Question

Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value)

September 30, 2017 (LEFT) September 24, 2016 (RIGHT)

ASSETS Current assets Cash and cash equivalents

$ 20,289 $ 20,484 Short-term marketable securities 53,892 46,671

Accounts receivable, less allowances of $58 and $53, respectively 17,874 15,754

Inventories 4,855 2,132

Vendor non-trade receivables 17,799 13,545

Other current assets 13,936 8,283

Total current assets 128,645 106,869

Long-term marketable securities 194,714 170,430

Property, plant and equipment, net 33,783 27,010

Goodwill 5,717 5,414

Acquired intangible assets, net 2,298 3,206

Other non-current assets 10,162 8,757

Total assets $ 375,319 $ 321,686

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable $ 49,049 $ 37,294

Accrued expenses 25,744 22,027

Deferred revenue 7,548 8,080

Commercial paper 11,977 8,105

Current portion of long-term debt 6,496 3,500

Total current liabilities 100,814 79,006

Deferred revenue, non-current 2,836 2,930

Long-term debt 97,207 75,427

Other non-current liabilities 40,415 36,074

Total liabilities 241,272 193,437

Commitments and contingencies

Shareholders’ equity Common stock and additional paid-in capital,

$0.00001 par value: 12,600,000

shares authorized; 5,126,201 and 5,336,166

shares issued and outstanding, respectively 35,867 31,251

Retained earnings 98,330 96,364

Accumulated other comprehensive income (loss) (150) 634

Total shareholders’ equity 134,047 128,249

Total liabilities and shareholders’ equity $ 375,319 $ 321,686

September 30, 2017 September 24, 2016

Total comprehensive income $ 47,567 $ 46,666

Net income $ 48,351 $ 45,687
Total assets $ 375,319 $ 321,686
Total liabilities 241,272 193,437
Total liabilities and shareholders’ equity $ 375,319 $ 321,686
Required:
1. Compute Apple’s profit margin for fiscal years ended (a) September 24, 2016, and (b) September 26, 2015.
2. Is Apple’s profit margin on a favorable or unfavorable trend?
3. In 2016, did Apple’s profit margin outperform or underperform the industry (assumed) average of 12%?

Answer 1

1. Compute Apple’s profit margin for fiscal years ended (a) September 24, 2016, and (b) September 26, 2015.

Profit margin for September 30, 2017 = Net Income / Net Sales * 100 = 48,351 / 229,234 * 100 = 21.09%

Profit margin for September 24, 2016 = Net Income / Net Sales * 100 = 45,687 / 215,639 * 100 = 21.19%

Profit margin for September 26, 2015 = Net Income / Net Sales * 100 = 53,394 / 233,715 * 100 = 22.85%

2. Is Apple’s profit margin on a favorable or unfavorable trend?

Apple's profit margin is on an unfavourable trend with constant decline year on year from 22.85% in 2015 to 21.19% in 2016 to 21.09% in 2017.

3. In 2016, did Apple’s profit margin outperform or underperform the industry (assumed) average of 12%?

In 2016, Apple's profit margin was 21.19% which was a significant outperformance over the industry (assumed) average of 12% . This reflects an outperformance of 9.19% or 919 bps.