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Exercise $7-$ Calculating and Comparing Return on Invested Capital $($ROIC$)$ Apple v$.$ Microsoft

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.

In the following, Apple's ROIC is compared to Microsoft's. 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

Apple's ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to

compare Apple and Microsoft's performance. Where does Apple's 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 Apple's

ROIC and supporting ratios. Once filled in correctly, compare Apple's performance to that of Microsoft. Where does Apple

have an advantage? Where does Microsoft have an advantage? $\backslash$table$[[$Income Statement,$\backslash$table$[[$Apple Inc$],[$FYE Sept, $27]],\backslash$table$[[2014(000)]],\backslash$table$[[$Microsoft C$],[$FYE June $30]],\backslash$table$[[$poration$],[015(000)]]],[$Net sales,$182,795,000,70,537,000,93,580,000,60,542,000],[$Cost of sales,$112,258,000,33,038,000],[$Gross margin,,$],[$Research & development expense,$6,041,000,,12,046,000,\backslash$table$[[\backslash$table$[[42,381,000],[18,161,000]]]]],[$Selling$,$ general & admin expense,$11,993,000,,20,324,000],[$Total operating expenses,,,$10,011,000],[$Operating expenses,,$18,034,000,\backslash$table$[[\backslash$table$[[766,000],[781,000],[361,000]]]]],[$Operating margin,,$52,503,000],[$Interest & dividend income,$1,795,000,],[$Interest expense,$384,000,],[$Other Income $/$ Expense,$-431,000,],[$Total Other income,,$980,000,6,314,000,346,000],[$Earnings before taxes,,$53,483,000,18,507,000],[$Provision for taxes,$13,973,000,,],[$Net income $($loss$),,39,510,000,12,193,000]]$ Execise $7$a $-$ Calculating Apple's ROIC

Calculate the Apple's ROIC and supporting ratios. $($Enter your responses rounded to two decimal places.$)$