CFA Institute Research Challenge

hosted by

CFA Society Cayman Islands

International College of the Cayman Islands

 International College of the Cayman
Islands
Consumer Electronics, Consumer Discretionary

New York Stock Exchange (NYSE)

Fitbit Inc.

Recommendation: Sell
Date: December 30,
Current Price: USD 7.32
2016
Target Price : 4.73

Headquarters: San
Ticker: NYSE: FIT S&P 500: 2,238.83
Francisco

Executive Summary

Headquartered in San Francisco, Fitbit was

founded by Eric N. Friedman & James Park in
March of 2007. The company got listed on the
NYSE on June 18th, 2015, under the symbol FIT.
FIT develops innovative health tracking
devices. The devices they create are intended
for individuals to track their daily health habits
and are meant to encourage people to live
healthier lifestyles by making them aware of
FIT Stock Price, Source: Yahoo their body habits. They accomplish this by
Finance tracking calories, sleep quality, daily steps, and
distance moved. The devices have
complementary applications to display the daily
habits in an understandable format which
allows the users to accomplish their goals and
be competitive with their friends and family.

Investment Recommendation
Product price 2016, Source:
Statista
We issue a sell recommendation on FIT. The
Class A common stock shares was trading at
$7.32 on the date of this report, December 30,

2
 2016. We base our sell recommendation on the
lack of innovation from FIT as a company and
the slowing sales growth of its products.
Gender

Investment Thesis and Outline

Male
Female
The potential growth of the wearable device
industry has stimulated a rapid increase in
competition. Fitness trackers still have a
Source: Team Survey, considerable market share of wearables; smart
Survey Monkey watches are reducing their market share. FIT is
no longer a price maker; they are price takers
Age because of a weak market offering, declining
growth, and decreasing market share. We
applied the BCG matrix to the company and
45or older
17 to 24 concluded that FIT has moved from being a
35 to 45 25 to 34 'Star' to a 'Cash Cow', and eventually moving
toward the 'Dog' quadrant. The class A
common shares are overvalued based on our
Discounted Cash Flow valuation. Also, factors
Source: Team Survey,
Survey Monkey including the overvaluation of the class A
common shares, over exposure, sophisticated
devices such as the Apple watch, cheaper
Income options such as Xiaomi, helped us finalize our
$0 - $20K $20K - $35K sell recommendation.
During our call with investor relations, we
$35K - $55K $55K - $75K learned that FIT utilizes sell-in as opposed to
sell-through revenue recognition. Using sell-in
revenue is recognized when the retailer
$75K or above
consents to buy the product as opposed to sell-
through where revenue is recognized when the
customer purchases the product from the
retailer. The retailer has the right to return
Source: Team Survey, Survey
Monkey unsold units for a refund, which is a potential
loss of revenue. In our view, the revenue
recognition model at FIT is susceptible to over-
valuation.

Business Description

The founders realized that, due to the

advancement in wireless technology and

3
 sensors, products could be made that better
Features
Fashionability Ease of use enhance the experience in the health and
fitness space. Since then, the company has
Functionality Cost grown into several broad divisions, with
experienced and qualified top executives
Availability Service (Appendix G).
FIT has eight other offices in different parts of
the world, excluding its headquarters, which
Source: Team Survey, Survey are in Boston, Dublin, Shanghai, Hong Kong,
Monkey Seoul, Minsk, New Delhi, and Tokyo. Fitbits
mission is to help achieve fitness and health
goals by designing products and experiences
Heart rate that enable healthy and productive lifestyle.
Features
GPS FIT products can be classified into two
categories namely clip-on and wearables. The
Sleep Tracking
clip-on devices can be clipped onto items of
Waterproof
clothing. The wearable devices are worn on the
Pace tracking wrist, just like a watch, and can track the
Altimeter required data easily. Appendix C has a list of FIT
Calories burned products in their chronological sequence of the
issue.
Source: Team Survey, Survey FIT also introduced a weighing scale, the Fitbit
Monkey Aria, which is used to check on Body Mass
Index (BMI) and the body fat of users through a
Wi-Fi connection. FIT CEO James Park has stated
that consumers are not in need of any new
Sync toFeatures
multiple platforms
products at present.
Wireless

Speed of charging Industry Overview

Battery life
Demand Drivers
Other

Wearable devices are still in a delicate and

Source: Team Survey, Survey tricky growth stage in which developers do not
Monkey have a clear picture of consumer needs. The
wearable device industry had rapid growth in
the past four years followed by increased
competition. The rise in smartphone usage is
driving the demand for compatible devices.
This further increments the need for upgraded
software, fashion choice and functionalities
have also increased. The competitors in the

4
 wearable device industry are quickly merging
Average Price
$0 - $50 $50 - $100 and acquiring companies that specialize in the
needs of consumers to gain a competitive edge
$100 - $200 $200 - $300 in the rapidly changing market.

$300 or $more Team Survey

A survey was conducted to show what fitness

Source: Team Survey, Survey
brand consumers prefer as a wearable fitness
Monkey
device. In this research method, our team
targeted the college students of the
Replacement
New functionality International College of the Cayman Islands and
the working population of the Cayman Islands.
New style
The team asked questions, which directs to
Old device broke what consumers look for in a wearable fitness
device brand, making the survey more
Better warranty/service
valuable. The key questions of the survey
Other highlighted the important features, ease of use,
and the characteristics that make a good
fitness wearable device. Out of 200 responses,
Source: Team Survey, Survey
Monkey the team found out that FIT was the favorite
device among our targeted audience followed
by Apple and Nike. In addition to Fitbit, Apple
Place of Purchase
Online and Nike being the most popular fitness brands,
Exclusive Brand Retail Store most respondents prefer a wearable device that
is between the price of 50 to 100 and functional
Other Retailers
with a long battery life and wireless. The
Fitness Stores demographic for the wearable device industry
is mainly people between the age of 25 to 44
Other
years old. FIT mostly caters to the female
demographic and individuals with disposable
Source: Team Survey, Survey
income. The respondents also preferred the
Monkey
main feature of the device to be calories
burned followed by heart rate, waterproof and
pace tracking. Our survey also shows that
consumers prefer to purchase items online as
opposed to brick and mortar retail stores. The
survey data is available in Appendix F.

Management and Governance

Since its formation in 2010, both co-founders

5
 James Park and Eric Friedman has maintained
Brand an active role with the Company. Park is the
Chief Executive Officer (CEO), and Friedman,
Chief Technology Officer (CTO) have been
executing the overall strategy of FIT and
Apple Fitbit Garmin Jawbone shaping its direction.
Nike Samsung Xiaomi The entire executive
management team and board of directors,
summarized in Appendix G, has significant
experience in their respective fields. Other than
the co-founders the management team has less
than ten years of experience with the company
Other
and in the fitness technology industry.
As it relates to Corporate Governance, FIT is
incorporated in the state of Delaware because
of its advanced and flexible corporation
statutes. The Delaware Court of Chancery
primarily hears cases involving businesses. The
Source: Team Survey, Survey cases are heard by a judge to benefit large
Monkey firms. Members, officers, managers,
shareholders or directors of a corporation are
not required to reside in the state of Delaware.
FIT has three classes of directors with
staggered three-year terms to protect against a
hostile takeover, and stockholder attempts to
remove current management.

