Required information Return on Invested Capital (ROIC) is a profitability ratio that measures how effective the firm is at generating a return for investors who have provided capital (bondholders and stockholders). The ROIC calculation answers three questions: How tax efficient is the firm? How effective are the firm's operations? How intensively does the firm use capital? Comparing the answers to these questions between firms can help you understand why one firm is more profitable than another and where that profitability is coming from. In the following, Apple's ROIC is compared to Microsoft's. The income statement and balance sheet are provided for both firms. While the ROIC calculation for Microsoft is completed below, you have to complete the calculation for Apple by supplying the correct income statement and balance sheet information. As you fill in this information, the components of Apple's ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to compare Apple and Microsoft's performance. Where does Apple's advantage come from? This activity demonstrates the calculation of ROIC and the comparison of firm performance, supporting Learning Objective 5-1 and 5-2. Instructions Use the income statement and balance sheet information for Apple to fill in the missing items in the calculation of Apple's ROIC and supporting ratios. Once filled in correctly, compare Apple's performance to that of Microsoft. Where does Apple have an advantage? Where does Microsoft have an advantage? Apple Inc FYE Sept, 27 2014 (200) 182,795,000 112,258,000 70,537,000 6,041,000 11,993,000 Income Statement Net sales Cost of sales Gross margin Research & development expense Selling, general & admin expense Total operating expenses Operating expenses Operating margin Interest & dividend income Interest expense Other Income / Expense Total Other income Earnings before taxes Provision for taxes Net income (loss) 18,034,000 52,503,000 Microsoft Corporation FYE June 30 2015 (200) 93,580,000 33,038,000 60,542,000 12,046,000 20,324,000 10,011,000 42,381,000 18,161,000 766,000 781,000 361,000 346,000 18,507,000 6,314,000 12, 193,000 1,795,000 384,000 -431,000 980,000 53,483,000 13,973,000 39,510,000 Balance sheet Cash & cash equivalents Short-term marketable securities Accounts receivable Components Finished goods Inventories Other Current Assets Total current assets Apple Inc FYE Sept, 27 2014 (200) 13,844,000 11,233,000 17,460,000 471,000 1,640,000 2,111,000 21,772,000 68,531,000 130, 162,000 20,624,000 12,522,000 163,308,000 231,839,000 30, 196,000 33,252,000 63,448,000 28,987,000 3,031,000 20, 259,000 4,567,000 Microsoft Corporation FYE June 30 2015 (200) 5,595,000 90,931,000 17,908,000 1,100,000 1,600,000 2,902,000 4,676,000 124,712,000 12,053,000 14,731,000 24,727,000 51,511,000 176,223,000 6,591,000 43, 267,000 49,858,000 Long-term marketable securities Fixed Assets: PP&E (net) Other assets Long term assets Total assets Accounts payable Other Current liabilities Total current liabilities Long-term debt Deferred revenue - non-current Deferred tax liabilities Other non-current liabilities Long Term liabilities Total liabilities Common stock Retained earnings Unrecognized gain on securities Total shareholders' equity Total liabilities + shareholders equity 278,080,000 2,095,000 2,835,000 13,544,000 56,844,000 120, 292,000 46,282,000 96,140,000 23,313,000 87,152,000 1,082,000 68,465,000 9,096,000 2,522,000 111,547,000 231,839,000 80,083,000 176,223,000 lculate the Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) Calculate the Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) APPLE ROIC Tax Efficiency Tax Rate Operating Profit Margin COGS/Rev R&D/Rev S&GA/Rev Capital Efficiency Working Capital Turn Fixed Asset Turn Inventory Turn Receivable Turn Payables Turn Required information Return on Invested Capital (ROIC) is a profitability ratio that measures how effective the firm is at generating a return for investors who have provided capital (bondholders and stockholders). The ROIC calculation answers three questions: How tax efficient is the firm? How effective are the firm's operations? How intensively does the firm use capital? Comparing the answers to these questions between firms can help you understand why one firm is more profitable than another and where that profitability is coming from. In the following, Apple's ROIC is compared to Microsoft's. The income statement and balance sheet are provided for both firms. While the ROIC calculation for Microsoft is completed below, you have to complete the calculation for Apple by supplying the correct income statement and balance sheet information. As you fill in this information, the components of Apple's ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to compare Apple and Microsoft's performance. Where does Apple's advantage come from? This activity demonstrates the calculation of ROIC and the comparison of firm performance, supporting Learning Objective 5-1 and 5-2. Instructions Use the income statement and balance sheet information for Apple to fill in the missing items in the calculation of Apple's ROIC and supporting ratios. Once filled in correctly, compare Apple's performance to that of Microsoft. Where does Apple have an advantage? Where does Microsoft have an advantage? Apple Inc FYE Sept, 27 2014 (200) 182,795,000 112,258,000 70,537,000 6,041,000 11,993,000 Income Statement Net sales Cost of sales Gross margin Research & development expense Selling, general & admin expense Total operating expenses Operating expenses Operating margin Interest & dividend income Interest expense Other Income / Expense Total Other income Earnings before taxes Provision for taxes Net income (loss) 18,034,000 52,503,000 Microsoft Corporation FYE June 30 2015 (200) 93,580,000 33,038,000 60,542,000 12,046,000 20,324,000 10,011,000 42,381,000 18,161,000 766,000 781,000 361,000 346,000 18,507,000 6,314,000 12, 193,000 1,795,000 384,000 -431,000 980,000 53,483,000 13,973,000 39,510,000 Balance sheet Cash & cash equivalents Short-term marketable securities Accounts receivable Components Finished goods Inventories Other Current Assets Total current assets Apple Inc FYE Sept, 27 2014 (200) 13,844,000 11,233,000 17,460,000 471,000 1,640,000 2,111,000 21,772,000 68,531,000 130, 162,000 20,624,000 12,522,000 163,308,000 231,839,000 30, 196,000 33,252,000 63,448,000 28,987,000 3,031,000 20, 259,000 4,567,000 Microsoft Corporation FYE June 30 2015 (200) 5,595,000 90,931,000 17,908,000 1,100,000 1,600,000 2,902,000 4,676,000 124,712,000 12,053,000 14,731,000 24,727,000 51,511,000 176,223,000 6,591,000 43, 267,000 49,858,000 Long-term marketable securities Fixed Assets: PP&E (net) Other assets Long term assets Total assets Accounts payable Other Current liabilities Total current liabilities Long-term debt Deferred revenue - non-current Deferred tax liabilities Other non-current liabilities Long Term liabilities Total liabilities Common stock Retained earnings Unrecognized gain on securities Total shareholders' equity Total liabilities + shareholders equity 278,080,000 2,095,000 2,835,000 13,544,000 56,844,000 120, 292,000 46,282,000 96,140,000 23,313,000 87,152,000 1,082,000 68,465,000 9,096,000 2,522,000 111,547,000 231,839,000 80,083,000 176,223,000 lculate the Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) Calculate the Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) APPLE ROIC Tax Efficiency Tax Rate Operating Profit Margin COGS/Rev R&D/Rev S&GA/Rev Capital Efficiency Working Capital Turn Fixed Asset Turn Inventory Turn Receivable Turn Payables Turn