Chapter 15 Accounting Analysis i Saved Help Save & Exit Submit Check my work Apple's and Google's income statements in Appendix A both show increasing sales and cost of sales. The gross margin ratio can be used to analyze how well companies control costs as sales increase. 15 points Required: 1. Compute the gross margin ratio for Apple for each of the fiscal years ended September 30, 2017, and September 24, 2016. 2. Compute the gross margin ratio for Google for each of the fiscal years ended December 31, 2017, and December 31, 2016. 3. Which company (Apple, Google, or neither) improved its control of costs during 2017, as reflected in the gross margin ratio? eBook Print Complete this question by entering your answers in the tabs below. References Required 1 Required 2 Required 3 Compute the gross margin ratio for Apple for each of the fiscal years ended September 30, 2017, and September 24, 2016. (Round your final answers to 3 decimal places.) Year Ended Sept. 30, 2017 Year Ended Sept. 24, 2016 Apple gross margin ratio September 24, 2016 $ 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 20,484 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 $ $ 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 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 35,867 98,330 (150) 134,047 375,319 31,251 96,364 634 128,249 321,686 $ 375 $ See accompanying Notes to Consolidated Financial Statements. September 26, 2015 233.715 140,089 93,626 Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) Years ended September 30, 2017 September 24, 2016 Net sales $ 229,234 $ 215,639 Cost of sales 141,048 131,376 Gross margin 88.186 84,263 Operating expenses Research and development 11,581 10,045 Selling, general and administrative 15,261 14,194 Total operating expenses 26,842 24,239 Operating income 61,344 60,024 Other income (expense), net 2,745 1,348 Income before provision for income taxes 64,089 61,372 Provision for income taxes 15,738 15,685 Net income $ 48,351 45,687 8,067 14.329 22,396 71,230 1,285 72,515 19,121 53,394 9.27 9.21 $ $ 8.35 8.31 $ $ 9.28 9.22 Earnings per share: Basic Diluted Shares used in computing earnings per share: Basic Diluted Cash dividends declared per share 5,217.242 5,251,692 2.40 5,470,820 5,500,281 2.18 5,753,421 5,793,069 1.98 See accompanying Notes to Consolidated Financial Statements. September 26, 2015 S 53,394 1 224 75 (411) (411) Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years ended September 30, 2017 September 24, 2016 Net income 48,351 $ 45,687 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of $(77), $8 and $201, respectively Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit (expense) of $(478), $(7) and $(441), respectively 1,315 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $475, $131 and $630, respectively (1,477) Total change in unrealized gains/losses on derivative instruments, net of tax (162) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit 2,905 (741) (3,497) (734) (592) (eynense of $425S863) and $264 estively 282) 1582 (483) 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 S 92.284 S (345) S 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 379 379 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 S 98,330 (150) $ 134,047 979 See accompanying Notes to Consolidated Financial Statements. 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 As of December 31, 2016 December 31, 2017 12.918 73,415 86,333 14,137 10,715 91.156 101.871 18.336 369 749 268 4.575 105,408 5,878 383 34,234 3,307 16,468 1,819 167.497 2983 124308 7.813 680 42.383 2.692 16,747 2,672 197.295 $ $ S Assets Current assets Cash and cash equivalents Marketable securities Total cash, cash equivalents, and marketable securities Accounts receivable, net of allowance of $467 and $674 Income taxes receivable, net Inventory Other current assets Total current assets Non-marketable investments Deferred income taxes Property and equipment, net Intangible assets, net Goodwill Other non-current assets Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Accrued compensation and benefits Accrued expenses and other current liabilities Accrued revenue share Deferred revenue Income taxes payable, net Total current liabilities Long-term debt Deferred revenue, non-current Income taxes payable, non-current Deferred income taxes Other long-term liabilities Total liabilities Commitments and contingencies Stockholders' equity: Convertible preferred stock, S0.001 par value per share, 100,000 shares authorized: no shares issued and outstanding Class A and Class B common stock, and Class C capital stock and additional paid-in