Fitbit BCG Matrix

Source: Team Analysis

Fitbit Porters Five Forces

Model
Source: Team Analysis

Competitive Positioning

6
FIT is the leading wearable fitness device company and the name Fitbit is
synonymous with the industry. FIT has many competitors; however, most
of the competitors develop multiple devices. Competitors include Apple,
Google, Garmin, Jawbone, Nike, Samsung, and Xiamo Mi. FIT has
numerous competitive advantages such as strong branding and a
considerable market share. FIT differentiates their brand by creating
fashionable, discrete, fitness tracking, and wearable devices. FIT has
developed various products with a broad range of features and prices.
Disadvantages for FIT include the fact that their competitors include
corporate giants such as Apple and Google who have dedicated
substantial capital into research and development. Also, FIT is
experiencing slower sales growth and is not expecting sales growth in the
future.

Using Porters Five Forces Model, we analyzed the level of competition in

the wearable technology industry and FITs position in the model. In the
industry, there is a big rivalry among competitors, and some of the
competitors are industry giants like Apple and Samsung. Since the
wearable technology market is predicted to be a $34 billion industry in
2020, the number of entrants into the market has been extremely high,
making the rivalry among competitors a huge force, and this profoundly
affects the position of FIT. The power of suppliers is moderate because the
competitors share many of the suppliers especially in the application
software and electronics industry. The threat of substitutes in this industry
is quite significant to FIT, because many of the companies offer wearable
devices with similar, or sometimes even better features, making FITs
position weaker. This considerable choice of products gives significant
power to consumers because the cost of switching brands is not very high
in this industry, and every day, newer and better alternatives are
available to the user.

Investment Summary

FIT has an uncertain future in that they are having problems with
innovation and sales growth. Based on the call with the Investor Relations
department, FIT is considering moving into the healthcare industry. They
have acquired another wearable device company, Pebble Technology
Corp. in early December 2016. This acquisition may strengthen FITs
market share, however only slightly. The wearables market is relatively
small, and FIT has already announced on their earning call that they
expect holiday sales to be flat.

7
Investment Summary (continued)

Recommendation

We issue a Sell recommendation on FIT. This position is supported by

various concerns regarding sales growth, competition and product
innovation. Our valuation model projects a value of equity per share that
is less than the trading stock price of FIT as of the date of this report.

Valuation Methodology

Valuation

We used Discounted Cash Flow Analysis (DCF) to determine the intrinsic

value for FIT. Performing valuation analysis on young, growth companies is
usually challenging because they have short histories, depend on
private/owner equity and most standard practices yield unrealistic
numbers. However, with FIT, they have been in business for a while but
have been publically traded only for a couple of years. Our valuation
shows a share price of 4.73, indicating that they are overvalued by around
35 from the closing trading price of 7.32 as of the date of this report.

We utilized historical data from 2013 to 2015 to create a 5-year DCF

model, using the constant growth approach, to determine the sum of the
present value of free cash flows for each year that is being forecasted. We
took this approach because even though FIT is a young company,
revenues have balanced out in the final three-quarters of 2016. Please
refer Appendix D for the complete valuation report.

FIT, when placed on the BCG Matrix (refer Appendix A), was in the Star
quadrant until early 2015. By the third quarter of 2015, it changed to a
Cash Cow,' generating a lot more cash, and not using up as much cash.
Currently, we place FIT in the Dog quadrant, having a weak market share
as well as low growth, due to the increase in the number of competitors in
the wearable technology industry.

During our call in November 2016 with FIT Investor Relations department,
the IR representative mentioned that FIT uses the sell-in method versus
the sell-through method to calculate sales. This further instructs their
sales forecasts for the upcoming years (Appendix D), leading to an

8
increase in inventory, and an overstock of goods if the distributors return
their products. FIT operates in the ever-changing technology industry,
which could lead to the inventory being obsolete quickly, and the goods
returned from the distributors could be unusable. The implications of
overstock or obsolete inventory are dire, including a reduction in profit, a
decrease in prices of products and a negative earnings surprise.

Revenue Growth

The projected revenue growth for estimates was derived from the
historical growth data, and based on the growth trajectory we observed, a
constant growth rate of 5 was used for forecasting the future years. This is
a more conservative estimate than other analysts, who have predicted
around 2 growth rate after 2017. However, we took a more optimistic view
to the changes in business strategy as proposed by FIT, and settled for 5.

Terminal Value

Terminal value of FIT was calculated using the present value of free cash
flows and the number of shares outstanding and a constant growth rate
model, which is usually used for mature companies, but is appropriate for
FIT as their revenue and growth have leveled over the past year.

Investment Risks

The fitness wearable device industry has an uncertain future since smart
watch manufacturers such as Apple and Samsung are adding fitness
tracking features to their smart watches. The sell-in method that FIT
utilizes to recognize revenue has an inherent risk of overstating sales. FIT
devices could potentially be sitting on the retailers shelves. This
constitutes a risk, as it affects the inventory being returned to FIT with the
returned products potentially becoming obsolete. With the entrance of
many competitors producing similar wearable technology, there is a risk
of wearable devices becoming a commodity.

Market risk

FIT faces market risks including the impact of intense competition in the
wearable device market and foreign exchange rate risk. Fitbit, Inc. sells
devices in multiple foreign countries; they had a $2.5 million increase in
foreign exchange loss according to the December 31, 2015, 10-K.

9
Investment Risks (continued)

Business and Operational risk

FIT faces a significant amount of acquisition risk due to their aggressive

growth strategy. There is a possibility that investments will fail to perform
in line with managerial expectations. The potential performance of
acquisitions further depends on senior management's decisions and is
dependent on the cost to acquire facilities, staffing and operational costs
and improvement costs.

Financial Analysis

Revenue Growth

The financial performance of FIT over a three-year period depict growth in

its revenues, gross profit, and net income during the financial years of
2013 to 2015. FIT realized a revenue boom of 255, 175 and 149 during
these years respectively. Dollar value revenues for the fiscal periods of
2013 to 2015 were 271.1 million, 745.4 million and 1.86 million
respectively. The increase in revenues from 2014 to 2015 were primarily
due to an increase in sales by 10.5 million fitness devices in 2015 than in
2014. Another contributing factor that led to the increase in revenues was
due to new products being introduced in the fourth quarter of 2014. With
increased revenue growth and cost of revenue being a subset of revenue,
the cost of revenue increased year over year by 324, 84, and 147
respectively, reaching 956.9 million in 2015. The increase in 2015 was due
to an increase in the average cost per device as well as more devices
being sold in 2015. The more devices that were sold led to an increase in
the cost of production. The cost of revenues represented 51.5 of revenues
for the period ending December 2015.

Although FIT has realized revenue growth year over year since 2013 to
2015, FIT expects its revenue growth to decline in future periods due to
slowing demand for its products and services, increased competition and
competitive pricing pressures. In fact, FIT has begun to realize a slow
growth in its revenues between quarters one (Q1) and quarter two (Q2) of
2016. The growth rate from Q1 to Q2 increased by 16 but then realized a

10
decline of 14 in its revenues by Q3. As revenues decrease, it will
eventually affect the companys overall financial position and have a
negative impact on its net income, which will lead to a negative impact on
its equity share. Appendix H has the complete calculations.

Financial Analysis (continued)

Gross margin

FIT has achieved gross profit growth of 126, 494 and 152 for the financial
years 2013, 2014 and 2015 respectively. In retrospect, gross profits were
60.2 million, 357.7 million and 901 million for the financial years of 2013
through to 2015. However, gross profits for 2013 suffered significantly due
to the recall of the Fitbit Force in the fourth quarter of 2013, but
nonetheless, gross margins have been consistently improving over the
financial years of 2013, 2014 and 2015. Gross margin improvements have
moved from a 22.23 in 2013 to a 48.50 in 2015. Per the aforementioned
information, improvements were derived from the growth in revenue and
the increased amount of devices that have been sold year after year.
As a result of consistent growth, net income increased by 176.81 with a
total of 176 million in the financial year of 2015. Net income represented
revenues at 9.53, and this was due to the increase in operating expenses
specifically in sales and marketing. The increase in sales and marketing
were due to the investments made in marketing programs, promotional
activities and a media launch to acquire new users.

