Question

BTN 22-2 Apple and Google compete in several product categories. Sales, income, and asset information are provided for fiscal year 2015 for each company below.

\( millions	Apple	Google
Sales	\)233,715	\(74,989
Net income	\)53,394	$16,348
Invested assets at, beginning of the year	231,839	129,187
Invested assets, end of the year	290,479	147,461

Required

1. Compute profit margin for each company.

2. Compute investment turnover for each company.

Analysis Component

3. Using your answers to the questions above, compare the companies’ performance for the year.

Short answer

Profit margin	Investment turnover
22.85%	0.89
21.80%	0.54

Apple company is performing well.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Financial Performance

The measure that reflects the ability of the company to use its assets for generating revenue and profit is known as financial performance. Such calculations are done using various analyses such asratio analysis and assessment of the financial statements.

Profit margin

Company	Net income	/	Sales	X	100	=	Profit margin
Apple	$53,394	/	$233,715	X	100	=	22.85%
Google	$16,348	/	$74,989	X	100	=	21.80%

Investment turnover

Company	Sales	/	Average assets	=	Investment turnover
Apple	$233,715	/	$261,159	=	0.89
Google	$74,989	/	$138,324	=	0.54

Working note: Calculation of average assets

Company	Opening assets	+	Ending assets	/	2	=	Average assets
Apple	231,839	+	290,479	/	2	=	$261,159
Google	129,187	+	147,461	/	2	=	$138,324

Performance interpretation of each company

Apple company is performing well compared to Google because both financial metrics of Apple are higher than Google.