Question

Return on Invested Capital (ROIC) is a profitability ratio that measures how effective the firm is at generating a return for investors who have provided capital (bondholders and stockholders). The ROIC calculation answers three questions: How tax efficient is the firm? How effective are the firm’s operations? How intensively does the firm use capital? Comparing the answers to these questions between firms can help you understand why one firm is more profitable than another and where that profitability is coming from. In the following, Apple’s ROIC is compared to Blackberry’s. The income statement and balance sheet are provided for both firms. While the ROIC calculation for Blackberry is completed below, you have to complete the calculation for Apple by supplying the correct income statement and balance sheet information. As you fill in this information, the components of Apple’s ROIC will be calculated along with some supporting ratios. Use these subcomponents and supporting ratios to compare Apple and Blacberry’s performance. Where does Apple’s advantage come from? This activity demonstrates the calculation of ROIC and the comparison of firm performance, supporting Learning Objective 5-1 and 5-2.

Answer 1

Return on Invested Capital (ROIC) is a profitability ratio that measures how effective a firm is at generating a return for investors. By comparing the answers to three key questions, we can understand why one firm is more profitable than another. We can apply this concept to compare Apple and Blackberry's performance using their financial statements.

Step-by-step explanation:

Return on Invested Capital (ROIC) is a profitability ratio that measures how effective a firm is at generating a return for investors. The ROIC calculation considers three questions: how tax efficient is the firm, how effective are the firm's operations, and how intensively does the firm use capital. By comparing these answers between firms, we can understand why one firm is more profitable than another and where that profitability comes from.

As for the comparison between Apple and Blackberry, we need to complete the calculation for Apple by providing the correct income statement and balance sheet information. Using these financials, we can calculate the components of Apple's ROIC and compare it to Blackberry's performance.

Answer 2

The Return on Invested Capital of Apple in the income statement is 27.60%.

Return on Invested Capital (ROIC) is a financial metric that evaluates a company's efficiency in generating profits from its invested capital. It measures the percentage of return a company generates relative to the total capital it has employed.

The calculation of ROIC is shown as below.

Tax Rate = Provision for Taxes / Earnings for Taxes*100

= 13,973,000/53,483,000*100

= 26.13%

ROIC = Net Operating Profit After Tax/Invested Capital*100

= 52,503,000*(1-26.13%) / (11,154,7000+28,987,000)*100

= 27.60%