FIT anticipates its expenses to increase substantially shortly as they

continue to make significant investments in research and development,
sales and marketing, developing and enhancing new and existing products
as well as expanding their operations and infrastructure both domestically
and internationally. Therefore, as FIT operating expenses continue to
increase and have its revenues decline slowly, there will be an absence of
the going concern concept which can imply that FIT may not remain
sustainable to continue its operations. Appendix H has the complete
calculations.

Ratio Analysis

Additionally, liquidity ratios as of December 2015, highlighted that FIT had

a strong liquidity profile in comparison with its competitors, Garmin and

11
Apple Inc. Fitbit was able to sustain its short-term obligations with a
working capital of 847 million, a current ratio of 2.67 and a quick ratio of
2.32. Tech companies are usually expected to have strong liquidity ratios
as the cash generated is mainly used to fund the operations. The accounts
receivable turnover ratio was 5.25, which indicated that FIT collects its
receivables five times a year or in 69.52 days. In comparison to its
competitor, Apple Inc. who had a receivables turnover of 13.62 in the year
2015, highlights that it takes Apple Inc. to collects its receivables less than
a month while FIT collects it receivables in approximately 60 days. A low
accounts receivable turnover indicates that FIT isnt efficient enough in
collecting its debts quickly. On the other hand, FIT had an inventory
turnover of 6.53, which shows that inventory was turned over or sold 6.5
times a year. The calculation also implies that inventory was kept on hand
for approximately 56 days, which implies that while FITs retailers and or
distributors werent selling the devices as quickly, inventories were not
transferred to its retailers on a timely basis. In comparison to Apple Inc.,
FIT under-performed. Apple Inc. managed to turnover its inventory 62.8
times a year. FITs sell-in and sell-through methods are not the best
strategies for the company as this can negatively impact revenue, the
cost of revenue and inventory as excessive inventory can be returned by
retailers or become obsolete.

About profitability measures, FIT has under-performed. The average net

margin for Garmin and Apple Inc. for the financial years of 2013 to 2015
were 17.38 and 22.04 respectively. FITs net margin as at December 2015,
was 6.14, with an average margin loss of -3.03 for the years 2013 to 2015.
The profitability of FIT is not fruitful. The return on assets (ROA) of 10.6
represents that FIT has been able to convert its investments into profit,
but as they continue to grow, investments in research and development
are the companys main focal point, while its competitors continue to
effectively yield substantial earnings on its investments. Appendix H has
the complete calculations.

12
13
Appendix

Appendix A

BCG Matrix

A BCG Matrix is a corporate growth-share planning matrix created by the

Boston Consulting Group. They analyzed and classified companies into
four different categories based on their position on the market growth vs.
market share graph. The four divisions in the matrix are Stars, Question
Marks, Cash Cows, and Dogs. The matrix helps to position businesses into
these four categories.

Stars:
These are companies that have a high market share and high market
growth. They generate and consume large amounts of cash. They are
usually innovators and have the first-to-market products. They become
cash cows if their growth persists.

Cash Cows:
Cash cows are market leaders who generate more cash than they use up.
They have a high market share but have already reached a plateau on the
growth front, so they have low growth prospects.

Dogs:
These companies are also called pets. They have a low market share as
well as low growth rate. They dont earn or consumer much cash, and they
usually break even, making neither a profit or loss. They are usually up for
divestiture, prime for sale or a takeover.

Question Marks:
Question marks are firms that have a high growth rate and low market
share. They consume more cash than they generate. These are also called
problem children, and if their growth rate improves, they are capable of
turning into stars.

14
 Source: Team Analysis

Appendix B

Porters Five Forces Model

Porters Five-Forces Model is a competitive analysis used for developing

management and operational strategies for an organization. It analyses
the competition between various firms in a particular industry. The
combined effect of these five forces could be attractive or unattractive for
organizations, depending on the industry, from a profit-making point of
view. The five forces as described by Porter are:

Rivalry among competitors:

This is the most powerful of the five forces. The management strategies
used by one firm in the industry can provide an edge over the other firms
in the industry, hence forcing the industry to change prices, change
quality/features, increase marketing costs, etc. The rivalry increases as
the number of the competing firms increases.
The threat of entry for new competitors:
Whenever new companies can easily enter a market or industry, the
competitiveness increases. Barriers to entry of new companies can include
technology, experience, customer loyalty, brand preferences, capital, etc.
When this threat is strong, firms already in the market, usually lower their

15
prices, add features, offer special discounts, etc. to have a competitive
advantage.
Potential development of substitute products:
The presence of substitute products in an industry, limits the companies in
that industry from making any price changes to the product. With many a
number of substitutes in the industry, customer loyalty decreases, and
switching costs to the customer are reduced.
Bargaining power of suppliers:
This force affects the industry when there are a large number of suppliers.
In many industries, firms have partnerships with their suppliers for cost
savings, access to latest technology, and timely logistics.
Bargaining power of consumers:
When there are a large number of users, their power to bargain represents
a major force in the industry. Firms may offer discounts, or other services
to deviate customer loyalty. When there is commoditization of the
products, the bargaining power of consumers is even higher.

Potential
Developm
ent of
Substitute
Products

Potential
Rivalry
entry of
Among
new
Competing
competitio
Firms Porter's
n
Five
Forces
Model

Bargaining Bargaining
Power of Power of
Suppliers Consumers

16
 These are the values we

assigned to Fitbit using the

Porters five forces model.

Legend
0 No Threat to Fitbit

1 Insignificant Threat to Fitbit

2 Low Threat to Fitbit

3 Moderate Threat to Fitbit

4 Significant Threat to Fitbit

5 Extreme Threat to Fitbit.

Source: Team Analysis

Appendix C

Fitbit Product Chronology

Product Issue Product Product

Sequence Name Type
1 Fitbit Tracker Clip-On
2 Fitbit Ultra Clip-On
3 Fitbit One Clip-On
4 Fitbit Zip Clip-On
5 Fitbit Flex Wearable
6 Fitbit Force Wearable
7 Fitbit Charge Wearable
Fitbit Charge
8 Wearable
HR
9 Fitbit Surge Wearable
10 Fitbit Blaze Wearable
11 Fitbit Alta Wearable
12 Fitbit Charge 2 Wearable
13 Fitbit Flex 2 Wearable

Source: Fitbit.com

17
Appendix D

Sell-In and Sell-Through methods.

In the regular distribution channels, distributors purchase products from

manufacturers and sell it to consumers. Manufacturers now are permitted
to recognize two revenue methods: sell-in and sell-through. In the sell-in
method, companies recognize revenue when the product is sent to the
distributor, which means the product has been sold in to the channel. In
the sell-through method, companies do not recognize revenue until the
distributor or retailer sells the product to the end consumer, in other
words, the product is sold through the channel.

In technology firms, the distributors can often return the inventory due to
pricing changes, or new upgrades/products that have come in. The sell-in
method is therefore associated with negative growth and lack of corporate
governance. The sell-in method also makes it a possibility for accounting
and estimating errors to occur in the financial statements.

