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

Current ratio of Apple Company of current and previous year are 1.10 and 1.08 respectively.

Current ratio of Google Company of current and previous year are 4.66 and 4.68 respectively.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of current ratio

The currents ratio is the ratio that shows the ability of the company to fulfil its short-term obligation.

Apple company’s current ratio

Current year:

$\begin{array}{c}\mathbf{Current}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{Asset}}{\mathbf{Current}\mathbf{Ratio}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$89,378}{\$80,610}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{1}\mathbf{.}\mathbf{10}\mathbf{:}\mathbf{1}\end{array}$

Prior year:

$\begin{array}{c}\mathbf{Current}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{Asset}}{\mathbf{Current}\mathbf{Ratio}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$68,531}{\$63,448}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{1}\mathbf{.}\mathbf{08}\mathbf{:}\mathbf{1}\end{array}$

Google company’s current ratio

Current year

$\begin{array}{c}\mathbf{Current}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{Asset}}{\mathbf{Current}\mathbf{Ratio}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$90,114}{\$19,310}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{4}\mathbf{.}\mathbf{66}\mathbf{:}\mathbf{1}\end{array}$

Prior year

$\begin{array}{c}\mathbf{Current}\mathbf{Ratio}\mathbf{=}\frac{\mathbf{Current}\mathbf{Asset}}{\mathbf{Current}\mathbf{Ratio}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$78,656}{\$16,779}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{4}\mathbf{.}\mathbf{68}\mathbf{:}\mathbf{1}\end{array}$