast, the income and cash flow statements reflect a company's operations for its whole fiscal year - 365
days. Given this difference in "time," when using data from the balance sheet (akin to a photographic
snapshot) and the income/cash flow statements (akin to a movie) it is more accurate, and is the practice of
analysts, to use an average number for the balance sheet amount. This practice is referred to as "averaging,"
and involves taking the year-end (2004 and 2005) figures - let's say for total assets - and adding them
together, and dividing the total by two. This exercise gives us a rough but useful approximation of a balance
sheet amount for the whole year 2005, which is what the income statement number, let's say net income,
represents. In our example, the number for total assets at year-end 2005 would overstate the amount and
distort the return on assets ratio (net income/total assets).
The Bottom Line
Since a company's financial statements are the basis of analyzing the investment value of a stock, this
discussion we have completed should provide investors with the "big picture" for developing an
understanding of balance sheet basics. (To learn more about financial statements, read What You Need To
Know About Financial Statements, Understanding The Income Statement and The Essentials Of Cash Flow.)

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hacer dos columnas una en ingles y una en espaol