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Look at the tax rates for the two companies. Currently, the federal corporate tax rate is set at 21%. Prior to 2017 when President Trump enacted the Tax Cuts and Jobs Act, the tax rate was 35%. The interesting thing is that most businesses pay far less than 21%. When you calculate this number, remember taxes are levied on pretax income, not on sales. A) What was Microsofts tax rate in 2019? B) What was Apples tax rate in 2019?
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Look at operating expense as a percentage of total for Microsoft in the common-sized income statement. A) What is the percentage in 2019? B) Is it relatively stable since 2017 or changing?
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Look at your answers to Question 10, A and B. Is the change a good thing or not? Why or why not?
APPLE CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions Sep. 29, 2017 Sep. 29, 2018 % Change Sep. 29, 2019 MICROSOFT BALANCE SHEETS - USD ($) $ in Millions Jun 30, 2017 Jun 30, 2018 % Change Jun 30, 2019 % Change % Change Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net Inventories Vendor non-trade receivables Other current assets Total current assets Non-current assets: Long-Term Marketable Securities Property, plant and equipment, net Other non-current assets Total non-current assets Total Assets 20,289 53,892 17,874 4,855 17,799 13,936 128,645 25,913 40,388 23,186 3,956 25,809 12,087 131,339 27.7% -25.1% 29.7% -18.5% 45.0% -13.3% 2.1% 48,844 51,713 22,926 4,106 22,878 12,352 162,819 55.9% -2.8% 0.6% 18.1% 22.1% 32.3% 4.3% 11,356 122,463 133,819 29,524 2,063 10,146 175,552 -4.9% 0.5% 0.0% 11.5% -22.5% 50.3% 3.5% 194,714 33,783 18,177 246,674 375,319 170,799 41,304 22,283 234,386 365,725 -12.3% 22.3% 22.6% -5.0% -2.6% 105,341 37,378 32,978 175,697 338,516 24.1% 2.0% -69.1% 1.6% -20.3% 22.5% 3.4% 36,477 7,379 2,649 42,026 7,750 14,723 286,556 23.8% 10.4% 42.3% 17.8% -3.8% 97.8% 10.7% Current liabilities: Accounts payable 49,049 55,888 13.9% 46,236 16.6% 9,382 8.9% 9,072 Other current liabilities Deferred revenue Commercial paper Current portion of long-term debt Total current liabilities 25,744 7,548 11,977 6,496 100,814 33,327 5,966 11,964 8,784 115,929 29.5% -21.0% -0.1% 35.2% 15.0% 37,720 5,522 5,980 10,260 105,718 Current assets: 88.5% Cash and cash equivalents 7,663 11,946 28.0% Short-term investments 125,318 121,822 -1.1% Total cash, cash equivalents, and short-term 132,981 133,768 3.8% Accounts receivable, net of allowance for doubtful 22,431 26,481 -11.4% Inventories 2,181 2,662 2.2% Other 5,103 6,751 24.0% Total current assets 162,696 169,662 Non-current assets: -38.3% Property and equipment, net of accumulated 23,734 29,460 -9.5% Operating lease right-of-use assets 6,555 6,686 48.0% Equity investments 6,023 1,862 -25.0% Goodwill 35,122 35,683 -7.4% Intangible assets, net 10,106 8,053 Other long-term assets 6,076 7,442 Total Assets 250,312 258,848 Current liabilities: -17.3% Accounts payable 7,390 8,617 Short-Term Debt 13.2% Current portion of long-term debt 1,049 3,998 -7.4% Accrued compensation 5,819 6,103 -50.0% Short-term income taxes 718 2,121 16.8% Short-term unearned revenue 24,013 28,905 -8.8% Other 7,684 8,744 Total current liabilities 55,745 58,488 -2.1% 3.2% Long-term debt 76,073 72,242 -0.2% Long-term income taxes 13,485 30,265 -4.1% Long-term unearned revenue 2,643 3,815 Deferred income taxes 5,734 541 Operating lease liabilities 5,568 Other long-term liabilities 3,549 5,211 Total liabilities 162,601 176,130 Commitments and contingencies Stockholders' equity: 12.4% Common stock and paid-in capital - shares authorized 69,315 71,223 - 34.8% Retained earnings 17,769 13,682 -83.1% Accumulated other comprehensive loss 627 -2,187 -15.5% Total stockholders' equity 87,711 82,718 -7.4% Total liabilities and stockholders' equity 250,312 258,848 Note: you will need to click on the words "Common Stock and paid in" to see the number of shares. 