Question

Key figures for the recent two years of both Apple and Google follow.

Required

1. Compute profit margins for (a) Apple and (b) Google for the two years of data shown.

2. Which company is more successful on the basis of profit margin? Explain.

3. Compute the current ratio for both years for both companies.

4. Which company has the better ability to pay short-term obligations according to the current ratio?

5. Analyze and comment on each company’s current ratios for the past two years.

6. How do Apple’s and Google’s current ratios compare to their industry (assumed) average ratio of 2.0?

Apple Google

\( millions Current Year Prior Year Current Year Prior Year

Net income . \) 53,394 \( 39,510 \)16,348 $14,136

Net sales . 233,715 182,795 74,989 66,001

Current assets . . . . . . . . . . . . . . . 89,378 68,531 90,114 78,656

Current liabilities 80,610 63,448 19,310 16,779

Short answer

Profit margin of Apple company of current year and previous year are 22.84% and 21.61% respectively.

Profit margin of Google company of current year and previous year are 21.80% and 21.41% respectively.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of net profit margin

Net profit margin shows the percentage of the profit in the income.

Apple company net profit margin

Current Year:

$$\begin{gathered} \mathbf{Net}\mathbf{Profit}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{Income}}{\mathbf{Net}\mathbf{Sales}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$53,394}{233,715}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{22}\mathbf{.}\mathbf{84}\mathbf{\%} \end{gathered}$$

Prior Year:

$\begin{array}{c}\mathbf{Net}\mathbf{Profit}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{Income}}{\mathbf{Net}\mathbf{Sales}}\mathbf{\times }\mathbf{100}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$39,510}{182,795}\mathbf{\times }\mathbf{100}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{21}\mathbf{.}\mathbf{61}\mathbf{\%}\end{array}$

Google company net profit margin

Current year

$\begin{array}{c}\mathbf{Net}\mathbf{Profit}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{Income}}{\mathbf{Net}\mathbf{Sales}}\mathbf{\times }\mathbf{100}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$16,348}{74,989}\mathbf{\times }\mathbf{100}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{21}\mathbf{.}\mathbf{80}\mathbf{\%}\end{array}$

Prior year

$\begin{array}{c}\mathbf{Net}\mathbf{Profit}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{Income}}{\mathbf{Net}\mathbf{Sales}}\mathbf{\times }\mathbf{100}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$14,136}{66,001}\mathbf{\times }\mathbf{100}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{21}\mathbf{.}\mathbf{41}\mathbf{\%}\end{array}$