Apple and Google work to maintain high-quality and low-cost operations. One ratio routinely computed for this assessment is the cost of goods sold divided by total expenses. A decline in this ratio can mean that the company is spending too much on selling and administrative activities. An increase in this ratio beyond a reasonable level can mean that the company is not spending enough on selling activities. Use Apple's financial statements in Appendix Ai (Assume for this analysis that total expenses equal the cost of goods sold plus total operating expenses.) Required 1. For Apple and Google, compute the ratios of cost of goods sold to total expenses for Apple and Google during the fiscal years 2017 and 2016. 2. Which company had a greater percentage reduction in selling and administrative expenses in 2017? Complete this question by entering your answers in the tabs below. Required 1 Required 2 For Apple and Google, compute the ratios of cost of goods sold to total expenses for Apple and Google during the fiscal years 2017 and 2016. (Record answers as percents, rounded to one decimal.) Apple 2017 2016 % % Google 2107 2016 % % Ratio of cost of goods sold to total expenses September 24, 2016 $ 20,484 Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) September 30, 2017 ASSETS Current assets Cash and cash equivalents $ 20,289 Short-term marketable securities 53,892 Accounts receivable, less allowances of $58 and $53, respectively 17,874 Inventories 4,855 Vendor non-trade receivables 17,799 Other current assets 13.936 Total current assets 128,645 Long-term marketable securities 194,714 Property, plant and equipment, net 33,783 Goodwill 5,717 Acquired intangible assets, net 2,298 Other non-current assets 10,162 Total assets $ 375,319 46,671 15,754 2,132 13,545 8,283 106,869 170,430 27,010 5,414 3,206 8,757 321,686 $ LIABILITIES AND SHAREHOLDERS' EQUITY S S Current liabilities Accounts payable Accrued expenses Deferred revenue Commercial paper Current portion of long-term debt Total current liabilities Deferred revenue, non-current Long-term debt Other non-current liabilities Total liabilities Commitments and contingencies 49,049 25,744 7,548 11,977 6,496 100,814 2,836 97,207 40,415 241,272 37,294 22,027 8,080 8,105 3,500 79,006 2,930 75,427 36,074 193,437 31,251 96,364 Shareholders' equity Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,126,201 and 5,336,166 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensive income (loss) Total shareholders' equity Total liabilities and shareholders' equity See accompanying Notes to Consolidated Financial Statements. 35,867 98,330 (150) 134,047 375,319 634 128,249 321,686 $ $ 1 Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares which are reflected in thousands) Accumulated Other Common Stock and Comprehensive Total Additional Paid-In Capital Retained Income Shareholders Shares Amount Earnings (Loss) Equity Balances as of September 27, 2014 5,866,161 $ 23,313 $ 87,152 $ 1,082 $ 111,547 Net income 53,394 53,394 Other comprehensive income (loss) (1,427) (1,427) Dividends and dividend equivalents declared (11,627) (11,627) Repurchase of common stock (325,032) (36,026) (36,026) Share-based compensation 3,586 3,586 Common stock issued, net of shares withheld for employee taxes 37,624 (231) (609) (840) Tax benefit from equity awards, including transfer pricing adjustments 748 748 Balances as of September 26, 2015 5,578,753 $ 27,416 $ 92,284 $ (345) $ 119,355 Net income 45,687 45,687 Other comprehensive income (loss) 979 Dividends and dividend equivalents declared (12,188) (12,188) Repurchase of common stock (279,609) (29,000) (29,000) Share-based compensation 4,262 4,262 Common stock issued, net of shares withheld for employee taxes 37,022 (806) (419) (1,225) Tax benefit from equity awards, including transfer pricing adjustments 379 Balances as of September 24, 2016 5,336,166 $ 31,251 $ 96,364 $ 634 $ 128,249 Net income 48,351 48,351 Other comprehensive income (loss) (784) (784) Dividends and dividend equivalents declared (12,803) (12,803) Repurchase of common stock (246,496) (33,001) (33,001) Share-based compensation 4,909 4,909 Common stock issued, net of shares withheld for employee taxes 36,531 (913) (581) (1,494) Tax benefit from equity awards, including transfer pricing adjustments 620 620 Balances as of September 30, 2017 5,126,201 $ 35,867 $ 98,330 (150) $ 134,047 979 379 See accompanying Notes to Consolidated Financial Statements. APPLE September 26, 2015 $ 13,844 53,394 11,257 3,586 1,382 385 417 (238) (3,735) (283) 5,001 1,042 9,058 81,266 Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years ended September 30, 2017 September 24, 2016 Cash and cash equivalents, beginning of the year 20,484 $ 21,120 Operating activities: Net income 48,351 45,687 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 10,157 10,505 Share-based compensation expense 4,840 4,210 Deferred income tax expense 5,966 4,938 Other (166) 486 Changes in operating assets and liabilities: Accounts receivable, net (2,093) 527 Inventories (2,723) 217 Vendor non-trade