Chapter 15, Problem 2AA

To determine

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  $Returnonassets=\frac{Netincome}{AverageTotalAssets}$

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  $AveragetotalAssets=\frac{\left(Beginningtotalassets+Endingtotalassets\right)}{2}$

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

  $ProfitMargin =\frac{OperatingIncome}{Sales}$

Requirement-1:

To Calculate:

The return on total assets of Apple and Google for the most recent two years

Answer to Problem 2AA

The returns on total assets of Apple and Google for the most recent two years are as follows:

	Apple		Google
	Current Year	1 Year Prior	Current Year	1 Year Prior
Return on Total Assets	13.9%	14.9%	6.9%	12.4%

Explanation of Solution

The returns on total assets of Apple and Google for the most recent two years are calculated as follows:

	Apple		Google
$ Millions	Current Year	1 Year Prior	Current Year	1 Year Prior
Net Income (A)	$ 48,351	$45,687	$ 12,662	$19,478
Beginning Total Assets (B)	$321,686	$290,345	$167,497	$147,461
Ending Total Assets (C)	$375,319	$321,686	$197,295	$167,497
Average Total Assets (D) = (B+C)/2 =	$348,503	$306,016	$182,396	$157,479
Return on Total Assets =(A/D) =	13.9%	14.9%	6.9%	12.4%

To determine

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  $Returnonassets=\frac{Netincome}{AverageTotalAssets}$

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  $AveragetotalAssets=\frac{\left(Beginningtotalassets+Endingtotalassets\right)}{2}$

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

  $ProfitMargin =\frac{OperatingIncome}{Sales}$

Requirement-2:

To Identify:

The Company that has better return on total assets for the Current year

Answer to Problem 2AA

Apple has the higher return on total assets for the current year.

Explanation of Solution

The returns on total assets of Apple and Google for the most recent two years are as follows:

	Apple	Google
	Current Year	Current Year
Return on Total Assets	13.9%	6.9%

Hence, Apple has the higher return on total assets for the current year.

To determine

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  $Returnonassets=\frac{Netincome}{AverageTotalAssets}$

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  $AveragetotalAssets=\frac{\left(Beginningtotalassets+Endingtotalassets\right)}{2}$

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

  $ProfitMargin =\frac{OperatingIncome}{Sales}$

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

  $AssetTurnoverRatio =\frac{Sales}{Averagetotalassets}$

Requirement-3:

To Calculate:

The Profit margin and Asset turnover for Apple and Google for the most recent two years

Answer to Problem 2AA

The Profit margin and Asset turnover for Apple and Google for the most recent two years are as follows:

	Apple		Google
	Current Year	1 Year Prior	Current Year	1 Year Prior
Profit Margin	21.1%	21.2%	11.4%	21.6%
Asset Turnover Ratio	0.6578	0.7047	0.6078	0.5732

Explanation of Solution

The Profit margin and Asset turnover for Apple and Google for the most recent two years are calculated as follows:

	Apple		Google
	Current Year	1 Year Prior	Current Year	1 Year Prior
Net Income (A)	$ 48,351	$45,687	$ 12,662	$19,478
Net Sales (B)	$229,234	$215,639	$110,855	$90,272
Profit Margin (C) = A/B =	21.1%	21.2%	11.4%	21.6%
Beginning Total Assets (D)	$321,686	$290,345	$167,497	$147,461
Ending Total Assets (E)	$375,319	$321,686	$197,295	$167,497
Average Total Assets (F) = (D+E) /2 =	$348,503	$306,016	$182,396	$157,479
Asset Turnover Ratio (G) = B/F=	0.6578	0.7047	0.6078	0.5732