Question

Comparative figures for Apple and Google follow.

Apple

Google

\((millions)	Current year	One year prior	Two-year prior	Current year	One year prior	Two-year prior
Total assets	\)290,479	\(231,839	\)207,000	\(147,461	\)129,187	$110,920
Net sales	233,715	182,795	170,910	74,989	66,001	55,519

Required

1. Compute total asset turnover for the most recent two years for Apple and Google using the data shown.
2. Which company is more efficient in generating net sales given the total assets it employs? Assume an industry average of 1.0 for asset turnover.

Short answer

1. Asset turnover ratio of apple is 0.895

Asset turnover ratio of google is 0.542

2. Apple is more efficient as compared to Google in generating net sales given the total assets it employs.

Step-by-step solution

Asset turnover ratio

The asset turnover ratio measures how efficiently a firm applies its assets to generate sales. It is measured by dividing net sales by average total assets.

$\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathbf{=}\frac{\mathbf{n}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}{\mathbf{a}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}}$

Computation of asset turnover for Apple

$\mathit{n}\mathit{e}\mathit{t}\mathbf{}\mathbf{\text{\hspace{0.17em}}}\mathit{s}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathbf{=}\mathbf{233}\mathbf{,}\mathbf{715}$

$\mathit{a}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{=}\frac{\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{}\mathbf{t}\mathbf{h}\mathbf{e}\mathbf{}\mathbf{b}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{+}\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{a}\mathbf{t}\mathbf{}\mathbf{e}\mathbf{n}\mathbf{d}}{\mathbf{2}}$

$\mathit{a}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{=}\frac{\mathbf{\$}\mathbf{231}\mathbf{,}\mathbf{839}\mathbf{+}\mathbf{\$}\mathbf{290}\mathbf{,}\mathbf{479}}{\mathbf{2}}$

$\mathit{a}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{=}\frac{\mathbf{\$}\mathbf{522}\mathbf{,}\mathbf{318}}{\mathbf{2}}\mathbf{=}\mathit{\$}\mathbf{261}\mathbf{,}\mathbf{159}$

$\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathbf{=}\frac{\mathbf{233}\mathbf{,}\mathbf{715}}{\mathbf{261}\mathbf{,}\mathbf{159}}\mathbf{=}\mathbf{0}\mathbf{.895}$

The asset turnover ratio of Apple is 0.895

Computation of asset turnover for google

$\mathit{n}\mathit{e}\mathit{t}\mathbf{}\mathit{s}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathbf{=}\mathbf{74}\mathbf{,}\mathbf{989}$

$\mathit{a}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{=}\frac{\mathbf{\$}\mathbf{129}\mathbf{,}\mathbf{187}\mathbf{+}\mathbf{\$}\mathbf{147}\mathbf{,}\mathbf{461}}{\mathbf{2}}$

$\mathit{a}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{=}\frac{\mathbf{\$}\mathbf{276}\mathbf{,}\mathbf{648}}{\mathbf{2}}\mathbf{=}\mathit{\$}\mathbf{138}\mathbf{,}\mathbf{324}$

$\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathbf{=}\frac{\mathbf{74}\mathbf{,}\mathbf{989}}{\mathbf{138}\mathbf{,}\mathbf{324}}\mathbf{=}\mathbf{0}\mathbf{.542}$

The asset turnover ratio of Google is 0.542

Step 4:

Apple is more efficient as compared to Google in obtaining net sales given the total assets it employs as Apple’s asset turnover ratio is 0.895 whereas Google’s turnover ratio is 0.542