Question

AAPL (2012)            GOOG (2012)             GOOG (2011)   

                        (Income statement and balance sheet numbers are in millions)          

Sales                            $170,910                     $50,175                       $37,905

Net Income                      37,037                     10,737                            9,737

Cash                                14,259                     48,088                          45,626

Accounts Receivable       24,094                         9,729                            6,387

Total Assets                  207,000                     93,798                          72,574

Accounts Payable            36,223                     10,893                            7,148

Total Liabilities                83,451                    22,083                          14,429

Shares Outstanding     900 million                  334 million                  334 million

Stock Price                         $546                     $1,124                             $646

17a. Compute the 2012 Market Value to Book Value ratios for Apple and Google. On which company does the market look more favorably?

17b. How do accounts receivable and accounts payable affect the 2012 Statement of Cash Flows for Google (give amount and state source or use)?

17c. Compute the 2012 DuPont Identity for Apple and Google (show each ratio). Which firm is more operationally efficient, which uses their assets more effectively, and which firm has the most leverage? Support your answers with the DuPont Identity ratios you computed.

Answer 1

Part 17 A

For AAPL

Book value per share (BV) = (total assets – total liabilities)/ shares outstanding

                                                 = ( 207,000 -83,451) million / 900 million

                                                  = $137.28

Market to book value ratio = price / BV
                                 = 546/137.28

                                  = 3.98 times

For Goog

Book value per share (BV) = (total assets – total liabilities)/ shares outstanding

                                                 = ( 72574 -14429) million / 334 million

                                                  = $174.09

Market to book value ratio = price / BV
                                 = 646/174.09

                                  = 3.71 times

For AAPL, market look more favorably as it has higher market to book value ratio.

Part 17b

Increase in accounts payable = 10893 million – 7148 million

                                                       = 3745 million

Increase in accounts receivable = 9729 million – 6387 million

                                                            = 3342 million

The increase in accounts payable will increase the cash flows by $3745 million and the increase in accounts receivable will decrease the cash flow by $3342 million.

Part 17C

For Apple

ROE = ( Net Income / Sales) x ( Sales/ Total assets) x ( Total assets /( total assets – total liabilities))

         = ( 37037/170910) x ( 170910/ 207000) x ( 207000/ (207000-83451))

         = 0.2167 x 0.8257 x 1.675449

         = 29.98%

For Google

ROE = ( Net Income / Sales) x ( Sales/ Total assets) x ( Total assets /( total assets – total liabilities))

         = ( 10737/50175) x (50175/93798 ) x (93798/ (93798 - 22083))

         = 0.214 x 0.5349 x 1.307927

         = 14.97%

Apple is more operationally efficient, Apple is utilizing its resources in a better and efficient manner and Apple is more leveraged than Google.