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Return on Invested Capital ( ROIC ) is a profitability ratio that measures how effective the firm is at generating a return for investors who
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 and
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 YE Mar
Net sales
Cost of sales
Gross margin
Research & development expense
Selling, general & admin expense
other operating
Total operating expenses
Operating margin
Interest & dividend income
Interest expense
Other Income Expense
Total Other income
Earnings before taxes
Provision for taxes
Net income loss
Apple Inc Microsoft Corporation
Balance sheet YE Sept YE Mar
Cash & cash equivalents
Shortterm marketable securities
Accounts receivable
Components
Finished goods
Inventories
Other Current Assets
Total current assets
Longterm marketable securities
Fixed Assets: PP&E net
Other assets
Long term assets
Total assets
Accounts payable
Accrued expenses
Deferred revenue
other
Total current liabilities
Longterm debt
Deferred revenue noncurrent
Deferred tax liabilities
Other noncurrent liabilities
Other longterm liabilities
Total longterm liabilities
Longterm liabilities
Total liabilities
Common stock
Retained earnings
Unrecognized gain on securities
Total shareholders' equity
Total liabilities shareholders equity
Execise a Calculating Apple's ROIC
Calculate of Apples ROIC and supporting ratios. Enter your responses rounded to two decimal places.
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