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RSM100Y1 (287)
Lecture 4

RSM100 Lecture 4 Finance.docx

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Department
Rotman Commerce
Course
RSM100Y1
Professor
Michael Khan
Semester
Winter

Description
RSM100 Lecture 4 Apple Inc. has reported disappointing sales of its iphone s • Apple Earnings Disappoint o Apple has sold more iphone 5c than iphone 5S therefore lower profit  margins (gross earnings divided by price) • Why are Apple Earning disappointing o Iphone 5s has underperformed due to canabilization from 5c • What do you suggest Apple should do from a strategic perspective • Is there hope for Apple  • Will apple be a Nortal RIM/Blackberry • Profit margins are useless for non­profitable businesses losing money  Financial Management (Planning Process) Reasons why they fail: Undercapitalization/poor control over cash/inadequate expense  control  Cash expenditures­ Inventory and Capital include Land and building Cash budget: Include cash from previous period (expected) Types of Budgets: Operational, Capital and Cash Two ways of making money in the long term are equity  (stocks and shares) and debt  (principle + Interest) Equity­Advantages: Can be expensive, no legal obligation to pay back Disadvantages: Too many shareholders (less control), Dilution of ownership, fraud Debt: Advantages: Tax deductible (more profit, more tax therefore can be considered an  expense) Disadvantages: More debt more likelihood of bankruptcy (Risk) Double Taxation­ Corporate income tax of revenue, Income taxation of shareholders  (Interest is taxed at a higher rate than dividance)  Bonds are loans: legal obligation is to pay back. You do not have to pay back shares to  investor!! Preferred Shares  Cumulative Dividance­ accumulation of dividence when avoiding previous dividence
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