capital, S0.001 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 Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 3,137 4.581 10.177 3.975 1.432 81 2,041 3.976 6,144 2,942 1,099 554 16,756 3,935 202 4,677 226 2,665 28.461 24,183 3.969 340 12.812 430 3,059 44,793 36,307 (2,402) 105,131 139,036 167,497 40.347 (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. See accompanying notes Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF INCOME (In millions) 2015- 74,989 2016 90,272 2017 110,855 S $ 28,164 12.282 9,047 6,136 35,138 13.948 10.485 6.985 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 35.620 19,360 291 0 66.356 23,716 434 24.150 45.583 16,625 12,893 6,872 2,736 84,209 26,146 1,047 27.193 14,331 12,662 19,651 3.303 4.672 16.348 $ 19,478 522 15.826 $ 19,478 $ 12,662 "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 2016 19,478 2017 12,662 $ (599) 1.543 Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Year Ended December 31 2015 Net income $ 16,348 $ Other comprehensive income (loss): Change in foreign currency translation adjustment (1.067) Available for sale investments: Change in net unrealized gains (losses) (715) Less: reclassification adjustment for net (gains) losses included in net income 208 Net change (net of tax effect of S29, 50, and SO) (507) Cash flow hedges: Change in net unrealized gains (losses) Less: reclassification adjustment for net (gains) losses included in net income (1,003) Net change (net of tax effect of SIIS, 564, and $247) Other comprehensive income (loss) (1.901) Comprehensive income 14,447 $ (314) 307 221 10S 412 (93) 676 SIS (638) (327) 545) (351) 164 (528) 18,950 1.410 14.072 $ "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 S 27 $ 8,714 664 S. 151 815 (2.779) (2.391) (111) 853 475 Total Retained Stockholders Earnings Equity 75,066 $ 103,860 664 5.151 NIS (2.779) (1,669) (1,780) (522) 16,348 16,348 (1.901) 89,223 120,331 0 (1,901) 0 32.982 687,348 IND (133) 9.106 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 298 6,700 (3.597) (256) 47 298 6,700 (3.597) (3.693) 19,478 (528) 139,036 (5,161) (3.437) 19,478 528) 691.293 0 36,307 (2.402) 105,131 (15) 8.652 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 0 212 7,694 (4.373) (315) 722 0 (5.162) (4.531) (15) 212 7,694 (4.373) (4.846) 722 12.662 1.410 152.502 O 1.410 (992) S 12,662 0 113,247 $ 69.4.783 S 40.247 $ "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. Google Inc. (Alphabet Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) 2015 2016 2017 $ 16,348 $ 19,478 $ 12,662 Year Ended December 31 Operating activities Net income Adjustments: Depreciation and impairment of property and equipment Amortization and impairment of intangible assets Stock-based compensation expense Deferred income taxes Loss on marketable and non-marketable investments, het 4.132 931 5.203 (179) 334 212 5.267 877 6,703 (38) 275 174 6,103 812 7.679 258 194 137 (2.094) (179) (2.578) 3.125 312 (3.768) 8,211 (2,164) 731 (318) 203 1.597 110 4,891 339 955 1.515 593 223 36.036 390 37.091 26,572 (9.950) 35 (74,368) 62.905 (2.326) (10.212) 240 (84,509) 66,895 (1.109) (13.184) 99 (92.195) 73.959 (1.745) 533 GOOGLE 154 Other Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable Income taxes, bet Other assets Accounts payable Accrued expenses and other liabilities Accrued revenue share Deferred revenue Net cash provided by operating activities Investing activities Purchases of property and equipment Proceeds from disposals of property and equipment Purchases of marketable securities Maturities and sales of marketable securities Purchases of non-marketable investments Maturities and sales of non-marketable investments Cash collateral related to securities lending Investments in reverse repurchase agreements Acquisitions, net of cash acquired, and purchases of intangible assets Proceeds from collection of notes receivable Net cash used in investing activities Financing activities Net payments related to stock-based award activities Adjustment Payment to Class C capital stockholders Repurchases of capital stock Proceeds from issuance of debt, net of costs Repayments of debt Proceeds from sale of subsidiary shares Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 494 (350) 425 (236) (2.428) 450 (986) (287) 1.419 (31.401) (23,711) (31,165) (3.304) (4.166) (2.375) (47) (1.780) 13.705 (13,728) (3.693) 8,729 (10,064) (4.846) 4,291 (4.377) 800 (8.298) 305 (4.225) (434) (1.798) 18,347 165409 (8332) (170) (3.631) 16.549 12.918 (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 6,191 $ $ 3,651 96 $ $ 1,643 84 $ 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