Appendix E

DCF Valuation

Values in 1000s

2013 2014 2015 2016F 2017E 2018E 2019E 2020E

271,08 745,43 1,857,9 2,136,6 2,243,5 2,355,7 2,473,4 2,597,1
Total Revenue
7 3 98 98 33 09 95 69
210,83 387,77 956,93 1,025,6 1,076,8 1,130,7 1,187,2 1,246,6
Cost of Revenue
6 6 5 15 96 40 77 41
357,65 901,06 1,111,0 1,166,6 1,224,9 1,286,2 1,350,5
Gross Profit 60,251
7 3 83 37 69 17 28
199,72 552,86 705,11 740,36 777,38 816,25 857,06
Total Operating Expenses 69,205
8 5 0 6 4 3 6
157,92 348,19 405,97 426,27 447,58 469,96 493,46
Operating Income or Loss -8,954
9 8 3 1 5 4 2
Interest Expense 1,082 2,222 1,019 - - - - -
139,77 287,94 405,97 426,27 447,58 469,96 493,46
EBT -13,685
3 9 3 1 5 4 2
112,27 101,49 117,49 123,36
Taxes 37,937 7,996 25,373 6,343
2 3 1 6
114,01 304,47 400,89 441,24 352,47 370,09
Net Available for Common -51,622 28,348
8 9 8 1 3 7
EPS = NAC/# of shares
-1.32 0.70 0.88 1.36 1.79 1.97 1.58 1.65
outstanding

18
Free Cash Flow
2013 2014 2015 2016F 2017E 2018E 2019E 2020E
Depreciation &
3,094 6,926 22,068 34,392 42,989 53,737 67,171 83,964
Amortization
Change in Working 745,29 293,42 108,76 120,40 133,28
14,457 87,403 93,934
Capital (Less) 7 4 7 5 9
Capital Expenditures 111,10 116,66 122,49 128,62 135,05
7,524 26,495 30,566
(Less) 8 4 7 2 3
- 218,45 252,07 157,73 225,07
FCF -70,509 -78,624 -65,661
639,777 7 6 3 4
Cash Flow per share -0.315 -0.351 -2.86 -0.294 0.977 1.127 0.705 16

DCF
DCF 2018
VALUATION 2013 2014 2015 2016F 2017E E 2019E 2020E

WACC (k) 12
Years from
valuation Date 0 1 2 3 4 5
Discount
Factor 1 1.12 1.25 1.40 1.57 1.76
Present Value (639,7 179,4
of FCF 77) -58,626 174,152 23 100,242 127,713

NPV
Total present value of all future cash flows 522,904
Net Debt Level (Long term debt - cash) -535846
Value of equity 1,058,750
No of shares outstanding 223,700
Value of equity per share 4.73

Current price (as of 30 Dec 2016) 7.32

Overvalu
-35% ed

Legend
Growth Rates

Revenue 5

Cost of Rev 48

Op Expense 33

Tax 25

Depreciation 25

Cap Expenses 10
Number of Shares
Outstanding 223,700

19
Appendix F
What brand of wearable fitness
device would you choose?
Answer Response Respons
Options Percent e Count
Apple 25.5 50
Fitbit 38.3 75
Garmin 7.7 15
Jawbone 0.5 1
Nike 10.7 21
Samsung 8.7 17
Xiaomi 2.6 5
Other 6.1 12
answered question 196
skipped question 4

Service; 10%
Availability; Fashionability; 12%
7%
Ease of use; 22%
Cost; 24%
Functionality; 25%

In your opinion, what are the most

important features in wearable
fitness devices? (Select all that
apply).
Respon Respon
Answer Options se se
Percent Count
Heart rate 75.6 149
GPS 47.7 94
Sleep Tracking 34.5 68
Waterproof 66.5 131
Pace tracking 56.3 111
Altimeter 14.7 29
Calories burned 77.7 153
answered question 197
skipped question 3

20
 Regarding
What is theease
priceofyou
use, whatbe
would is willing
the
most important feature that
to pay for a wearable fitness device?you
look for in a wearable fitness Heart rate GPS
Answer Options Response Respon
device?Percent se
Answer Response Response
Count
0 Options Percent 19.3 Count 38 Calories burned;
Sleep 21% HeartWaterproof
Tracking rate; 20%
- 50
Sync to
50 - 100 40.6 Altimeter; 4%
multiple 21.6 42 80
100 - 200 31.0 61 GPS; 13%
platforms
200 - 300
Wireless 32.0 8.1 62 16 Pace tracking;
Pace 15%
tracking Altimeter
300
Speed or of
more 1.0 2 Sleep Tracking; 9%
2.6 5
charging answered question 197 Waterproof; 18%
Batteryskipped
life 41.8
question 81 3
Other 2.1 4 Calories burned
answered question 194
skipped question 6

2%
22%

Sync to multiple platforms Wireless

42%

Speed of charging Battery life

Other 32%

3%

21
What brand of wearable fitness device
would you choose?
Respon Respon
Answer Options se se
Percent Count
Apple 25.5 50
Fitbit 38.3 75
Garmin 7.7
What would make you consider 15
Jawbone
replacing your wearable fitness1
0.5
Nike device?10.7 21
Samsung Respon
8.7 Respon
17
Answer Options
Xiaomi se
2.6 se
5
Percent Count $200 - $300; 8% $300 or $more; 1%
Other 6.1 12
answered question47.4
New functionality 92
196 $100 - $200; 31% $0 - $50; 19%
skipped question 7.7
New style 15
4
Old device broke 35.1 68
Better $50 - $100; 41%
4.1 8
warranty/service
Other 5.7 11
answered question 194
skipped question 6

Other; 6%4%
Better warranty/service;
New functionality; 47%
Old device broke; 35%

New style; 8%

3% 6%
Apple Fitbit Garmin
25% Jawbone
9%
11%
0%
8%
Nike Samsung Xiaomi Other
38%

Source: Team Survey, Survey Monkey

22
Appendix G

FIT Top Executives

Fitbit Career Description
Photo Title
History
Co-founder, President Park is a co-founder
and Chief Executive and the Chief
Officer since 2007 Executive Officer of
Fitbit a position he
Tenure with Fitbit: 10 holds since 2007. Park
years is also the chairman
of the board of
directors since 2015.
Being a co-founder,
he is a portion of the
intelligence belief
behind the Fitbit
impression and
worked to bring all the
business products to
fruition. Park
transports his
education in computer
science from Harvard
University to Fitbit.
James Park CEO, The transporting of
President & Co- his educational
Founder background allowed
him to create a
healthy place in both
technology and
fitness businesses.
With deferred
compensation options
and restricted stock
options, his estimated
salary is 1.9 million
per year. Before
Fitbits formation, Park
was a director for
product development
at CNET Networks,
serving as the
president and co-
founder of Wind-Up
Labs Inc., a photo-
sharing company that
CNET Networks
acquired in 2005.