5,516 6,830 5,665 32,676 9,351 69,420 38.0% 11.9% 167.1% 13.0% 6.9% 18.7% Long-term debt Other non-current liabilities Total non-current liabilities Total liabilities Commitments and contingencies 97,207 40,415 137,622 241,272 93,735 48,914 142,649 258,578 -3.6% 21.0% 3.7% 7.2% 91,807 50,503 142,310 248,028 281.1% 4.9% 195.4% 20.4% 13.8% 4.9% 0.0% -5.0% 124.4% 44.3% -90.6% 3.6% 46.8% 8.3% 66,662 29,612 4,530 233 6,188 7,581 184,226 -7.7% -2.2% 18.7% -56.9% 11.1% 45.5% 4.6% 5,372 Shareholders' equity: Common stock and additional paid-in capital, $0.00001 35,867 40201 Retained earnings 98,330 70400 Accumulated other comprehensive income/(loss) - 150 (3454 Total shareholders' equity 134,047 107147 Total liabilities and shareholders' equity 375,319 $365725 Note: you will need to click on "Common Stock and additional" to see the number of shares. 12.1% -28.4% 2202.7% -20.1% -2.6% 45,174 45,898 -584 90,488 338,516 2.8% -23.0% -448.8% -5.7% 3.4% 78,520 24,150 -340 102,330 286,556 10.2% 76.5% -84.5% 23.7% 10.7% APPLE CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions 12 Months Ended Sep. 28, 2019 Sep. 30, 2017 Sep. 29, 2018 % Chg % Chg Statement of Cash Flows [Abstract] Cash, cash equivalents and restricted cash, beginning balances Operating activities: 20,484 20,289 -1% 25,913 28% 48,351 59,531 23% 55,256 -7% 10,157 4,840 5,966 - 166 10,903 5,340 -32,590 -444 7% 10% -646% 167% 12,547 6,068 -340 -652 15% 14% -99% 47% Net income Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization Share-based compensation expense Deferred income tax expense/(benefit) Other Changes in operating assets and liabilities: Accounts receivable, net Inventories Vendor non-trade receivables Other current and non-current assets Accounts payable Deferred revenue Other current and non-current liabilities - Cash generated by operating activities Investing activities: Purchases of marketable securities Proceeds from maturities of marketable securities -2,093 -2,723 -4,254 -5,318 8,966 -593 1,092 64,225 -5,322 828 -8,010 -423 9,175 -3 38,449 77,434 154% - 130% 88% -92% 2% -99% 3421% 21% 245 -289 2,931 873 -1,923 -625 -4,700 69,391 -105% -135% -137% -306% -121% 20733% -112% -10% -55% -44% -159,486 31,775 -71,356 55,881 -39,630 40,102 Proceeds from sales of marketable securities Payments for acquisition of property, plant and equipment Payments made in connection with business acquisitions, net Purchases of non-marketable securities Proceeds from non-marketable securities Other 94,564 -12,451 -329 -521 126 47,838 -13,313 -721 -1,871 353 -745 76% -49% 7% 119% 259% 180% 56,988 -10,495 -624 -1,001 -28% 19% -21% - 13% -46% 363% 1,634 -124 -1,078 501% - 135% 45% 186% -46,446 16,066 45,896 Cash generated by/(used in) investing activities Financing activities: Proceeds from issuance of common stock 555 669 781 Payments for taxes related to net share settlement of equity awards Payments for dividends and dividend equivalents Repurchases of common stock Proceeds from issuance of term debt, net Repayments of term debt Proceeds from/(Repayments of) commercial paper, net Other Cash used in financing activities Increase/(Decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, ending balances -2,817 -14,119 -66,897 6,963 -8,805 -1,874 -12,769 -32,900 28,662 -3,500 3,852 0 -17,974 -195 20,289 21% 35% 7% 121% -76% 