Question

Income statements and balance sheets follow for Microsoft Corporation and Apple Inc. Refer to these financial statements to answer the requirements.

MICROSOFT CORPORATION Income Statements For the years ended June 30,
(in millions)	2016	2015
Revenue
Product	$61,502	$75,956
Service	23,818	17,624
Total revenue	85,320	93,580
Cost of revenue
Product	17,880	21,410
Service and other	14,900	11,628
Total cost of revenue	32,780	33,038
Gross margin	52,540	60,542
Research and development	11,988	12,046
Sales and marketing	14,697	15,713
General and administrative	4,563	4,611
Impairment, integration, and restructuring	1,110	10,011
Operating income	20,182	18,161
Dividends and interest income	903	766
Interest expense	(1,243)	(781)
Other income (expense), net	(91)	361
Income before taxes	19,751	18,507
Provision for income taxes	2,953	6,314
Net income	$16,798	$ 12,193

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MICROSOFT CORPORATION Balance Sheet As of June 30,
(in millions)	2016	2015
Current assets:
Cash and cash equivalents	$    6,510	$    5,595
Short-term investments	106,730	90,931
Accounts receivable, net	18,277	17,908
Inventories	2,251	2,902
Other current assets	5,892	5,461
Total current assets	139,660	122,797
Property and equipment, net	18,356	14,731
Equity and other investments	10,431	12,053
Goodwill	17,872	16,939
Intangible assets, net	3,733	4,835
Other long-term assets	3,642	3,117
Total assets	$193,694	$174,472
Current liabilities:
Accounts payable	$    6,898	$     6,591
Short-term debt	12,904	4,985
Current portion of long-term debt	0	2,499
Accrued compensation	5,264	5,096
Income taxes	580	606
Short-term unearned revenue	27,468	23,223
Other current liabilities	6,243	6,647
Total current liabilities	59,357	49,647
Long-term debt	40,783	27,808
Long-term unearned revenue	6,441	2,095
Deferred income taxes	1,476	1,295
Other long-term liabilities	13,640	13,544
Total liabilities	121,697	94,389
Stockholders' equity:
Common stock and paid-in capital	68,178	68,465
Retained earnings	2,282	9,096
Accumulated other comprehensive income	1,537	2,522
Total stockholders' equity	71,997	80,083
Total liabilities and stockholders' equity	$193,694	$ 174,472

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Apple Inc. Consolidated Statement of Operations
	Fiscal year ended
(in millions)	Sept. 24, 2016	Sept. 26, 2015
Net sales	$ 215,639	$ 233,715
Cost of sales	131,376	140,089
Gross margin	84,263	93,626
Operating expenses
Research and development	10,045	8,067
Selling, general and administrative	14,194	14,329
Total operating expenses	24,239	22,396
Operating income	60,024	71,230
Interest and dividend income	3,999	2,921
Interest expense	(1,456)	(733)
Other expense, net	(1,195)	(903)
Income before provision for income taxes	61,372	72,515
Provision for income taxes	15,685	19,121
Net income	$ 45,687	$ 53,394

Apple Inc. Consolidated Balance Sheets
	As of
(in thousands)	Sept. 24, 2016	Sept. 26, 2015
Cash and cash equivalents	$ 20,484	$ 21,120
Short-term investments	46,671	20,481
Accounts receivable, net	15,754	16,849
Inventories	2,132	2,349
Other current assets	21,828	28,579
Total current assets	106,869	89,378
Long-term marketable securities	170,430	164,065
Property plant and equipment, net	27,010	22,471
Goodwill	5,414	5,116
Acquired intangible assets, net	3,206	3,893
Other assets	8,757	5,422
Total assets	321,686	290,345

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Apple Inc. Consolidated Balance Sheets—continued
	As of
(in thousands)	Sept. 24, 2016	Sept. 26, 2015
Accounts payable	37,294	35,490
Accrued expenses	22,027	25,181
Deferred revenue	8,080	8,940
Current portion of LT debt and short-term debt	11,605	10,999
Total current liabilities	79,006	80,610
Deferred revenue – non-current	2,930	3,624
Long-term debt	75,427	53,329
Other non-current liabilities	36,074	33,427
Total liabilities	193,437	170,990
Stockholders’ equity
Common stock no par value	31,251	27,416
Retained earnings	96,364	92,284
Accumulated other comprehensive income (loss)	634	(345)
Total stockholders’ equity	128,249	119,355
Total liabilities and stockholders’ equity	$ 321,686	$ 290,345

Required:

             a. Compute the current ratio and quick ratio for both firms for fiscal 2016. Compare the ratios and determine which company is more liquid.

             b.   Compute the times interest earned and liabilities-to-equity ratios for both firms for fiscal 2016. Which company is more solvent?

c.    Do you have any concerns about either company’s ability to meet its debt obligations? Explain.

Answer 1