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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

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 firms 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, Apples ROIC is compared to Microsofts. 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 Apples ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to compare Apple and Microsofts performance. Where does Apples 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 Apples ROIC and supporting ratios. Once filled in correctly, compare Apples performance to that of Microsoft. Where does Apple have an advantage? Where does Microsoft have an advantage?

Apple Inc Microsoft Corporation
Income Statement FYE Sept, 27 2014 (000) FYE June 30 2015 (000)
Net sales 182,795,000 93,580,000
Cost of sales 112,258,000 33,038,000
Gross margin 70,537,000 60,542,000
Research & development expense 6,041,000 12,046,000
Selling, general & admin expense 11,993,000 20,324,000
Total operating expenses 10,011,000
Operating expenses 18,034,000 42,381,000
Operating margin 52,503,000 18,161,000
Interest & dividend income 1,795,000 766,000
Interest expense 384,000 781,000
Other Income / Expense -431,000 361,000
Total Other income 980,000 346,000
Earnings before taxes 53,483,000 18,507,000
Provision for taxes 13,973,000 6,314,000
Net income (loss) 39,510,000 12,193,000

Apple Inc Microsoft Corporation
Balance sheet FYE Sept, 27 2014 (000) FYE June 30 2015 (000)
Cash & cash equivalents 13,844,000 5,595,000
Short-term marketable securities 11,233,000 90,931,000
Accounts receivable 17,460,000 17,908,000
Components 471,000 1,100,000
Finished goods 1,640,000 1,600,000
Inventories 2,111,000 2,902,000
Other Current Assets 21,772,000 4,676,000
Total current assets 68,531,000 124,712,000
130,162,000 12,053,000
Long-term marketable securities 20,624,000 14,731,000
Fixed Assets: PP&E (net) 12,522,000 24,727,000
Other assets 163,308,000 51,511,000
Long term assets 231,839,000 176,223,000
Total assets 30,196,000 6,591,000
Accounts payable 33,252,000 43,267,000
Other Current liabilities 63,448,000 49,858,000
Total current liabilities 28,987,000
Long-term debt 3,031,000 278,080,000
Deferred revenue - non-current 20,259,000 2,095,000
Deferred tax liabilities 4,567,000 2,835,000
Other non-current liabilities 13,544,000
Long Term liabilities 56,844,000 46,282,000
Total liabilities 120,292,000 96,140,000
Common stock 23,313,000 68,465,000
Retained earnings 87,152,000 9,096,000
Unrecognized gain on securities 1,082,000 2,522,000
Total shareholders' equity 111,547,000 80,083,000
Total liabilities + shareholders equity 231,839,000 176,223,000

Calculate the Apples ROIC and supporting ratios. (Enter your responses rounded to two decimal places.)

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 firms 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, Apples ROIC is compared to Microsofts. 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 Apples ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to compare Apple and Microsofts performance. Where does Apples 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 Apples ROIC and supporting ratios. Once filled in correctly, compare Apples performance to that of Microsoft. Where does Apple have an advantage? Where does Microsoft have an advantage?

Apple Inc Microsoft Corporation
Income Statement FYE Sept, 27 2014 (000) FYE June 30 2015 (000)
Net sales 182,795,000 93,580,000
Cost of sales 112,258,000 33,038,000
Gross margin 70,537,000 60,542,000
Research & development expense 6,041,000 12,046,000
Selling, general & admin expense 11,993,000 20,324,000
Total operating expenses 10,011,000
Operating expenses 18,034,000 42,381,000
Operating margin 52,503,000 18,161,000
Interest & dividend income 1,795,000 766,000
Interest expense 384,000 781,000
Other Income / Expense -431,000 361,000
Total Other income 980,000 346,000
Earnings before taxes 53,483,000 18,507,000
Provision for taxes 13,973,000 6,314,000
Net income (loss) 39,510,000 12,193,000

Apple Inc Microsoft Corporation
Balance sheet FYE Sept, 27 2014 (000) FYE June 30 2015 (000)
Cash & cash equivalents 13,844,000 5,595,000
Short-term marketable securities 11,233,000 90,931,000
Accounts receivable 17,460,000 17,908,000
Components 471,000 1,100,000
Finished goods 1,640,000 1,600,000
Inventories 2,111,000 2,902,000
Other Current Assets 21,772,000 4,676,000
Total current assets 68,531,000 124,712,000
130,162,000 12,053,000
Long-term marketable securities 20,624,000 14,731,000
Fixed Assets: PP&E (net) 12,522,000 24,727,000
Other assets 163,308,000 51,511,000
Long term assets 231,839,000 176,223,000
Total assets 30,196,000 6,591,000
Accounts payable 33,252,000 43,267,000
Other Current liabilities 63,448,000 49,858,000
Total current liabilities 28,987,000
Long-term debt 3,031,000 278,080,000
Deferred revenue - non-current 20,259,000 2,095,000
Deferred tax liabilities 4,567,000 2,835,000
Other non-current liabilities 13,544,000
Long Term liabilities 56,844,000 46,282,000
Total liabilities 120,292,000 96,140,000
Common stock 23,313,000 68,465,000
Retained earnings 87,152,000 9,096,000
Unrecognized gain on securities 1,082,000 2,522,000
Total shareholders' equity 111,547,000 80,083,000
Total liabilities + shareholders equity 231,839,000 176,223,000

Calculate the Apples ROIC and supporting ratios. (Enter your responses rounded to two decimal places.)

image text in transcribed

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 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

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