86% -101% -2,527 -13,712 -72,738 6,969 -6,500 -37 0 -87,876 5,624 25,913 17% 11% 3% -8% 0% 35% 16054% 0% 4% 332% 94% -5,977 389% -2984% 28% -105 -90,976 24,311 50,224 Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest -10% 11,591 2,092 10,417 3,022 15,263 3,423 47% 13% 44% , CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Millions Total $ 128249 620 48351 (784 $ 134047 $ 2.40 Beginning balances at Sep. 24, 2016 Increase (Decrease) in Stockholders' Equity [Roll Forward] Common stock issued Common stock withheld related to net share settlement of equity awards Share-based compensation Tax benefit from equity awards, including transfer pricing adjustments Net income Dividends and dividend equivalents declared Common stock repurchased Other comprehensive income/loss) Ending balances at Sep 30, 2017 Increase (Decrease) in Stockholders' Equity [Roll Forward] Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) Common stock issued Common stock withheld related to net share settlement of equity awards Share-based compensation Tax benefit from equity awards, including transfer pricing adjustments Net income Dividends and dividend equivalents declared Common stock repurchased Other comprehensive income/loss) Ending balances at Sep. 29, 2018 Increase (Decrease) in Stockholders' Equity [Roll Forward] Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) Common stock issued Common stock withheld related to net share settlement of equity awards Share-based compensation Tax benefit from equity awards, including transfer pricing adjustments Net income Dividends and dividend equivalents declared Common stock repurchased Other comprehensive income/(loss) Ending balances at Sep. 28, 2019 Increase (Decrease) in Stockholders' Equity [Roll Forward] Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) $ 59531 (3026 $ 107147 $2.72 $ 55256 (67100 2781 $ 90488 $3 Common stock and additional paid-in capital Retained earnings Accumulated other comprehensive income/loss) $31251 $ 96364 $ 634 555 (1468 4909 620 (581 48351 (12803 (33001 (784 (150 35867 98330 669 (1778 5443 0 (948 59531 (13735 (73056 (3026 (3454 40201 70400 (1029 781 (2002 6194 0 55256 (14129 (67101 2781 $ (584 $ 45174 $ 45898 INCOME STATEMENT ASSIGNMENT Briefly review the Income Statement. Look at the example below and review the key listed points on this page. Neeley Office Supplies Sales ....... $500,000 250.000 Cost of goods sold. Gross profit. 250,000 Marketing Expenses Administrative Expenses Other Operating Expenses Depreciation Total Operating Expenses 50.000 75.000 15,000 10,000 150,000 Operating profit Less: Non-operating items Earnings before Interest and Taxes ((EBIT) 100,000 0 100,000 Less: Interest. 15.000 Income before taxes. 85.000 Less: Income Taxes 35% 29,750 Income after taxes.............. 55,250 Income Statement: The income statement shows how much profit that the firm has made over a specific period. It is like a sandwich. The top slice of "bread" is "revenues." (The word "revenues means "sales."). The bottom slice shows the profit for a specified period and everything in between are costs. That means that Profit is equal to sales minus all expenses. The term profit has many synonyms, including income after taxes, net income, net profit and more. DIRECTIONS FOR YOUR ASSIGNMENT: There are several big questions that analysts try to answer. In answering the questions below and in doing a horizontal analysis, you will learn how to look at an Income Statement. Some things that you will look at in this assignment as you answer the 15 questions below are: a) Are revenues growing over time? b) Are expenses stable, declining or increasing? c) Is