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 Respond 1:

Apple generates a ton of money from its ongoing operations, even if growth rates have understandably slowed down as the company got bigger and its main markets matured over time. Reinvestment needs are quite low, so Apple gets to hang on to most of that money as free cash flows, which the company uses mainly to reward investors with generous dividends and share buybacks (Francis, 2010). Apple looks strong enough to continue making massive cash flow distributions over the long term, and this bodes well for investors in Apple stock over the coming years.

Apple produced $46.46 billion in cash flows from operations during the nine month period ending June 2014, a 6% increase versus $43.76 billion in the same period last year. The business is clearly generating a lot of money, although growth rates have decelerated materially in recent years. We can see from a longer term perspective that Apple was growing at much faster rates in years like 2011 and 2012 (Cardenal, 2014).

In addition to analyzing a company’s ability to produce cash flow from its regular operations, it’s important to watch the different uses management is giving to that money. Free cash flow is calculated as operating cash flows less capital expenditures, and it’s particularly illustrative because it tells investors how much money is left after the company reinvests a portion of its operating cash flows in property, plant, and equipment to sustain growth.

Apple generated $46.46 billion in operating cash flows during the last three quarters, and the company needed to reinvest only $5.75 billion in property plant and equipment over that period, so free cash flow amounted to a big $40.71 billion. Capital expenditures absorbed a notoriously low 12% of operating cash flows, which shows that Apple is a very profitable business with small reinvestment needs.This number can fluctuate considerably from quarter to quarter, but the fact remains that Apple is tremendously efficient when it comes to transforming operating cash flows into free cash flows. In comparison, Samsung typically reinvest between 40% and 50% of its operating cash flows in property plant and equipment (Cardenal, 2014).

Respond 2:


Given the complexities related to preparing and interpreting the statement of cash flow, there are several requirements that are needed both for GAAP and IFRS. An example is the fact that both of them require a statement of cash flows to report cash flows during the period that has been broken out into operating activities. To add on this both of them also allow the use of direct as well as indirect methods of presenting cash flow from the company’s operating activities. Despite the fact that there are similarities between the two, there are some different which also form part of their requirements. As far as bank overdrafts are concerned, for GAAP, they are not included in the cash and cash equivalents, instead they are normally accounted for as liabilities, and any changes in the overdraft balances are then classified as financing flows. This is the opposite the IFRS where the bank overdrafts are included in the cash and cash equivalents. Bank overdrafts are then included as components of cash and cash equivalents. When it comes to classification of interest earned and dividends, for GAAP, interest and dividends are seen as operating activities, while dividends paid are classified as financing activities.

There are many effects as a result of classifications in the operating system that have been done in an erroneous manner. This is something that can affect the decision making based on the financial statements. The main reason as to why I say this is because individuals happen to make decisions about their financial future based on these statements, and in the case where there can be wrong information it is more likely that he decisions will not be the correct ones for them.  It is therefore important for the financial reports to be accurate whether they are related to operating activities, investing activities, or related to financing activities. An organization should make sure that these elements have been taken into great consideration so as to avoid cases of misreporting whatsoever.