Income statements and balance sheets follow for Microsoft Corporation and Apple
ID: 2400803 • Letter: I
Question
Income statements and balance sheets follow for Microsoft Corporation and Apple Inc. Refer to these financial statements to answer the requirements.
MICROSOFT CORPORATION
Income Statements
For the years ended June 30,
(in millions)
2016
2015
Revenue
Product
$61,502
$75,956
Service
23,818
17,624
Total revenue
85,320
93,580
Cost of revenue
Product
17,880
21,410
Service and other
14,900
11,628
Total cost of revenue
32,780
33,038
Gross margin
52,540
60,542
Research and development
11,988
12,046
Sales and marketing
14,697
15,713
General and administrative
4,563
4,611
Impairment, integration, and restructuring
1,110
10,011
Operating income
20,182
18,161
Dividends and interest income
903
766
Interest expense
(1,243)
(781)
Other income (expense), net
(91)
361
Income before taxes
19,751
18,507
Provision for income taxes
2,953
6,314
Net income
$16,798
$ 12,193
Continued next page
MICROSOFT CORPORATION
Balance Sheet
As of June 30,
(in millions)
2016
2015
Current assets:
Cash and cash equivalents
$ 6,510
$ 5,595
Short-term investments
106,730
90,931
Accounts receivable, net
18,277
17,908
Inventories
2,251
2,902
Other current assets
5,892
5,461
Total current assets
139,660
122,797
Property and equipment, net
18,356
14,731
Equity and other investments
10,431
12,053
Goodwill
17,872
16,939
Intangible assets, net
3,733
4,835
Other long-term assets
3,642
3,117
Total assets
$193,694
$174,472
Current liabilities:
Accounts payable
$ 6,898
$ 6,591
Short-term debt
12,904
4,985
Current portion of long-term debt
0
2,499
Accrued compensation
5,264
5,096
Income taxes
580
606
Short-term unearned revenue
27,468
23,223
Other current liabilities
6,243
6,647
Total current liabilities
59,357
49,647
Long-term debt
40,783
27,808
Long-term unearned revenue
6,441
2,095
Deferred income taxes
1,476
1,295
Other long-term liabilities
13,640
13,544
Total liabilities
121,697
94,389
Stockholders' equity:
Common stock and paid-in capital
68,178
68,465
Retained earnings
2,282
9,096
Accumulated other comprehensive income
1,537
2,522
Total stockholders' equity
71,997
80,083
Total liabilities and stockholders' equity
$193,694
$ 174,472
Continued next page
Apple Inc.
Consolidated Statement of Operations
Fiscal year ended
(in millions)
Sept. 24, 2016
Sept. 26, 2015
Net sales
$ 215,639
$ 233,715
Cost of sales
131,376
140,089
Gross margin
84,263
93,626
Operating expenses
Research and development
10,045
8,067
Selling, general and administrative
14,194
14,329
Total operating expenses
24,239
22,396
Operating income
60,024
71,230
Interest and dividend income
3,999
2,921
Interest expense
(1,456)
(733)
Other expense, net
(1,195)
(903)
Income before provision for income taxes
61,372
72,515
Provision for income taxes
15,685
19,121
Net income
$ 45,687
$ 53,394
Apple Inc.
Consolidated Balance Sheets
As of
(in thousands)
Sept. 24, 2016
Sept. 26, 2015
Cash and cash equivalents
$ 20,484
$ 21,120
Short-term investments
46,671
20,481
Accounts receivable, net
15,754
16,849
Inventories
2,132
2,349
Other current assets
21,828
28,579
Total current assets
106,869
89,378
Long-term marketable securities
170,430
164,065
Property plant and equipment, net
27,010
22,471
Goodwill
5,414
5,116
Acquired intangible assets, net
3,206
3,893
Other assets
8,757
5,422
Total assets
321,686
290,345
Table continued next page
Table continued
Apple Inc.
Consolidated Balance Sheets—continued
As of
(in thousands)
Sept. 24, 2016
Sept. 26, 2015
Accounts payable
37,294
35,490
Accrued expenses
22,027
25,181
Deferred revenue
8,080
8,940
Current portion of LT debt and short-term debt
11,605
10,999
Total current liabilities
79,006
80,610
Deferred revenue – non-current
2,930
3,624
Long-term debt
75,427
53,329
Other non-current liabilities
36,074
33,427
Total liabilities
193,437
170,990
Stockholders’ equity
Common stock no par value
31,251
27,416
Retained earnings
96,364
92,284
Accumulated other comprehensive income (loss)
634
(345)
Total stockholders’ equity
128,249
119,355
Total liabilities and stockholders’ equity
$ 321,686
$ 290,345
Required:
a. Compute the current ratio and quick ratio for both firms for fiscal 2016. Compare the ratios and determine which company is more liquid.
b. Compute the times interest earned and liabilities-to-equity ratios for both firms for fiscal 2016. Which company is more solvent?
c. Do you have any concerns about either company’s ability to meet its debt obligations? Explain.
MICROSOFT CORPORATION
Income Statements
For the years ended June 30,
(in millions)
2016
2015
Revenue
Product
$61,502
$75,956
Service
23,818
17,624
Total revenue
85,320
93,580
Cost of revenue
Product
17,880
21,410
Service and other
14,900
11,628
Total cost of revenue
32,780
33,038
Gross margin
52,540
60,542
Research and development
11,988
12,046
Sales and marketing
14,697
15,713
General and administrative
4,563
4,611
Impairment, integration, and restructuring
1,110
10,011
Operating income
20,182
18,161
Dividends and interest income
903
766
Interest expense
(1,243)
(781)
Other income (expense), net
(91)
361
Income before taxes
19,751
18,507
Provision for income taxes
2,953
6,314
Net income
$16,798
$ 12,193
Explanation / Answer
a) Current ratio = Current Assets / Current Liabilities
Microsoft's current ratio = 139660 / 59357 = 2.352
Apple's Current Ratio = 106,869 / 79006 = 1.352
Quick ratio = (Current Assets - Inventory) / Current Liabilities
Microsoft's Quick Ratio = (139660-2251) / 59357 = 2.314
Apple's Quick Ratio = (106869-2132) / 79006 = 1.325