profitability growing over time? d) What significant changes have occurred year-to-year. (Horizontal Analysis). Using the Income Statements for Microsoft and Apple which are found within the posted Excel file, provide the required numbers and answer the questions below. If you do not understand a term in the Income Statement, please look it up on Google. The website "Investopedia" is often a good resource for APPLE CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions Sep. 29, 2017 Sep. 29, 2018 % Change Sep. 29, 2019 MICROSOFT BALANCE SHEETS - USD ($) $ in Millions Jun 30, 2017 Jun 30, 2018 % Change Jun 30, 2019 % Change % Change Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net Inventories Vendor non-trade receivables Other current assets Total current assets Non-current assets: Long-Term Marketable Securities Property, plant and equipment, net Other non-current assets Total non-current assets Total Assets 20,289 53,892 17,874 4,855 17,799 13,936 128,645 25,913 40,388 23,186 3,956 25,809 12,087 131,339 27.7% -25.1% 29.7% -18.5% 45.0% -13.3% 2.1% 48,844 51,713 22,926 4,106 22,878 12,352 162,819 55.9% -2.8% 0.6% 18.1% 22.1% 32.3% 4.3% 11,356 122,463 133,819 29,524 2,063 10,146 175,552 -4.9% 0.5% 0.0% 11.5% -22.5% 50.3% 3.5% 194,714 33,783 18,177 246,674 375,319 170,799 41,304 22,283 234,386 365,725 -12.3% 22.3% 22.6% -5.0% -2.6% 105,341 37,378 32,978 175,697 338,516 24.1% 2.0% -69.1% 1.6% -20.3% 22.5% 3.4% 36,477 7,379 2,649 42,026 7,750 14,723 286,556 23.8% 10.4% 42.3% 17.8% -3.8% 97.8% 10.7% Current liabilities: Accounts payable 49,049 55,888 13.9% 46,236 16.6% 9,382 8.9% 9,072 Other current liabilities Deferred revenue Commercial paper Current portion of long-term debt Total current liabilities 25,744 7,548 11,977 6,496 100,814 33,327 5,966 11,964 8,784 115,929 29.5% -21.0% -0.1% 35.2% 15.0% 37,720 5,522 5,980 10,260 105,718 Current assets: 88.5% Cash and cash equivalents 7,663 11,946 28.0% Short-term investments 125,318 121,822 -1.1% Total cash, cash equivalents, and short-term 132,981 133,768 3.8% Accounts receivable, net of allowance for doubtful 22,431 26,481 -11.4% Inventories 2,181 2,662 2.2% Other 5,103 6,751 24.0% Total current assets 162,696 169,662 Non-current assets: -38.3% Property and equipment, net of accumulated 23,734 29,460 -9.5% Operating lease right-of-use assets 6,555 6,686 48.0% Equity investments 6,023 1,862 -25.0% Goodwill 35,122 35,683 -7.4% Intangible assets, net 10,106 8,053 Other long-term assets 6,076 7,442 Total Assets 250,312 258,848 Current liabilities: -17.3% Accounts payable 7,390 8,617 Short-Term Debt 13.2% Current portion of long-term debt 1,049 3,998 -7.4% Accrued compensation 5,819 6,103 -50.0% Short-term income taxes 718 2,121 16.8% Short-term unearned revenue 24,013 28,905 -8.8% Other 7,684 8,744 Total current liabilities 55,745 58,488 -2.1% 3.2% Long-term debt 76,073 72,242 -0.2% Long-term income taxes 13,485 30,265 -4.1% Long-term unearned revenue 2,643 3,815 Deferred income taxes 5,734 541 Operating lease liabilities 5,568 Other long-term liabilities 3,549 5,211 Total liabilities 162,601 176,130 Commitments and contingencies Stockholders' equity: 12.4% Common stock and paid-in capital - shares authorized 69,315 71,223 - 34.8% Retained earnings 17,769 13,682 -83.1% Accumulated other comprehensive loss 627 -2,187 -15.5% Total stockholders' equity 87,711 82,718 -7.4% Total liabilities and stockholders' equity 250,312 258,848 Note: you will need to click on the words "Common Stock and paid in" to see the number of shares. 