23
 Co-founder and Friedman is a Fitbit
Eric N. Friedman member of the board co-founder and has
Chief Technology of directors since been a member of the
Officer & Co- 2007. companys board of
Founder directors since 2007.
Chief Technology As of 2016, he is also
Officer since 2016 the company's newly
appointed Chief
Tenure with Fitbit: 10 Technology Officer. He
years has been contributory
in abstracting,
building and topping
numerous consumer
requests. He also
contributes to those
introductory to Fitbits
procedures. With
deferred
compensation options
and restricted stock
options, his estimated
salary is 702,000 per
year.
Friedman worked with
Park at CNET, where
he led the companys
engineering team and
was a co-founder of
Wind-Up Labs.
Friedman similarly
continued his
knowledge after jobs
at Epesi Technologies
and Microsoft,
wherever he was a
mechanical affiliate of
the Present
Collaboration Group.
He holds both a
bachelors and a
masters degree in
computer science
from Yale University.
Chief William Zerella serves a vital role
William Financial at Fitbit as the Chief Financial
Zerella Officer since Officer of the company since June
Chief June 2014. 2014. His role is to manage the
Financial business's overall financial growth
Officer Tenure with and profitability. He has over 30
Fitbit: 2.5 years of experience in similar
years roles, earning an estimated salary
of 878,000 per year at Fitbit.
Before working at Fitbit, Zerella
filled the Chief Financial Officer
part at Vocera Communications
Inc., a wireless healthcare
communications corporation and
he was instrumental in moving it
to the public sector in 2012.
Before Vocera, Zerella filled the
Chief Financial Officer position at
other firms, including Force10
Networks and Calient Networks.
Zerella got a bachelors degree in
accounting from New York
Institute of Technology and

24
 graduated from the Leonard N.
Stern School of Business at NYU
with a masters degree in the
same discipline.
Andy Missan has been the VP and
General Counsel since March
2013. Prior to Fitbit he served as
the VP and General Counsel at
VP and
Bytemobile, Inc., a mobile video
General
optimization company from 2009
Andy Counsel
to 2012. Preceding Bytemobile,
Missan VP since March
he was the VP and General
& General 2013
Counsel of MobiTV, another
Counsel
mobile provider of video solutions
Tenure with
and prior to MobiTV he was the VP
Fitbit: 4
and General Counsel of Danger.
years
He holds a B.A. in Government
from Oberlin College and a J.D.
from Northwestern University
School of Law.

Timothy Roberts has served as

VP of the VP of Interactive since
Interactive September 2010. He served as
Timothy since the Founder and CEO from 2007
Roberts September to 2010 of Infectious, a print-on-
VP, 2010 demand platform. Before
Interactive Infectious, he served has the VP
Tenure with of Product and Marketing at Odeo,
Fitbit: 6.5 a podcasting company. Timothy
years has a B.A. in Psychology from
Vassar College.

Edward serves has the Chief

Business Officer since October
Chief
2010. He served as a partner at
Business
Avanti Growth Partners, a private
Edward M. Officer since
equity and consulting firm from
Scal CHIEF October
2007-2010. Before Avanti, he
BUSINESS 2010
served as Executive VP and a
OFFICER
member on the board of directors
Tenure with
at CamelBak Products. Edward
Fitbit: 6.5
holds a B.A. in History from
years
Williams College and an M.B.A.
from Stanford Business School.

Tim is the new VP of Global

Marketing.
Tim Rosa VP of Global
Prior to Fitbit, Tim was VP of
VP, Global Marketing
Global Brand Development at
Marketing
Electronic Arts.
Recent
He went to University of Michigan-
Flint.

Source: Fitbit.com, Capital IQ

FIT Board of Directors

Chief Executive Officer and Chairman
James Park

25
 Chief Technology Officer and
Eric N. Friedman Executive Officer

Director
Laura Alber
Director
Jonathan D. Callaghan

Glenda Flanagan
Director

Steven Murray
Director
Christopher Paisley
Director
Source: Fitbit.com, Capital IQ

Appendix H

Common Sized Income Statement: Fitbit, Inc.

FITBIT

2015 2014 2013 2012 2011

$ % $ % $ % $ % $ %
1,857,99 745,43 271,08 76,37 14,45
Revenue 8 100 3 100 7 100 3 100 4 100
956,93 51. 387,77 52. 210,83 77.7 49,73 65. 9,22 63.8
Cost of Revenue 5 50 6 02 6 7 3 12 2 0
901,06 48. 357,65 47. 60,25 22.2 26,64 34. 5,23 36.2
Gross Profit 3 50 7 98 1 3 0 88 2 0

Operating Expenses:
150,03 8.0 54,16 7.2 27,87 10.2 16,21 21. 6,13 42.4
Research & Development 5 8 7 7 3 8 0 22 3 3
332,74 17. 112,00 15. 26,84 10,23 13. 1,86 12.9
Sales & Marketing 1 91 5 03 7 9.90 7 40 8 2
77,79 4.1 33,55 4.5 14,48 3,96 5.2 1,54 10.6
General & Administrative 3 9 6 0 5 5.34 8 0 4 8
-
Change in contingent (7,70 0.4
consideration 4) 9 - 0 - 0 - 0 - 0
552,86 29. 199,72 26. 69,20 25.5 30,41 39. 9,54 66.0
Total Operating expenses 5 69 8 79 5 3 5 82 5 4
- -
348,19 18. 157,92 21. (8,954 - (3,77 4.9 (4,31 29.8
Operating Income (Loss) 8 81 9 19 ) 3.30 5) 4 3) 4
- - -
(1,01 0.0 (2,22 0.3 (1,082 - (17 0.2 (1 -
Interest expense 9) 5 2) 0 ) 0.40 6) 3 5) 0.10
- -
(59,23 3.1 (15,93 2.1 (3,649 - 0.0 1
Other income (expense) 0) 9 4) 4 ) 1.35 26 3 5 0.10
- -
Income (Loss) before 287,94 15. 139,77 18. (13,685 - (3,92 5.1 (4,31 29.8
income tax 9 57 3 75 ) 5.05 5) 4 3) 4

112,27 6.0 7,99 1.0 37,93 13.9 2 0.3

Income tax expense 2 4 6 7 7 9 91 8 4 0.03
- - -
175,67 9.5 131,77 17. (51,622 19.0 (4,21 5.5 (4,31 29.8
Net Income (Loss) 7 3 7 68 ) 4 6) 2 7) 7
Source: Fitbit, Inc. Annual 10K

26
Common Sized Income Statement: Garmin Ltd.

GARMIN

2015 2014 2013 2012 2011

2,820,27 2,870,65 2,631,85 2,715,67 2,758,56
Revenue 0 100 8 100 1 100 5 100 9 100
1,281,55 45.4 1,266,24 44.1 1,224,55 46.5 1,277,19 47.0 1,419,97 51.4
Cost of Revenue 6 4 6 1 1 3 5 3 7 8
1,538,71 54.5 1,604,41 55.8 1,407,30 53.4 1,438,48 52.9 1,338,59 48.5
Gross Profit 4 6 2 9 0 7 0 7 2 2
Operating
Expenses:
Research & 427,0 15.1 395,1 13.7 364,9 13.8 325,7 298,5 10.8
Development 43 4 21 6 23 7 73 12 84 2
167,1 146,6 112,9 138,7 145,0
Sales & Marketing 66 5.93 33 5.11 05 4.29 57 5.11 24 5.26
General & 394,9 372,0 12.9 355,4 13.5 369,7 13.6 341,2 12.3
Administrative 14 14 32 6 40 1 90 2 17 7

Change in
contingent
consideration - 0 - 0 - 0 - 0 - 0
Total Operating 989,1 35.0 913,7 31.8 833,2 31.6 834,3 30.7 784,8 28.4
expenses 23 7 86 3 68 6 20 2 25 5
Operating Income 549,5 19.4 690,6 24.0 574,0 21.8 604,1 22.2 553,7 20.0
(Loss) 91 9 26 6 32 1 60 5 67 7

Interest expense - 0 - 0 - 0 - 0 - 0
Other income 17,6 33,1 79,5 20,3 30,3
(expense) 06 0.62 19 1.15 26 3.02 68 0.75 94 1.10

Income (Loss) 567,1 20.1 723,7 25.2 653,5 24.8 624,5 584,1 21.1
before income tax 97 1 45 1 58 3 28 23 61 8
Income tax 110,9 359,5 12.5 41,1 82,1 63,2
expense 60 3.93 34 2 46 1.56 25 3.02 65 2.29
456,2 16.1 364,2 12.6 612,4 23.2 542,4 19.9 520,8 18.8
Net Income (Loss) 37 8 11 9 12 7 03 7 96 8
Source: Garmin Ltd. Annual 10K

Common Sized Income Statement: Apple

APPLE INC.