receivables (4.254) (51) Other current and non-current assets (5,318) 1,055 Accounts payable 9,618 1,837 Deferred revenue (626) (1,554) Other current and non-current liabilities (154) (2,033) Cash generated by operating activities 63,598 65,824 Investing activities: Purchases of marketable securities (159,486) (142,428) Proceeds from maturities of marketable securities 31,775 21,258 Proceeds from sales of marketable securities 94,564 90,536 Payments made in connection with business acquisitions, net (329) (297) Payments for acquisition of property, plant and equipment (12,451) (12,734) Payments for acquisition of intangible assets (344) (814) Payments for strategic investments, net (395) (1,388) Other 220 (110) Cash used in investing activities (46,446) (45,977) Financing activities: Proceeds from issuance of common stock 555 495 Excess tax benefits from equity awards 627 407 Payments for taxes related to net share settlement of equity awards (1,874) (1,570) Payments for dividends and dividend equivalents (12,769) (12,150) Repurchases of common stock (32,900) (29,722) Proceeds from issuance of term debt, net 28,662 24,954 Repayments of term debt (3,500) (2,500) Change in commercial paper, net 3,852 Cash used in financing activities (17,347) (20,483) Increase (decrease) in cash and cash equivalents (195) (636) Cash and cash equivalents, end of the year 20.289 $ 20,484 (166,402) 14,538 107,447 (343) (11,247) (241) (26) (56,274) 543 749 (1,499) (11,561) (35,253) 27,114 (397) 2,191 (17,716) 7,276 21,120 Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest $ $ 11,591 2,092 10,444 1,316 $ $ 13,252 514 S See accompanying Notes to Consolidated Financial Statements. As of December 31, 2017 10,715 91,156 101,871 18,336 369 749 2,983 124,308 7,813 680 42.383 2,692 16,747 2,672 197,295 Google Inc. (Alphabet Inc.)" CONSOLIDATED BALANCE SHEETS (In millions, except share and par value amounts which are reflected in thousands, and par value per share amounts) As of December 31, 2016 Assets Current assets Cash and cash equivalents $ 12,918 Marketable securities 73,415 Total cash, cash equivalents, and marketable securities 86,333 Accounts receivable, net of allowance of $467 and $674 14,137 Income taxes receivable, net 95 Inventory 268 Other current assets 4,575 Total current assets 105,408 Non-marketable investments 5,878 Deferred income taxes 383 Property and equipment, net 34,234 Intangible assets, net 3,307 Goodwill 16,468 Other non-current assets 1,819 Total assets 167,497 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 2,041 Accrued compensation and benefits 3,976 Accrued expenses and other current liabilities 6,144 Accrued revenue share Deferred revenue 1.099 Income taxes payable, net 554 Total current liabilities 16,756 Long-term debt 3,935 Deferred revenue, non-current 202 Income taxes payable, non-current 4,677 Deferred income taxes 226 Other long-term liabilities 2,665 Total liabilities 28,461 Commitments and contingencies Stockholders' equity: Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding 0 Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 691,293 (Class A 296,992, Class B 47,437, Class C 346,864) and 694,783 (Class A 298,470, Class B 46,972, Class C 349,341) shares issued and outstanding 36,307 Accumulated other comprehensive loss (2,402) Retained earnings 105,131 Total stockholders' equity 139,036 Total liabilities and stockholders' equity $ 167,497 S 2,942 3,137 4,581 10,177 3,975 1,432 881 24,183 3,969 340 12,812 430 3,059 44,793 0 40,247 (992) 113,247 152,502 197,295 "Google is part of Alphabet, but we loosely refer to Alphabet as "Google" because of its global familiarity and that Google provides 99% of Alphabet's $110,855 billion in revenues. Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF INCOME (In millions) 2015 74,989 2016 90,272 2017 110,855 S $ Year Ended December 31 Revenues Costs and expenses Cost of revenues Research and development Sales and marketing General and administrative European Commission fine Total costs and expenses Income from operations Other income (expense), net Income before income taxes Provision for income taxes Net income Less: Adjustment Payment to Class C capital stockholders Net income available to all stockholders 28,164 12,282 9,047 6,136 0 55,629 19,360 291 19,651 3,303 16,348 522 15,826 35,138 13,948 10,485 6,985 0 66,556 23,716 434 24,150 4,672 19,478 45,583 16,625 12,893 6,872 2,736 84,709 26,146 1,047 27,193 14,531 12,662 0 $ $ 0 $ S 19,478 $ 12,662 "Google is part of Alphabet, but we loosely refer to Alphabet as Google because of its global familiarity and that Goo provides 99% of Alphabet's $110,855 bill revenues. See accompanying notes. Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) JUUUU 2016 2017 2015 16,348 $ 19,478 $ 12,662 (1,067) (599) 1,543 (715) 208 (507) (314) 221 Year Ended December 31 Net income Other comprehensive income (loss): Change in foreign currency translation adjustment Available-for-sale investments: Change in net unrealized gains (losses) Less: reclassification adjustment for net (gains) losses included in net income Net change (net of tax effect of $29, $0, and $0) Cash flow hedges: Change in net unrealized gains (losses) Less: reclassification adjustment for net (gains) losses included in net income Net change (net of tax effect of $115, $64, and $247) Other comprehensive income (loss) Comprehensive income 307 105 (93) 412 676 (1,003) (327) (1,901) 14,447 515 (351) 164 (528) 18,950 (638) 93 (545) 1,410 14,072 S $ "Google is part of Alphabet, but we loosely refer to Alphabet as Google because of its global familiarity and that Google provides 99% of Alphabet's $110,855 billion in revenues. See accompanying notes. Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In millions, except share amounts which are reflected in thousands) Balance as of December 31, 2014 Common and capital stock issued Stock-based compensation expense Stock-based compensation tax benefits Tax withholding related to vesting of restricted stock units Repurchases of capital stock Adjustment Payment to Class C capital stockholders Net income Other comprehensive loss Balance as of December 31, 2015 Class A and Class B Common Stock, Class C Accumulated Capital Stock and Other Additional Paid-In Capital Comprehensive Shares Amount Income (Loss) 680,172 $ 28,767 $ 27 $ 8,714 664 0 0 5,151 0 0 815 0 0 (2,779) 0 (2,391) (111) 0 853 475 0 0 0 0 0 0 (1,901) 687,348 32,982 (1,874) Total Retained Stockholders' Earnings Equity 75,066 $ 103,860 0 664 0 5,151 0 815 0 (2,779) (1,669) (1,780) (522) (47) 16,348 16,348 0 (1,901) 89,223 120,331 0 (133) 0 0 0 9,106 0 0 180 298 6,700 (3,597) (256) 0 0 0 Cumulative effect of accounting change Common and capital stock issued Stock-based compensation expense Tax withholding related to vesting of restricted stock units Repurchases of capital stock Net income Other comprehensive loss Balance as of December 31, 2016 0 0 47 298 6,700 (3,597) (3,693) 19,478 (528) 139,036 (5,161) 0 0 0 (3,437) 19,478 0 691,293 0 36,307 (528) (2,402) 0 105,131 0 8,652 0 0 (15) 0 0 212 7,694 (4,373) 0 0 0 0 Cumulative effect of accounting change Common and capital stock issued Stock-based compensation expense Tax withholding related to vesting of restricted stock units Repurchases of capital stock Sale of subsidiary shares Net income Other comprehensive loss Balance as of December 31, 2017 (5,162) 0 (315) 0 0 0 (4,531) 0 12,662 0 (15) 212 7,694 (4,373) (4,846) 722 12,662 1,410 152,502 722 0 0 0 0 0 0 1,410 (992) $ 694,783 40,247 $ 113,247 *Google is part of Alphabet, but we loosely refer to Alphabet as "Google" because of its global familiarity and that Google provides 99% of Alphabet's $110,855 billion in revenues. See accompanying notes. 2016 2017 S 19.478 $ 12,662 5,267 877 6,703 (38) 275 174 6,103 812 7,679 258 194 137 (2,578) 3,125 312 110 1,515 593 223 36,036 (3,768) 8,211 (2,164) 731 4,891 955 390 37,091 Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Year Ended December 31 2015 Operating activities Net income $ 16,348 Adjustments: Depreciation and impairment of property and equipment 4,132 Amortization and impairment of intangible assets 931 Stock-based compensation expense 5.203 Deferred income taxes (179) Loss on marketable and non-marketable investments, net 334 Other 212 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (2,094) Income taxes, net (179) Other assets (318) Accounts payable 203 Accrued expenses and other liabilities 1,597 Accrued revenue share 339 Deferred revenue 43 Net cash provided by operating activities 26,572 Investing activities Purchases of property and equipment (9,950) Proceeds from disposals of property and equipment 35 Purchases of marketable securities (74,368) Maturities and sales of marketable securities 62.905 Purchases of non-marketable investments (2,326) Maturities and sales of non-marketable investments 154 Cash collateral related to securities lending (350) Investments in reverse repurchase agreements 425 Acquisitions, net of cash acquired, and purchases of intangible assets (236) Proceeds from collection of notes receivable 0 Net cash used in investing activities (23,711) Financing activities Net payments related to stock-based award activities (2,375) Adjustment Payment to Class C capital stockholders (47) Repurchases of capital stock (1,780) Proceeds from issuance of debt, net of costs 13,705 Repayments of debt (13,728) Proceeds from sale of subsidiary shares 0 Net cash used in financing activities (4,225) Effect of exchange rate changes on cash and cash equivalents (434) Net decrease in cash and cash equivalents (1,798) Cash and cash equivalents at beginning of period 18,347 Cash and cash equivalents at end of period 16.549 (10,212) 240 (84,509) 66,895 (1,109) 494 (2,428) 450 (986) 0 (31,165) (13,184) 99 (92,195) 73,959 (1,745) 533 0 0 (287) 1,419 (31,401) (3,304) 0 (3,693) 8,729 (10,064) 0 (8,332) (170) (3,631) 16,549 12.918 (4,166) 0 (4,846) 4,291 (4,377) 800 (8,298) 405 (2,203) 12,918 10,715 Supplemental disclosures of cash flow information Cash paid for taxes, net of refunds Cash paid for interest, net of amounts capitalized $ $ $ 3,651 96 1,643 84 6,191 84 $ $ $