5,516 6,830 5,665 32,676 9,351 69,420 38.0% 11.9% 167.1% 13.0% 6.9% 18.7% Long-term debt Other non-current liabilities Total non-current liabilities Total liabilities Commitments and contingencies 97,207 40,415 137,622 241,272 93,735 48,914 142,649 258,578 -3.6% 21.0% 3.7% 7.2% 91,807 50,503 142,310 248,028 281.1% 4.9% 195.4% 20.4% 13.8% 4.9% 0.0% -5.0% 124.4% 44.3% -90.6% 3.6% 46.8% 8.3% 66,662 29,612 4,530 233 6,188 7,581 184,226 -7.7% -2.2% 18.7% -56.9% 11.1% 45.5% 4.6% 5,372 Shareholders' equity: Common stock and additional paid-in capital, $0.00001 35,867 40201 Retained earnings 98,330 70400 Accumulated other comprehensive income/(loss) - 150 (3454 Total shareholders' equity 134,047 107147 Total liabilities and shareholders' equity 375,319 $365725 Note: you will need to click on "Common Stock and additional" to see the number of shares. 12.1% -28.4% 2202.7% -20.1% -2.6% 45,174 45,898 -584 90,488 338,516 2.8% -23.0% -448.8% -5.7% 3.4% 78,520 24,150 -340 102,330 286,556 10.2% 76.5% -84.5% 23.7% 10.7% APPLE CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions 12 Months Ended Sep. 28, 2019 Sep. 30, 2017 Sep. 29, 2018 % Chg % Chg Statement of Cash Flows [Abstract] Cash, cash equivalents and restricted cash, beginning balances Operating activities: 20,484 20,289 -1% 25,913 28% 48,351 59,531 23% 55,256 -7% 10,157 4,840 5,966 - 166 10,903 5,340 -32,590 -444 7% 10% -646% 167% 12,547 6,068 -340 -652 15% 14% -99% 47% Net income Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization Share-based compensation expense Deferred income tax expense/(benefit) Other Changes in operating assets and liabilities: Accounts receivable, net Inventories Vendor non-trade receivables Other current and non-current assets Accounts payable Deferred revenue Other current and non-current liabilities - Cash generated by operating activities Investing activities: Purchases of marketable securities Proceeds from maturities of marketable securities -2,093 -2,723 -4,254 -5,318 8,966 -593 1,092 64,225 -5,322 828 -8,010 -423 9,175 -3 38,449 77,434 154% - 130% 88% -92% 2% -99% 3421% 21% 245 -289 2,931 873 -1,923 -625 -4,700 69,391 -105% -135% -137% -306% -121% 20733% -112% -10% -55% -44% -159,486 31,775 -71,356 55,881 -39,630 40,102 Proceeds from sales of marketable securities Payments for acquisition of property, plant and equipment Payments made in connection with business acquisitions, net Purchases of non-marketable securities Proceeds from non-marketable securities Other 94,564 -12,451 -329 -521 126 47,838 -13,313 -721 -1,871 353 -745 76% -49% 7% 119% 259% 180% 56,988 -10,495 -624 -1,001 -28% 19% -21% - 13% -46% 363% 1,634 -124 -1,078 501% - 135% 45% 186% -46,446 16,066 45,896 Cash generated by/(used in) investing activities Financing activities: Proceeds from issuance of common stock 555 669 781 Payments for taxes related to net share settlement of equity awards Payments for dividends and dividend equivalents Repurchases of common stock Proceeds from issuance of term debt, net Repayments of term debt Proceeds from/(Repayments of) commercial paper, net Other Cash used in financing activities Increase/(Decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, ending balances -2,817 -14,119 -66,897 6,963 -8,805 -1,874 -12,769 -32,900 28,662 -3,500 3,852 0 -17,974 -195 20,289 21% 35% 7% 121% -76% 86% -101% -2,527 -13,712 -72,738 6,969 -6,500 -37 0 -87,876 5,624 25,913 17% 11% 3% -8% 0% 35% 16054% 0% 4% 332% 94% -5,977 389% -2984% 28% -105 -90,976 24,311 50,224 Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest -10% 11,591 2,092 10,417 3,022 15,263 3,423 47% 13% 44% , CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Millions Total $ 128249 620 48351 (784 $ 134047 $ 2.40 Beginning balances at Sep. 24, 2016 Increase (Decrease) in