The notes are the section after the financial statements. They are also called the footnotes, and they are part of the audited statements rather than an appendix to them.
The notes are the section after the financial statements. They are also called the footnotes, and they are part of the audited statements rather than an appendix to them.
The three statements are a summary. Each line is one number standing for thousands of transactions. The notes are where that number is broken open. How revenue is recognised. What the debt costs and when it matures. What is owed under leases. What the company has promised to pay in future years.
The rule worth carrying. A figure on the face of a statement tells you what happened. The note tells you what is going to happen. You've already met one note in this course, the segment note, on day 6.
Apple's share-based compensation note for the year that ended September 30 2023.
The first figure is on the face of the cash flow statement and in the expense lines. $10,833 million against total net sales of $383,285 million is about 2.8% of revenue, which you can work out from two numbers you already have.
The second figure appears only in the note. $18.6 billion is the cost of stock already granted to employees that has not yet been charged against profit, because those awards have not finished vesting. It will be charged over roughly the next two and a half years whatever happens to sales.
That is a real commitment and you cannot see it anywhere on the income statement, the balance sheet or the cash flow statement. It's a future cost, already decided, disclosed in a note.
Divide it out. $18.6 billion over about 2.5 years is roughly $7.4 billion a year of expense that is already locked in.
The trap is thinking the notes are the small print.
They are longer than the statements and they hold the items most likely to change your view. Commitments. Contingencies. Legal matters. Debt maturities. The assumptions behind every estimate. A company that looks lightly indebted on the balance sheet can have years of fixed obligations disclosed a few pages later.
The second trap is reading a note once and assuming it holds. Notes change year to year, and a changed note is a signal. A new contingency. A revised assumption. An accounting policy applied differently. The loudest of them all is a restatement, which means the company is telling you that figures it already published were wrong and have been reissued.
You've now been through a 10-K from the cover to the notes, and through the 10-Q, the 8-K, the S-1 and the proxy. The skill is the same every time. Find the document. Find the item. Read the label next to the number.
Your manager is looking at Apple's profit and says its costs are well understood.
What was share-based compensation for the year and where does it appear?
$10,833 million. On the face of the statements and broken out in the share-based compensation note.
What share of revenue is that?
$10,833 million divided by $383,285 million is about 2.8%.
What is already committed beyond that year?
$18.6 billion of unrecognised compensation cost, expected to be recognised over a weighted-average 2.5 years.
Turn that into a figure your manager can use.
About $7.4 billion a year of expense already locked in by grants made. It is disclosed in a note and it appears on no statement until it lands.
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