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Return on Invested Capital (ROIC) is a profitabil ity 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 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 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 Blackberry. Where does Apple have an advantage? Where does Blackberry have an advantage? Apple, Inc YE Sept 2012 156,508 87,846 Blackberry Income Statement YE Mar 2012 Net sales 18,423 11,848 Cost of sales Gross margin Research & development expense 6,575 68,662 1,559 2,600 3,381 Selling, general & admin expense other operating Total operating expenses Operating margin 10,040 930 13,421 55,241 5,089 1,486 Interest & dividend income Interest expense Other Income Expense 21 522 Total Other income 522 21 Earnings before taxes 55,763 1,507 Provision for taxes 14,030 354 Net income (los s) 41,733 1,153 Microsoft Corporation Apple Inc YE Sept 2014 Balance sheet YE Mar 30 2012 1,527 Cash & cash equivalents Short-term marketable securities 10,746 247 3,062 18,383 10,930 Accounts receivable 0 Components Finished goods 1,027 Inventories 791 1,208 Other Current Assets 16,803 Total current assets 7,071 57,653 Long-term marketable securities Fixed Assets: PP&E (net) 2,733 3,927 15,452 Other assets 102,959 Long term assets 6,660 Total assets 176,064 13,731 744 Accounts payable Accrued expenses Deferred revenue 21,175 11,414 2,645 other 5,953 Total current liabilities 38,542 3,389 Long-term debt Deferred revenue Deferred tax liabilities non-current - Other non-current liabilities 19,312 242 Other long-term liabilities Total long-term liabilities 242 Long-term liabilities 19,312 57,854 Total liabilities 3,631 14 Common stock Retained earnings Unrecognized gain Total shareholders' equity 667 7,913 101,289 2,173 on securities 10,100 118,210 176,064 Total liabilities shareholders equity Calculate of Apple's ROIC and supporting ratios. (Enter your responses rounded to two decimal places.) APPLE ROIC 74.84% Tax Efficiency 25.16 % Tax Rate Operating Profit Margin 35.30 % 56.13 % COGS/Rev R&D/Rev 2.16 % 6.42 % S&GA/Rev Capital Efficiency Working Capital Turn Fixed Asset Turn Inventory Turn Receivable Turn Payables Turn 111.10

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