Stockholders' Equity [Roll Forward] Common stock issued Common stock withheld related to net share settlement of equity awards Share-based compensation Tax benefit from equity awards, including transfer pricing adjustments Net income Dividends and dividend equivalents declared Common stock repurchased Other comprehensive income/loss) Ending balances at Sep 30, 2017 Increase (Decrease) in Stockholders' Equity [Roll Forward] Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) Common stock issued Common stock withheld related to net share settlement of equity awards Share-based compensation Tax benefit from equity awards, including transfer pricing adjustments Net income Dividends and dividend equivalents declared Common stock repurchased Other comprehensive income/loss) Ending balances at Sep. 29, 2018 Increase (Decrease) in Stockholders' Equity [Roll Forward] Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) Common stock issued Common stock withheld related to net share settlement of equity awards Share-based compensation Tax benefit from equity awards, including transfer pricing adjustments Net income Dividends and dividend equivalents declared Common stock repurchased Other comprehensive income/(loss) Ending balances at Sep. 28, 2019 Increase (Decrease) in Stockholders' Equity [Roll Forward] Dividends and dividend equivalents declared per share or RSU (in dollars per share or RSU) $ 59531 (3026 $ 107147 $2.72 $ 55256 (67100 2781 $ 90488 $3 Common stock and additional paid-in capital Retained earnings Accumulated other comprehensive income/loss) $31251 $ 96364 $ 634 555 (1468 4909 620 (581 48351 (12803 (33001 (784 (150 35867 98330 669 (1778 5443 0 (948 59531 (13735 (73056 (3026 (3454 40201 70400 (1029 781 (2002 6194 0 55256 (14129 (67101 2781 $ (584 $ 45174 $ 45898 INCOME STATEMENT ASSIGNMENT Briefly review the Income Statement. Look at the example below and review the key listed points on this page. Neeley Office Supplies Sales ....... $500,000 250.000 Cost of goods sold. Gross profit. 250,000 Marketing Expenses Administrative Expenses Other Operating Expenses Depreciation Total Operating Expenses 50.000 75.000 15,000 10,000 150,000 Operating profit Less: Non-operating items Earnings before Interest and Taxes ((EBIT) 100,000 0 100,000 Less: Interest. 15.000 Income before taxes. 85.000 Less: Income Taxes 35% 29,750 Income after taxes.............. 55,250 Income Statement: The income statement shows how much profit that the firm has made over a specific period. It is like a sandwich. The top slice of "bread" is "revenues." (The word "revenues means "sales."). The bottom slice shows the profit for a specified period and everything in between are costs. That means that Profit is equal to sales minus all expenses. The term profit has many synonyms, including income after taxes, net income, net profit and more. DIRECTIONS FOR YOUR ASSIGNMENT: There are several big questions that analysts try to answer. In answering the questions below and in doing a horizontal analysis, you will learn how to look at an Income Statement. Some things that you will look at in this assignment as you answer the 15 questions below are: a) Are revenues growing over time? b) Are expenses stable, declining or increasing? c) Is profitability growing over time? d) What significant changes have occurred year-to-year. (Horizontal Analysis). Using the Income Statements for Microsoft and Apple which are found within the posted Excel file, provide the required numbers and answer the questions below. If you do not understand a term in the Income Statement, please look it up on Google. The website "Investopedia" is often a good resource for
