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 Blackberry's. The income statement and balance sheet are provided for both firms. While the ROIC calculation for Blackberry 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 Blacberry'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 Blackberry. Where does Apple have an advantage? Where does Blackberry have an advantage? Apple, Inc. YE Sept 2012 156,508 87,846 Blackberry YE Mar 2012 18,423 11,848 68,662 6,575 Income Statement Net sales Cost of sales Gross margin Research & development expense Selling, general & admin expense other operating Total operating expenses Operating margin 3,381 10,040 1,559 2,600 930 13,421 55,241 5,089 1,486 Interest & dividend income Interest expense Other Income / Expense Total Other income Earnings before taxes 522 522 55,763 - 1,50 14,030 354 Provision for taxes Net income (loss) 41,733 1,153 Balance sheet Apple Inc YE Sept 2014 Microsoft Corporation YE Mar 30 2012 1,527 247 3,062 10,746 18,383 10,930 Cash & cash equivalents Short-term marketable securities Accounts receivable Components Finished goods Inventories Other Current Assets Total current assets 1,027 1,208 791 16,803 57,653 7,071 2,733 3,927 Long-term marketable securities Fixed Assets: PP&E (net) Other assets Long term assets Total assets 15,452 102,959 6,660 176,064 13,731 744 21,175 11,414 Accounts payable Accrued expenses Deferred revenue other Total current liabilities 2,645 5,953 38,542 3,389 19,312 242 Long-term debt Deferred revenue - non-current Deferred tax liabilities Other non-current liabilities Other long-term liabilities Total long-term liabilities Long-term liabilities Total liabilities 242 19,312 57,854 3,631 14 667 101,289 Common stock Retained earnings Unrecognized gain on securities Total shareholders' equity Total liabilities + shareholders equity 7,913 2,173 10,100 118,210 176,064 Calculate of Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) 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 APPLE 11.15% 74.54 25.16% 35.30% 56.13% 2.16% 6.42% 40.55 19, 111.00 10.13 197.86 14.32 4.15 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 Blackberry's. The income statement and balance sheet are provided for both firms. While the ROIC calculation for Blackberry 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 Blacberry'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 Blackberry. Where does Apple have an advantage? Where does Blackberry have an advantage? Apple, Inc. YE Sept 2012 156,508 87,846 Blackberry YE Mar 2012 18,423 11,848 68,662 6,575 Income Statement Net sales Cost of sales Gross margin Research & development expense Selling, general & admin expense other operating Total operating expenses Operating margin 3,381 10,040 1,559 2,600 930 13,421 55,241 5,089 1,486 Interest & dividend income Interest expense Other Income / Expense Total Other income Earnings before taxes 522 522 55,763 - 1,50 14,030 354 Provision for taxes Net income (loss) 41,733 1,153 Balance sheet Apple Inc YE Sept 2014 Microsoft Corporation YE Mar 30 2012 1,527 247 3,062 10,746 18,383 10,930 Cash & cash equivalents Short-term marketable securities Accounts receivable Components Finished goods Inventories Other Current Assets Total current assets 1,027 1,208 791 16,803 57,653 7,071 2,733 3,927 Long-term marketable securities Fixed Assets: PP&E (net) Other assets Long term assets Total assets 15,452 102,959 6,660 176,064 13,731 744 21,175 11,414 Accounts payable Accrued expenses Deferred revenue other Total current liabilities 2,645 5,953 38,542 3,389 19,312 242 Long-term debt Deferred revenue - non-current Deferred tax liabilities Other non-current liabilities Other long-term liabilities Total long-term liabilities Long-term liabilities Total liabilities 242 19,312 57,854 3,631 14 667 101,289 Common stock Retained earnings Unrecognized gain on securities Total shareholders' equity Total liabilities + shareholders equity 7,913 2,173 10,100 118,210 176,064 Calculate of Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) 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 APPLE 11.15% 74.54 25.16% 35.30% 56.13% 2.16% 6.42% 40.55 19, 111.00 10.13 197.86 14.32 4.15