Exercise 8 - Calculating and Comparing Return on Invested Capital (ROIC) Apple v. Blackberry 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 n the following. Apple's ROIG 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 ROIG 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. 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, 940 2 606 other operating 930 Total operating expenses 13, 421 5 089 Operating margin 55, 241 1, 486 Interest & dividend income interest expense Other Income / Expense Total Other income 522 Earnings before taxes 55, 763 Provision for taxes 14,030 Net income ( loss) 41, 733 1, 153 Apple Inc Microsoft Corporation Balance sheet YE Sept 2014 YE Man 28 2912 1 527 Cash & cash equivalents 10,746 24 Short-term marketable securities 18, 383 3 062 Accounts receivable 10, 936 Components Finished goods 1 827 Inventories 791 1, 268 Other Current Assets 16 893 otal current assets 57, 653Components Finished goods Inventories 1,027 791 1, 208 Other Current Assets 16, 803 Total current assets 57 653 7, 971 ong-term marketable securities 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 1744 Accounts payable 21, 175 Accrued expenses 11,414 Deferred revenue 2, 645 other Total current liabilities 38, 542 3, 389 Long-term debt Deferred revenue - non-current Deferred tax liabilities 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 10, 190 Total shareholders' equity 118, 210 Total liabilities + shareholders equity 176, 064 Execise 8a - Calculating Apple's ROIC Calculate of Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) APPLE ROIC 17.00 % Tax. Efficiency 135.36 % Tax Rate 7.64 % Operating Profit Margin 28.72 % COGS/Rev 67.97% R&D/Rev 3.30 % S&GA/Rev 6.56 % Capital Efficiency 21.98 Working Capital Turn 4.62 Fixed Asset Tum 14.59 Inventory Turn 58.85 Receivable Turn 10.46 Payables Turn 6.49