2015 2014 2013 2012 2011

Revenue 233,715 100 182,795 100 170,910 100 156,508 100 108,249 100

59.9 61.4 62.3 56.1 59.5

Cost of Revenue 140,089 4 112,258 1 106,606 8 87,846 3 64,431 2

40.0 38.5 37.6 43.8 40.4

Gross Profit 93,626 6 70,537 9 64,304 2 68,662 7 43,818 8
Operating
Expenses:

Research &
Development 8,067 3.45 6,041 3.30 4,475 2.62 3,381 2.16 2,429 2.24

Sales & Marketing - 0 - 0 - 0 - 0 - 0

General &
Administrative 14,329 6.13 11,993 6.56 10,830 6.34 10,040 6.42 7,599 7.02

Change in
contingent
consideration - 0 - 0 - 0 - 0 - 0

Total Operating
expenses 22,396 9.58 18,034 9.87 15,305 8.96 13,421 8.58 10,028 9.26

Operating Income 30.4 28.7 28.6 35.3 31.2

(Loss) 71,230 8 52,503 2 48,999 7 55,241 0 33,790 2

Interest expense - 0 - 0 - 0 - 0 - 0

27
Other income
(expense) 1,285 0.55 980 0.54 1,156 0.68 522 0.33 415 0.38

Income (Loss) 31.0 29.2 29.3 35.6 31.6

before income tax 72,515 3 53,483 6 50,155 5 55,763 3 34,205 0

Income tax
expense 19,121 8.18 13,973 7.64 13,118 7.68 14,030 8.96 8,283 7.65

22.8 21.6 21.6 26.6 23.9

Net Income (Loss) 53,394 5 39,510 1 37,037 7 41,733 7 25,922 5
Source: Apple Inc. Annual 10K

Horizontal Analysis: Fitbit Inc., Garmin Ltd & Apple Inc.

Horizontal Analysis: FITBIT Percentage change

2015 2014 2013 2012 2013 2014 2015

Total Revenue 1,857,998 745,433 271,087 76,373 254.95 174.98 149.25

Cost of Revenue 956,935 387,776 210,836 49,733 323.94 83.92 146.78

Gross profit 901,063 357,657 60,251 26,640 126.17 493.61 151.93

Operating Expenses 552,865 199,728 69,205 30,415 127.54 188.60 176.81

(4,215.
Net Income 175,677 131,777 (51,622) 79) 1124.49 -355.27 33.31
Net Cash from Operating
Activities 109,157 18,774 33,171 (6,880) -582.14 -43.40 481.43

Assets 1,519,066 633,051 230,770 - - 174.32 139.96

Horizontal Analysis: Garmin Percentage change

2015 2014 2013 2012 2013 2014 2015

Total Revenue 2,820,270 2,870,658 2,631,851 2,715,675 -3 9.07 -1.76

Cost of Revenue 1,281,556 1,266,246 1,224,551 1,277,195 -4 100 -100

Gross profit 1,538,704 1,604,412 1,407,300 1,438,480 -2 14.01 -4.10

Operating Expenses 989,123 913,786 833,268 834,320 0 100.13 0.12

Net Income 456,227 364,211 612,412 542,403 13 -40.53 25.26

Net Cash from Operating
Activities 280,467 522,711 630,084 684,745 -8 -17.04 -46.34

Assets 4,499,391 4,693,303 4,879,603 4,819,124 1 -3.82 -4.13

Horizontal Analysis: Apple Inc.
Percentage change

2015 2014 2013 2012 2013 2014 2015

Total Revenue 233,715 182,795 170,910 156,508 9 6.95 27.86

Cost of Revenue 140,089 112,258 106,606 87,846 21 5.30 24.79

Gross profit 93,626 70,537 64,304 68,662 -6 9.69 32.73

Operating Expenses 22,396 18,034 15,305 13,421 14 17.83 24.19

Net Income 53,394 39,510 37,037 41,733 -11 6.68 35.14

Net Cash from Operating
Activities 81,266 59,713 53,666 50,856 6 11.27 36.09

Assets 290,479 231,839 207,000 176,064 18 12 25.29

Source: Fitbit, Inc., Garmin Ltd & Apple Inc. Annual 10K

Common Size Balance Sheet: Fitbit, Inc.

FITBIT

2015 2014 2013

Assets:

Current assets 708,008 46.61 209,240 33.05 87,223 37.80

28
Accounts Receivable 469,260 30.89 238,859 37.73 80,624 34.94

Inventories 178,146 11.73 115,072 18.18 56,441 24.46

Total Current assets 1,355,414 89.23 563,171 88.96 224,288 97.19

Property and equipment 44,501 2.93 26,435 4.18 6,486 2.81

Goodwill 22,157 1.46 - 0 - 0

Other non-current assets 96,994 6.39 43,445 6.86 - 0

Total assets 1,519,066 100 633,051 100 230,774 100

Liabilities & Equity:

Current liabilities 508,257 33.46 461,311 72.87 209,831 90.92

Other non-current liabilities 29,358 1.93 28,664 4.53 18,173 7.87

Commitments contingencies - 0 67,814 10.71 66,236 28.70

Stockholder's equity 981,451 64.61 75,262 11.89 (63,466) -27.50

Total Liabilities & Equity 1,519,066 100 633,051 100 230,774 100
Source: Fitbit, Inc. Annual 10K

Common Size Balance Sheet: Garmin Ltd. & Apple

GARMIN

2015 2014 2013 2012 2011

Assets:
1,179,0 26. 1,520,3 1,648,8 33. 1,542,5 32.0 1,569,64
Current assets 52 20 10 32.39 24 79 16 1 6 35.10
531,4 11. 570,1 564,5 11. 603,6 12.5 607,4
Accounts Receivable 81 81 91 12.15 86 57 73 3 50 13.59
500,5 11. 420,4 382,2 7.8 389,9 397,7
Inventories 54 12 75 8.96 26 3 31 8.09 41 8.90
Total Current 2,211,0 49. 2,510,9 2,595,6 53. 2,536,1 52.6 2,574,83
assets 87 14 76 53.50 36 19 20 3 7 57.59
Property and 85,1 1.8 94,2 98,3 2.0 97,4 95,5
equipment 62 9 45 2.01 24 1 27 2.02 70 2.14

Goodwill - 0 - 0 - 0 - 0 - 0
Other non-current 2,203,1 48. 2,088,0 2,185,6 44. 2,185,5 45.3 1,800,93
assets 42 97 82 44.49 43 79 77 5 1 40.28
4,499,3 4,693,3 4,879,6 4,819,1 4,471,33
Total assets 91 100 03 100 03 100 24 100 8 100

Liabilities & Equity:

865,9 19. 1,033,2 905,3 18. 909,0 18.8 858,2
Current liabilities 98 25 61 22.02 04 55 26 6 79 19.20
Other non-current 288,2 6.4 256,6 314,5 6.4 378,3 356,4
liabilities 67 1 75 5.47 93 5 02 7.85 78 7.97

Commitments &
contingencies - 0 - 0 - 0 - 0 - 0
3,345,1 74. 3,403,3 3,659,7 3,531,7 73.2 3,256,58
Stockholder's equity 26 35 67 72.52 06 75 96 9 1 72.83
Total Liabilities & 4,499,3 4,693,3 4,879,6 4,819,1 4,471,33
Equity 91 100 03 100 03 100 24 100 8 100

