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Transcribed image text: AA 02-2 Comparative Analysis LO P1 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 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? Complete this question by entering your answers in the tabs below. 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 dedmal places) Year Ended Sept 30, 2017 Year Ended Sept. 24, 2016 Apple gross margin rato 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 S53, 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 5,712 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 s 37.29.4 22,027 8,080 8.105 3.500 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable s 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 Shareholders' cquity Common stock and additional paid in capital. SO_00001 par values 12.600.000 shares authonzed. 5.126,201 and 5.336,166 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensisc income (los) 49,049 25.744 7,548 11.977 6,496 100,814 2.836 97.207 40.415 241.272 79.006 2.930 75.427 36.074 193,437 35,867 08330 (150) 10142 31.251 36304 634 12.10 T1 Irella 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 131376 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), na 2,745 1.348 Income before provision for income taxes 64,089 61,372 Provision for income taxes 15.738 15,685 Net income S 48.351 45.687 8,067 14.329 22,396 71,230 1.285 72,515 19,121 53.394 S 9.27 9.21 S S 8.35 8.31 9.28 9.22 S S Earnings per share: Basic Diluted Shares used in computing camnings per share: Basic Diluted Cash dividends declared per share 5.217.242 5.251,692 2.10 5,470.820 5.500,281 2.18 5,753,421 5,793,069 1.98 $ S s See accompanying Notes to Consolidated Financial Statements. Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions Years ended September 30, 2017 September 24, 2016 September 26, 2015 Net income $ 48,351 $ 45,687 $ 53,394 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of $(77), $8 and $201, respectively 224 75 (411) Change in unrealized gains/losses on derivative instruments: Change in fnir value of derivatives, net of tax bencfit (expense) of $(478), $(7) and $(441), respectively 1.315 7 2,905 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $475, 5131 and $630, respectively (1,477) (741) (3,497) Total change in unrealized gains/losses on derivative instruments, net of tax (162) (734) (592) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, nct of tax benefit (expense) of $425. $(863) and $264, respectively (782) 1,582 (483) Adjustment for net (gains) losses realized and included in net income, net of tax expense (bencfit) of $35, $(31). and S(32), respectively (64) 56 59 Total change in unrealized gains/losses on marketable securities, net of tax (846) 1,638 (424) Total other comprehensive income (loss) (784) 979 (1,427) Total comprehensive income 47,567 46.666 s 51.967 See accompanying Notes to Consolidated Financial Statements 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 S 23,313 $ 87,152 5 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, nct 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 (345) S 119.355 Net income 45.687 Other comprehensive income (loss) 979 979 Dividends and dividend cquivalents 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 S 31.251 S 96,364 S 634 S 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) (1.4494) 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) S 134.047 45,687 See accompanying Notes to Consolidated Financial Statements. Required 1 Required 2 Required 3 Compute the gross margin ratio for Google for each of the fiscal years ended December 31, 2017, and December 31, 2016. (Round your final answers to 3 decimal places) Year Ended Year Ended Dec. 31, 2017 Dec 31, 2016 Google gross margin ratio Google Inc. (Alphabet Inc.)" CONSOLIDATED BALANCE SHEETS (In millions, except share and par valve amounts which are reflected in thousands, and par value per share amounts) As of As of December 31, 2016 December 31, 2017 Assets Current assets Cash and cash equivalents $ 12,918 $ 10,715 Marketable securitics 73.415 91,156 Total cash, cash equivalents, and marketable securities 86,333 101,871 Accounts reccivable, net of allowance of $467 and $674 14,137 18,336 Income taxes receivable, net 95 369 Inventory 268 749 Other current assets 4,575 2,983 Total current assets 105,408 124,308 Non-marketable investments 5,878 7,813 Deferred income taxes 383 680 Property and equipment, net 34,234 42,383 Intangible assets, net 3,307 2,692 Goodwill 16,468 16,747 Other non-current assets 1,819 2,672 Total assets 167,497 197,295 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 2.041 S 3.137 Accrued compensation and benefits 3.976 4,581 Accrued expenses and other current liabilities 6,144 10.177 Accrued revenue share 2.942 3.975 Deferred revenue 1,099 1.432 Income taxes payable.net 554 881 Total current liabilities 16.756 24.183 Long-term debt 3.935 3,969 Deferred revenue, non-current 202 340 Income taxes payable, non-current 4.677 12,812 Deferred income taxes 226 430 Other long-term liabilities 2,665 3,059 Total liabilities 28.461 44.793 Commitments and contingencies Stockholders' equity Convertible preferred stock, S0,001 par value per share, 100.000 shares authorized: no shares issued and outstanding kass And Lommand and Classronnistradan 3,307 16,468 1,819 42,383 2,692 16,747 2,672 191.295 167,497 S $ GOOGLE 2,041 3976 6,144 2.942 1,099 554 16,756 3,935 202 Property and equipment na 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 revenuc, 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 sharc, 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, 50.001 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 196,992, 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 4581 10,177 3.975 1,432 881 24.183 3.969 340 12.812 430 3,059 44,793 4,677 226 2,665 28,461 0 0 36,307 (2,402) 105.131 139.036 167.497 40.247 (992) 113.247 152.502 197_295 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 INCOME (In millions) 2015 2017 2016 90,272 $ 74,989 $ $ 110,855 35,138 13,948 10,485 6,985 Year Ended December 31 Revenues Costs and expenses Cost of revenues Rescarch 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 0 66,556 23,716 45,583 16,625 12,893 6,872 2,736 84,709 26,146 1,047 27,193 14,531 12,662 0 434 24,150 4,672 $ 19,478 0 S S 15,826 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 Google provides 99% of Alphabet's S1 10,855 billion in revenues. See accompanying notes, Google Inc. (Alphabet Inc.)" CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) 2016 2015 16,348 2017 12,662 19,478 $ (1,067) (599) 1,543 Year Ended December 31 Nct income Other comprehensive income (loss): Change in foreign currency translation adjustment Available-for-sale investments: Change in net unrcalized gains (losses) Less: reclassification adjustment for net (gains) losses included in net income Net change (nct of tax effect of $29, 50, and $0) Cash flow hedges: Change in net unrealized gains (losses) Less: reclassification adjustment for net (gains) losses included in net income Nct change (nct of tax effect of $115. $64, and $247) Other comprehensive income (loss) Comprehensive income 307 105 (715) 208 (507) (314) 221 (93) 412 676 (1,003) (327) (1,901) 14,447 515 (351) 164 (528) 18,950 (638) 93 (545) 1,410 S 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