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 Blackberrys. 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 Apples ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to compare Apple and Blacberrys 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 Blackberry. Where does Apple have an advantage? Where does Blackberry have an advantage?

	Apple, Inc.		Blackberry
Income Statement	YE Sept 2012		YE Mar 2012
Net sales	156,508		18,423
Cost of sales	87,846		11,848
Gross margin		68,662		6,575
Research & development expense	3,381		1,559
Selling, general & admin expense	10,040		2,600
other operating	0		930
Total operating expenses		13,421		5,089
Operating margin		55,241		1,486
Interest & dividend income	0		0
Interest expense	0		0
Other Income / Expense	522		21
Total Other income		522		21
Earnings before taxes		55,763		1,507
Provision for taxes	14,030		354
Net income (loss)		41,733		1,153

	Apple Inc		Microsoft Corporation
Balance sheet	YE Sept 2014		YE Mar 30 2012
			1,527
Cash & cash equivalents	10,746		247
Short-term marketable securities	18,383		3,062
Accounts receivable	10,930		0
Components	0		0
Finished goods	0		1,027
Inventories	791		1,208
Other Current Assets	16,803
Total current assets		57,653			7,071
				0
Long-term marketable securities	0		2,733
Fixed Assets: PP&E (net)	15,452		3,927
Other assets	102,959
Long term assets					6,660
Total assets		176,064			13,731
				744
Accounts payable	21,175		0
Accrued expenses	11,414		0
Deferred revenue	0		2,645
other	5,953
Total current liabilities		38,542			3,389
				0
Long-term debt	0		0
Deferred revenue - non-current	0		0
Deferred tax liabilities	0
Other non-current liabilities	19,312		242
Other long-term liabilities
Total long-term liabilities					242
Long-term liabilities		19,312
Total liabilities		57,854			3,631
				14
Common stock	667		7,913
Retained earnings	101,289		2,173
Unrecognized gain on securities	0		10,100
Total shareholders' equity		118,210
Total liabilities + shareholders equity		176,064

Calculate of Apples ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) APPLE ROIC Tax Efficiency Tax Rate Operating Profit Margin 74.84 % 25.16 % 35.30 % 56.13% COGS/Rev R&D/Rev 2.16 % S&GA/Rev 6.42 % Capital Efficiency Working Capital Turn Fixed Asset Turn Inventory Turn Receivable Turn Payables Turn Calculate of Apples ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) APPLE ROIC Tax Efficiency Tax Rate Operating Profit Margin 74.84 % 25.16 % 35.30 % 56.13% COGS/Rev R&D/Rev 2.16 % S&GA/Rev 6.42 % Capital Efficiency Working Capital Turn Fixed Asset Turn Inventory Turn Receivable Turn Payables Turn