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? 
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 A. (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 A September 30, 2017 S 229,234 141,048 88,186 September 24, 2016 $ 215,639 131,376 84,263 September 26, 2015 $ 233,715 140,089 93,626 Years ended Net sales Cost of sales Gross margin Operating expenses Research and development Selling, general and administrative Total operating expenses Operating income Other income (expense), net Income before provision for income taxes Provision for income taxes Net income 11,581 15.261 26.842 61,344 2.745 64,089 15,738 48,351 10.045 14,194 24.239 60,024 1,348 61,372 15,685 45,687 8,067 14,329 22,396 71,230 1,285 72,515 19,121 53,394 $ $ CA 9.28 9.27 9.21 8.35 8.31 $ $ $ 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 53,394 (411) 2,905 Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years ended September 30, 2017 September 24, 2016 Net income $ 48.351 S 45,687 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of $(77), $8 and $201, respectively 224 75 Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit (expense) of $(478), $(7) and S(441), respectively 1,315 7 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $475, $131 and $630, respectively (1,477) (741) Total change in unrealized gains/losses on derivative instruments, net of tax (162) (734) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit (expense) of $425, 8(863) and $264, respectively (782) 1,582 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $35, $(31), and $(32), respectively (64) 56 Total change in unrealized gains/losses on marketable securities, net of tax (846) 1,638 Total other comprehensive income (loss) (784) 979 Total comprehensive income 47,567 46,666 (3,497) (592) (483) 59 (424) (1,427) 51,967 See accompanying Notes to Consolidated Financial Statements. Google Inc. (Alphabet Inc.). CONSOLIDATED STATEMENTS OF INCOME (In millions) 2016 2015 74,989 2017 110,855 $ 90.272 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 $ $ 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 Inc. (Alphabet Inc.)" CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) GOOGLE 2015 16,348 2016 19,478 2017 12,662 $ $ $ (1,067) (599) 1,543 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 (715) 208 (507) (314) 221 (93) 307 105 412 676 (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. A-2 Appendix A Financial Statement Information APPLE 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 S 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 $ 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 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 S See accompanying Notes to Consolidated Financial Statements. As of December 31, 2017 VA 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 S 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 2,942 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, S0.001 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 $ GOOGLE 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 $ 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 A. (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 A September 30, 2017 S 229,234 141,048 88,186 September 24, 2016 $ 215,639 131,376 84,263 September 26, 2015 $ 233,715 140,089 93,626 Years ended Net sales Cost of sales Gross margin Operating expenses Research and development Selling, general and administrative Total operating expenses Operating income Other income (expense), net Income before provision for income taxes Provision for income taxes Net income 11,581 15.261 26.842 61,344 2.745 64,089 15,738 48,351 10.045 14,194 24.239 60,024 1,348 61,372 15,685 45,687 8,067 14,329 22,396 71,230 1,285 72,515 19,121 53,394 $ $ CA 9.28 9.27 9.21 8.35 8.31 $ $ $ 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 53,394 (411) 2,905 Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years ended September 30, 2017 September 24, 2016 Net income $ 48.351 S 45,687 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of $(77), $8 and $201, respectively 224 75 Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit (expense) of $(478), $(7) and S(441), respectively 1,315 7 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $475, $131 and $630, respectively (1,477) (741) Total change in unrealized gains/losses on derivative instruments, net of tax (162) (734) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit (expense) of $425, 8(863) and $264, respectively (782) 1,582 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $35, $(31), and $(32), respectively (64) 56 Total change in unrealized gains/losses on marketable securities, net of tax (846) 1,638 Total other comprehensive income (loss) (784) 979 Total comprehensive income 47,567 46,666 (3,497) (592) (483) 59 (424) (1,427) 51,967 See accompanying Notes to Consolidated Financial Statements. Google Inc. (Alphabet Inc.). CONSOLIDATED STATEMENTS OF INCOME (In millions) 2016 2015 74,989 2017 110,855 $ 90.272 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 $ $ 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 Inc. (Alphabet Inc.)" CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) GOOGLE 2015 16,348 2016 19,478 2017 12,662 $ $ $ (1,067) (599) 1,543 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 (715) 208 (507) (314) 221 (93) 307 105 412 676 (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. A-2 Appendix A Financial Statement Information APPLE 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 S 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 $ 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 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 S See accompanying Notes to Consolidated Financial Statements. As of December 31, 2017 VA 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 S 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 2,942 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, S0.001 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 $ GOOGLE 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 $