APPLE INC

2015 2014 2013 2012 2011

Assets:
70,18 24. 48,9 21.1 58,4 45,9 26. 38,8 33.
Current assets 0 16 60 2 20 28.22 32 09 43 38
16,84 5.8 17,4 13,1 10,9 6.2 5,3 4.6
Accounts Receivable 9 0 60 7.53 02 6.33 30 1 69 1
2,34 0.8 2,1 1,7 7 0.4 7 0.6
Inventories 9 1 11 0.91 64 0.85 91 5 76 7
89,37 30. 68,5 29.5 73,2 57,6 32. 44,9 38.
Total Current assets 8 77 31 6 86 35.40 53 75 88 66
22,47 7.7 20,6 16,5 15,4 8.7 7,7 6.6
Property and equipment 1 4 24 8.90 97 8.02 52 8 77 8

29
 5,11 1.7 4,6 1,5 1,1 0.6 8 0.7
Goodwill 6 6 16 1.99 77 0.76 35 4 96 7
59. 138,06 59.5 115,54 101,82 57. 62,7 53.
Other non-current assets 173,514 73 8 5 0 55.82 4 83 10 89
231,83 207,00 176,06 116,37
Total assets 290,479 100 9 100 0 100 4 100 1 100

Liabilities & Equity:

80,61 27. 63,4 27.3 43,6 38,5 21. 27,9 24.
Current liabilities 0 75 48 7 58 21.09 42 89 70 04
90,51 31. 56,8 24.5 39,7 19,3 10. 11,7 10.
Other non-current liabilities 4 16 44 2 93 19.22 12 97 86 13

Commitments &
contingencies - 0 - 0 - 0 - 0 - 0
41. 111,54 48.1 123,54 118,21 67. 76,6 65.
Stockholder's equity 119,355 09 7 1 9 59.69 0 14 15 84
231,83 207,00 176,06 116,37
Total Liabilities & Equity 290,479 100 9 100 0 100 4 100 1 100
Source: Garmin Ltd & Apple Inc. Annual 10K

Quarterly Common Size Income Statement: Fitbit, Inc.

FITBIT
Six Months
Three Months Ended Ended

2-Jul-16 30-Jun-15 2-Jul-16 30-Jun-15

586,52 400,4 1,091,88 737,16
Revenue 8 100 12 100 4 100 6 100
341,55 58.2 212,8 53.1 613,1 56.1 380,41 51.6
Cost of Revenue 9 3 70 6 60 6 5 1
244,96 41.7 187,5 46.8 478,7 43.8 356,75 48.3
Gross Profit 9 7 42 4 24 4 1 9

Operating Expenses:
79,9 13.6 30,4 152,1 13.9 52,9
Research & Development 09 2 92 7.62 57 4 18 7.18
118,13 20.1 69,6 17.4 225,1 20.6 113,55 15.4
Sales & Marketing 8 4 90 0 89 2 7 0
37,2 14,6 72,9 27,6
General & Administrative 62 6.35 48 3.66 64 6.68 29 3.75
Change in contingent (7,7 - (7,7 -
consideration - 0 04) 1.92 - 0 04) 1.05
235,30 40.1 107,1 26.7 450,3 41.2 186,40 25.2
Total Operating expenses 9 2 26 5 10 4 0 9
9,6 80,4 20.0 28,4 170,35 23.1
Operating Income (Loss) 60 1.65 16 8 14 2.60 1 1
8 (3 - 1,4 (8 -
Interest expense 39 0.14 79) 0.09 21 0.13 46) 0.11
-
(46 - (45,3 11.3 1,1 (58,38 -
Other income (expense) 3) 0.08 08) 2 05 0.10 5) 7.92
Income (Loss) before 10,0 34,7 30,9 111,12 15.0
income tax 36 1.71 29 8.67 40 2.83 0 7
3,6 17,0 13,5 45,4
Income tax expense 95 0.63 48 4.26 64 1.24 42 6.16
6,3 17,6 17,3 65,6
Net Income (Loss) 41 1.08 81 4.42 76 1.59 78 8.91
Source: Fitbit, Inc. Quarterly 10Q

Quarterly Common Size Income Statement: Garmin Ltd. & Apple

GARMIN

13 Weeks Ended 26 Weeks Ended

25-Jun-16 27-Jun-15 25-Jun-16 27-Jun-15

1,435,64
Revenue 811,609 100 773,830 100 8 100 1,359,224 100

30
 632,84 595,85
Cost of Revenue 348,651 42.96 354,580 45.82 0 44.08 2 43.84
802,80 763,37
Gross Profit 462,958 57.04 419,250 54.18 8 55.92 2 56.16

Operating Expenses:
222,55 215,24
Research & Development 114,355 14.09 109,240 14.12 9 15.50 2 15.84
45,79 76,84 73,46
Sales & Marketing 44,252 5.45 4 5.92 5 5.35 6 5.40
97,55 199,28 196,30
General & Administrative 103,677 12.77 2 12.61 7 13.88 2 14.44

Change in contingent
consideration - 0 - 0 - 0 - 0
498,33 485,01
Total Operating expenses 262,284 32.32 252,586 32.64 1 34.71 0 35.68
304,47 278,36
Operating Income (Loss) 200,674 24.73 166,664 21.54 7 21.21 2 20.48

Interest expense - 0 - 0 - 0 - 0
6,89 6,87 (28,60
Other income (expense) 3,127 0.39 4 0.89 1 0.48 9) -2.10
Income (Loss) before 311,34 249,75
income tax 203,801 25.11 173,558 22.43 8 21.69 3 18.37
35,80 62,19 45,20
Income tax expense 42,737 5.27 5 4.63 3 4.33 8 3.33
249,15 204,54
Net Income (Loss) 161,064 19.85 137,753 17.80 5 17.35 5 15.05

APPLE INC.

Three Months Ended Six Months Ended

26-Mar-16 28-Mar-15 26-Mar-16 28-Mar-15

50,55
Revenue 7 100 58,010 100 126,429 100 132,609 100
30,63 79,21
Cost of Revenue 6 60.60 34,354 59.22 76,085 60.18 2 59.73
19,92 53,39
Gross Profit 1 39.40 23,656 40.78 50,344 39.82 7 40.27

Operating Expenses:
2,51 3,81
Research & Development 1 4.97 1,918 3.31 4,915 3.89 3 2.88

Sales & Marketing - 0 - 0 - 0 - 0

3,42 7,06
General & Administrative 3 6.77 3,460 5.96 7,271 5.75 0 5.32

Change in contingent
consideration - 0 - 0 - 0 - 0
5,93 10,87
Total Operating expenses 4 11.74 5,378 9.27 12,186 9.64 3 8.20
13,98 42,52
Operating Income (Loss) 7 27.67 18,278 31.51 38,158 30.18 4 32.07

Interest expense - 0 - 0 - 0 - 0
15 28 45
Other income (expense) 5 0.31 6 0.49 557 0.44 6 0.34
Income (Loss) before 14,14 42,98
income tax 2 27.97 18,564 32 38,715 30.62 0 32.41
3,62 11,38
Income tax expense 6 7.17 4,995 8.61 9,838 7.78 7 8.59
10,51 31,59
Net Income (Loss) 6 20.80 13,569 23.39 28,877 22.84 3 23.82
Source: Garmin Ltd & Apple Inc. Quarterly 10Q

Quarterly Horizontal Analysis: Fitbit, Inc.

