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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 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?

pp Im MICNOSOTL Corporation FYE June 30 2015 (000) FYE Sept, 27 2014 (000) 182,795,000 112,258,000 Income Statement Net sales Cost of sales 93,580,000 33,038,000 Gross margin Research & development expense 70,537,000 60,542,000 12,046,000 20,324,000 10,011,000 6,041,000 Selling, general & admin expense Total operating expenses Operating expenses Operating margin Interest & dividend income 11,993,000 18,034,000 52,503,000 42,381,000 18,161,000 1,795,000 384,000 766,000 781,000 361,000 Interest expense Other Income Expense -431,000 Total Other income 980,000 346.000 Earnings before taxes Provision for taxes 53,483,000 18,507,000 6,314,000 13,973,000 Net income (loss) 39,510,000 12,193,000 Microsoft Corporation FYE June 30 2015 (000) 5,595,000 90,931,000 17,908,000 1,100,000 1,600,000 2,902,000 4,676,000 Apple Inc FYE Sept, 27 2014 (000) 13,844,000 11,233,000 17,460,000 471,000 Balance sheet Cash & cash equivalents Short-term marketable securities Accounts receivable Components Finished goods 1,640,000 Inventories 2,111,000 Other Current Assets 21,772,000 Total current assets 68,531,000 124,712,000 130,162,000 20,624,000 12,522,000 12,053,000 14,731,000 24,727,000 Long-term marketable securities Fixed Assets: PP&E (net) Other assets 163,308,000 51,511,000 176,223,000 231,839,000 Long term assets Total assets Accounts payable 6,591,000 43, 267,000 30,196,000 33,252,000 63,448,000 Other Current liabilities 49,858,000 Total current liabilities 28,987,000 3,031,000 20, 259,000 4,567,000 278,080,000 2,095,000 2,835,000 13,544,000 Long-term debt Deferred revenue - non-current Deferred tax liabilities Other non-current liabilities 46, 282,000 Long Term liabilities 56,844,000 Total liabilities 120, 292,000 96,140,000 Common stock 68,465,000 9,096,000 2,522,000 23,313,000 Retained earnings Unrecognized gain on securities 87,152,000 1,082,000 56,844,000 46, 282,000 Long Term liabilities 120, 292,000 96,140,000 Total liabilities Common stock Retained earnings 23,313,000 87,152,000 1,082,000 68,465,000 9,096,000 2,522,000 Unrecognized gain on securities Total shareholders' equity 80,083,000 111,547,000 231,839,000 Total liabilities shareholders equity 176, 223,000 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

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