To: All 1L Students at Villanova University Charles Widger School of Law

From: Joseph Del Raso Business & Financial Literacy Module Faculty1
Date: January 7, 2019 (But for purposes of this problem, the date is July, 2018)
Re: AppleBiz, Inc. – Background and Financial Picture
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AppleBiz, Inc. is a closely-held company, authorized by Apple, Inc. to sell Apple products (iPads, iPhones,
Apple Watch, and Mac laptops) for use in business and in similar settings that don’t involve social media.
The products, together with an ever expanding array of apps, are used in restaurants to make and adjust
reservations and accept customer’s payments; in companies with multiple drivers (like moving van lines)
to organize routes and schedules; in sharing services like Uber and Zipcar; in retail stores like Urban
Outfitters, where the products are used for inventory control and internal communications; and for
health care diagnostics such as electrocardiograms and blood sugar testing.
Meg Jobs and Donald Icahn are co-owners of AppleBiz, Inc. Meg owns 40% of the common stock and
Donald owns the remaining 60%. Donald founded the company about 7 years ago and put up all of the
initial capital. He is 63 years old and a semi-retired businessman. He invested 100% of the $460,000
needed to start and maintain the business before it was able to pay its bills.
Four years ago, Donald met Meg, then 40, who is very tech savvy. Meg not only understands the fullest
use of the Apple products, she also has vast knowledge of business-related apps and has actually
created custom apps for AppleBiz, providing technical service solutions to AppleBiz customers. She also
oversees AppleBiz’s R&D, where new apps are in constant development. Recently AppleBiz’s revenue
from the sale of app licenses and related services has exceeded revenue from sales of Apple products.
Meg purchased her AppleBiz stock from Donald over several years as she achieved revenue goals. She
paid no money out-of-pocket for her 40% ownership of the company because Donald caused the
company to pay bonuses to Meg in those years, which were used to pay for Meg’s stock. The price for
the shares Meg bought was well below what both Donald and Meg thought they were worth at the
time.
Meg works full-time for AppleBiz and supervises 20 other employees and occasional independent
contractors hired to do programming and app development. Donald has the title of Chief Executive
Officer and works about 10 hours per week for the company.
We have seen the company’s corporate charter and by-laws, which are fairly standard. We now need to
become familiar with the financial status of AppleBiz. The company’s internally prepared financial
statement is attached.
Please carefully review both the Balance Sheets and Income Statements and answer the following
questions:
1. Is AppleBiz a big company? How much revenue does it have?
a. Probably not that large of a company. $6 mil is substantial but not big.

1
The primary author of this problem is Douglas P. Coopersmith, who is a shareholder at Buchanan, Ingersoll and
Rooney, PC. It is reproduced here with his permission. The financial statements were prepared by Joseph W.
Lesovitz, who is a partner at Citrin Cooperman.
 2. Is it profitable?
a. Not that profitable.
3. Does AppleBiz have adequate cash flow to conduct its operations?
a. Yes: more cash than its total liabilities
4. Does AppleBiz have a lot of debt?
a. Not a lot of debt, so not at major risk
5. Does AppleBiz have any equity?
a. No equity
6. How much money do the shareholders take out of the company each year? In what form?
For Tuesday, please be prepared to discuss your answers to these questions as part of an analysis of the
overall financial picture of AppleBiz presented by the financial statement. Understanding the financial
picture will be necessary for you to be able to represent the AppleBiz shareholders later this week.

Applebiz PART I (Tuesday):

 Corporation: creature of statute, created by legislature

 Applebiz: sell apps, resell products
 Two shareholders, Donald and Meg, own Applebiz
 Donald owns 60% of common stock, Meg owns 40%
 Meg works full time, Donald works part time (10 hr/week)
 Questions:
o 1: Is it a big company/how much revenue does it have?
 Income statement: total revenue (line 11), revenues for different time periods
 Most companies prefer to accelerate their income, rules for when a company
can record revenue
 Revenue has gone up over the past few years, shifting where their business is
o 2: Is Applebiz profitable?
 Revenue exceeds the cost of making the revenue, but doesn’t necessarily mean
it’s profitable
 Look at net revenue
 Check income statement, line 31 (net income)
o 3: Adequate cash flow?
 Balance sheet: it seems that Applebiz has a lot of cash in the bank: do they have
enough to cover their expenses? => look at their liabilities
 Assets are divided between current and non-current assets
 Current=cash/any asset that can be converted to cash in a year
 Non-current = long-term assets
 Line 7: current assets, non-current assets, total assets
 Line 24: liabilities
 Current: anything that has to be paid within the year
 Non-current: long-term, more than a year
 Compare current assets and current liabilities
  Working capital => measure of liquidity
 WC = current assets- current liabilities
 $3,499,999 - 1,075,00= $2,374,999
 April 30, 2018: WC = $4,173,800 - $740,000 = $3,433,800
o 4: Do they have a lot of debt?
 Borrow money from: banks, investors, money markets, suppliers of G&S
 No long term debt
 Accounts payable: short term debt owed to its creditors or suppliers
 Accrued commissions: Applebiz hasn’t paid the sales commission yet, but it will
in the future
 Matching principle: requires a company to match expenses with related
revenues
 Line 26 of balance sheet: can infer things I guess
 Financial statements don’t indicate whether Applebiz can count on their
customers in the future
 But management says that it has good relationships with its customers
with lots of repeat purchases
o 5: Do they have any equity?
 Equity = Assets – Liabilities
 Equity: what the shareholders would receive after the company sells all assets
and pays off all liabilities
 The economic interest of the shareholders in the corporation
 Book value
 Valuing Applebiz: look at book value (subtract liabilities from assets)
 Probably isn’t want the company’s really worth because market value is
higher
 Equity in 2017 (assets – liabilities): $4,499,000 – 1,075,00 = 3,242,000
 Equity consists of:
 Paid in Capital
 Retained Earnings: accumulated net income retained by the company
 RE beginning balance + current year income – SH distributions paid = RE
ending balance ($2,964,000)
o 6: How much money to shareholders take out each year?
 Distribution: cash payment made to shareholders; i.e., a dividend
 Take out money through salaries and dividends
 Meg owns 40%, Donald owns 60%, Meg receives that share of stock
 Meg: 40% of $1,275,000