Quarterly Horizontal Analysis: FITBIT Percentage change

Q3 Q2 Q1

1-Oct-16 2-Jul-16 2-Apr-16 2-Jul-16 1-Oct-16

31
Total Revenue 503802 586528 505356 16.06 -14.10

Cost of Revenue 263144 341559 271601 25.76 -22.96

Gross profit 240658 244969 233755 4.80 -1.76

Operating expenses 196177 235309 215001 9.45 -16.63

Net Income 26,120 6,341 11,035 -42.54 311.92

Net Cash from Operating Activities 40,176 108,152 137,466 -21.32 -62.85

Assets 1,690,226 1,623,111 1,578,274 2.84 4.13

Source: Fitbit, Inc. Quarterly 10Q

Quarterly Common Size Balance Sheet: Fitbit

FITBIT

Q3 Q2 FY

1-Oct-16 2-Jul-16 31-Dec-15

Assets:

Current assets 758,474 44.87 819,458 50.49 710,008 46.74

Accounts Receivable 461,351 27.30 377,545 23.26 469,260 30.89

Inventories 214,955 12.72 190,644 11.75 178,146 11.73

Total Current assets 1,434,780 84.89 1,387,647 85.49 1,357,414 89.36

Property and equipment 94,311 5.58 74,181 4.57 44,501 2.93

Goodwill 14,578 0.86 25,217 1.55 22,157 1.46

Other non-current assets 135,918 8.04 136,066 8.38 96,994 6.39

Total assets 1,690,226 100 1,623,111 100 1,519,066 100

Liabilities & Equity:

Current liabilities 519,390 30.73 508,981 31.36 508,257 33.46

Other non-current
liabilities 53,732 3.18 47,473 2.92 29,358 1.93

Stockholder's equity 1,117,104 66.09 1,066,657 65.72 981,451 64.61

Total Liabilities &
Equity 1,690,226 100 1,623,111 100 1,519,066 100
Source: Fitbit, Inc. Quarterly 10Q

Quarterly Common Size Balance Sheet: Garmin Ltd.

GARMIN

Q3 Q2 FY

24-Sep-16 25-Jun-16 26-Dec-15

Assets:

Current assets 1,251,421 27.25 1,194,117 26.37 1,179,052 26.20

Accounts Receivable 461,355 10.05 510,309 11.27 531,481 11.81

Inventories 534,683 11.64 508,161 11.22 500,554 11.12

Total Current assets 2,247,459 48.94 2,212,587 48.87 2,211,087 49.14

Property and
equipment 454,246 9.89 450,654 9.95 446,089 9.91

Goodwill - 0 - 0 - 0
Other non-current
assets 1,890,201 41.16 1,864,342 41.18 1,842,215 40.94

Total assets 4,591,906 100 4,527,583 100 4,499,391 100

Liabilities & Equity:

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Current liabilities 919,995 20.04 1,010,429 22.32 865,998 19.25
Other non-current
liabilities 309,682 6.74 298,319 6.59 288,267 6.41

Stockholder's equity 3,362,229 73.22 3,218,835 71.09 3,345,126 74.35

Total Liabilities &
Equity 4,591,906 100 4,527,583 100 4,499,391 100
Source: Garmin Ltd Quarterly 10Q

Quarterly Common Size Balance Sheet: Apple

APPLE INC.

Q3 Q2 FY

25-Jun-16 26-Mar-16 26-Sep-15

Assets:

Current assets 80,216 26.25 73,082 23.94 70,180 24.16

Accounts Receivable 11,714 3.83 12,229 4.01 16,849 5.80

Inventories 1,831 0.60 2,281 0.75 2,349 0.81

Total Current assets 93,761 30.68 87,592 28.69 89,378 30.77

Property and equipment 25,448 8.33 23,203 7.60 22,471 7.74

Goodwill 5,261 1.72 5,249 1.72 5,116 1.76

Other non-current assets 181,132 59.27 189,233 61.99 173,514 59.73

Total assets 305,602 100 305,277 100 290,479 100

Liabilities & Equity:

Current liabilities 71,486 23.39 68,265 22.36 80,610 27.75

Other non-current liabilities 107,575 35.20 106,555 34.90 90,514 31.16

Stockholder's equity 126,541 41.41 130,457 42.73 119,355 41.09

Total Liabilities & Equity 305,602 100 305,277 100 290,479 100
Source: Apple Inc. Quarterly 10Q

Ratio Analysis: Fitbit, Inc.

FITBIT

31-Dec-15 31-Dec-14 31-Dec-13

Liquidity Measures

Working Capital: CA - CL 847,157 101,860 14,457

Current ratio: CA / CL 2.67 1.22 1.07

Quick ratio: CA - Inv./CL 2.32 0.97 0.80

Activity Measures

A/R turnover: Revenue / A/R 5.25 4.67 3.36

Inventory turnover: Cost of Rev/ Avg. Inv. 6.53 4.52 3.74

Total asset turnover: Rev./Avg. Total assets 1.73 1.73 1.17

Leverage Measures

Debt-to-equity: long term debt/equity 0 0 0

Profitability Measures

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 6.1
Net profit margin: (Net profit/Rev)*100 4 3.80 (19.04)

Return on Assets: net profit/ Avg. total assets*100 10.60 6.56 (22.37)

Return on Equity: net profit/equity * 100 21.58 480.64 -

Source: Morningstar

Ratio Analysis: Garmin Ltd

GARMIN

26-Dec-15 26-Dec-14 26-Dec-13

Liquidity Measures

Working Capital: CA - CL 1,345,089 1,477,715 1,690,332

2.4
Current ratio: CA / CL 2.55 3 2.87
2.0
Quick ratio: CA - Inv./CL 1.98 2 2.44

Activity Measures

A/R turnover: Revenue / A/R 5.12 5.06 4.51

Inventory turnover: Cost of Rev/ Avg. Inv. 2.78 3.15 3.17

Total asset turnover: Rev./Avg. Total assets 0.61 0.60 0.54

Leverage Measures

Debt-to-equity: long term debt/equity 0 0 0

Profitability Measures

Net profit margin: (Net profit/Rev)*100 16.18 12.69 23.27

Return on Assets: net profit/ Avg. total assets*100 9.93 7.61 12.63

Return on Equity: net profit/equity * 100 13.52 10.31 17.03

Source: Morningstar

Ratio Analysis: Apple

APPLE INC.

26-Sep-15 26-Sep-14 26-Sep-13

Liquidity Measures

Working Capital: CA - CL 8,768 5,083 29,628

Current ratio: CA / CL 1.11 1.08 1.68

Quick ratio: CA - Inv./CL 1.08 1.05 1.64

Activity Measures

A/R turnover: Revenue / A/R 13.62 11.96 14.22

Inventory turnover: Cost of Rev/ Avg. Inv. 62.82 57.94 83.45

Total asset turnover: Rev./Avg. Total assets 0.89 0.83 0.89

Leverage Measures

Debt-to-equity: long term debt/equity 0.45 0.26 0.14

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Profitability Measures

Net profit margin: (Net profit/Rev)*100 22.85 21.61 21.67

Return on Assets: net profit/ Avg. total assets*100 20.45 18.01 19.34

Return on Equity: net profit/equity * 100 46.25 33.61 30.64

Source: Morningstar

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Disclosures:
Ownership and material conflicts of interest
The author(s), or a member of their household, of this report does not hold a financial interest in
the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of
any conflicts of interest that might bias the content or publication of this report.
Receipt of compensation
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as an officer or a director
The author(s), or a member of their household, does not serve as an officer, director, or advisory
board member of the subject company.
Market making
The author(s) does not act as a market maker in the subject companys securities.
Disclaimer
The information set forth herein has been obtained or derived from sources generally available to
the public and believed by the author(s) to be reliable, but the author(s) does not make any
representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to
buy or sell any security. This report should not be considered to be a recommendation by any
individual affiliated with CFA Cayman Islands, CFA Institute, or the CFA Institute Research Challenge
with regard to this companys stock.

CFA Institute Research Challenge

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