Financial Statement AnalysisApple vs Microsoft

Harshitha Chidananda, Simen , Symphony

Group 3

Contents- Company Overview- Financial Statement Comparison- Financial Analysis

- Vertical Analysis- Horizontal Analysis- Ratio Analysis

- Observations- Conclusion

- Electronics, software and personal Computers

- Most renowned products

- Macbook, iMac- iPhone- iPad

- 115,000 employees- Public ownership

- Electronics, software & hardware, digital distribution

- Most renowned products

- Windows 10 OS- Microsoft Surface- Office Suite- Xbox - Skype

- 114,000 employees - Public ownership

Apple MicrosoftCompany Overview

Financial Statement ComparisonApple Microsoft

Nasdaq Name Apple Inc. (AAPL) Microsoft Corporation (MSFT)

Reporting Period End of September 30th of June

- All numbers in Million

Apple

Microsoft

Income Statement ComparisonApple Microsoft

Types of Income Products and services Products and services

Types of Expenses R&D: 10,045SG&A: 14,194

R&D: 11,988Sales & Marketing : 14,697G&A: 4,563Impairment, restructuring: 1,110

Net Income 45,687 16,798

Balance Sheet ComparisonApple Microsoft

Cash 20,484 6,510

Debt- Total current Liability- Total liabilities

79,006193,437

59,35721,697

Inventory 2,132 2,251

Assets:- Total Current Asset- Total asset- Net tangible asset

106,869321,686119,629

139,660193,69450,392

Cash Flow Apple Microsoft

Period Ending 9/24/2016 6/30/2016Net Income 45,687,000 16,798,000Operating Activities, Cash Flows Provided By or Used In

Depreciation 10,505,000 6,622,000Adjustments To Net Income 9,148,000 11,981,000Changes In Accounts Receivables 1,044,000 -530,000Changes In Liabilities -1,867,000 -938,000Changes In Inventories 217,000 600,000Changes In Other Operating Activities 1,090,000 -1,208,000Total Cash Flow From Operating Activities 65,824,000 33,325,000Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures -12,734,000 -8,343,000

Investments -32,022,000 -14,417,000Other Cash flows from Investing Activities -1,221,000 -1,190,000

Total Cash Flows From Investing Activities -45,977,000 -23,950,000Financing Activities, Cash Flows Provided By or Used In

Dividends Paid -12,150,000 -11,006,000

Sale Purchase of Stock -29,227,000 -15,301,000Net Borrowings 22,057,000 18,283,000Other Cash Flows from Financing Activities -1,570,000 -369,000

Total Cash Flows From Financing Activities -20,483,000 -8,393,000Effect Of Exchange Rate Changes - -67,000Change In Cash and Cash Equivalents -636,000 915,000

Interesting Observations- Almost the same amount of employees, but Microsoft has a lot less

money- Inventories are quite similar - Microsoft has slightly more inventory- Microsoft has more products, but comparatively less profitable- Microsoft spends more on both R&D AND sales & marketing than Apple - Apple has much more in total liabilities than microsoft

Vertical Analysis

2016 and 2015

Vertical Analysis: Income sheet

13

Apple 2016(%) 2015(%)Revenue Total Revenue 100.0 100.0 Cost of Revenue 60.9 59.9Gross Profit 39.1 40.1

Operating Expenses Research Development 4.7 3.5 Selling, General and Administrative 6.6 6.1Operating Income or Loss 27.8 30.5

Income from Continuing Operations Total Other Income/Expenses Net 0.6 0.5 Earnings Before Interest and Taxes 28.5 31.0

Interest Expense Income Before Tax 28.5 31.0 Income Tax Expense 7.3 8.2

Minority InterestNet Income From Continuing Ops 21.2 22.8Net Income 21.2 22.8

Preferred Stock And Other AdjustmentsNet Income Applicable To Common Shares 21.2 22.8

Microsoft 2016(%) 2015(%)Revenue Total Revenue 100 100.0 Cost of Revenue 38.4 35.3Gross Profit 61.6 64.7

Operating Expenses Research Development 14.1 12.9 Sales and marketing 17.2 16.8 General and Administrative 5.3 4.9Operating Income or Loss 23.7 19.4

Income from Continuing Operations Total Other Income/Expenses Net -0.5 0.4 Earnings Before Interest and Taxes 23.1 19.8

Interest Expense Income Before Tax 23.1 19.8 Income Tax Expense 3.5 6.7Net Income From Continuing Ops 19.7 13.0Net Income 19.7 13.0

Preferred Stock And Other Adjustments

Net Income Applicable To Common Shares 19.7 13.0

Apple Microsoft

Period Ending 2016 (%) 2015(%) 2016 (%)2015(%

)

Current AssetsCash And Cash Equivalents 6.4 7.3 3.4 3.2Short Term Investments 14.5 7.1 55.1 52.1Net Receivables 9.1 10.5 9.4 10.3Inventory 0.7 0.8 1.2 1.7Other Current Assets 2.6 5.2 3.0 3.1Total Current Assets 33.2 30.8 72.1 70.4Long Term Investments 53.0 56.5 5.4 6.9Property Plant and Equipment 8.4 7.7 9.5 8.4Goodwill 1.7 1.8 9.2 9.7Intangible Assets 1.0 1.3 1.9 2.8Other Assets 2.7 1.9 1.9 1.8Total Assets 100.0 100.0 100.0 100.0

Apple Microsoft

Period Ending 2016 (%) 2015(%) 2016 (%) 2015(%)Current LiabilitiesAccounts Payable 18.4 20.9 6.7 7.1Short/Current Long Term Debt 3.6 3.8 6.7 4.3Other Current Liabilities 2.5 3.1 17.3 17.1Total Current Liabilities 24.6 27.8 30.6 28.5Long Term Debt 23.4 18.4 21.1 15.9Other Liabilities 11.2 11.5 7.0 7.8Deferred Long Term Liability Charges 0.9 1.2 4.1 1.9Total Liabilities 60.1 58.9 62.8 54.1

Stockholders' EquityCommon Stock 9.7 9.4 35.2 39.2Retained Earnings 30.0 31.8 1.2 5.2Other Stockholder Equity 0.2 -0.1 0.8 1.4Total Stockholder Equity 39.9 41.1 37.2 45.9Net Tangible Assets 37.2 38.0 26.0 33.4

Vertical Analysis:Balance Sheet

Observations about Vertical AnalysisIncome Statement: (%)

- Total revenue as constant- Cost of revenue for Apple is more .

- Gross Profit of Microsoft is higher- Can use this number to price products

- Operating expense of Microsoft is higher- Operating Income of Apple is higher

- Net Income of Apple is higher- Because Apple profitability is slightly better, Apple

has better sustainability

Balance Sheet: (%)- Total Assets as constant- Total current assets of Microsoft is way

higher- Short term investments add to maximum

current asset for both- Cash and net receivables are less for both

the companies- Microsoft has better liquidity

Horizontal Analysis

2016 vs 2015

Horizontal Analysis: (2016 vs 2015)Income StatementAppleRevenueTotal Revenue -7.73Cost of Revenue -6.22Gross Profit -10.00

Operating ExpensesResearch Development 24.52Selling, General and Administrative -0.94Operating Income or Loss -15.73

Income from Continuing OperationsTotal Other Income/Expenses Net 4.90Earnings Before Interest and Taxes -15.37

Interest ExpenseIncome Before Tax -15.37Income Tax Expense -17.97

Minority InterestNet Income From Continuing Ops -14.43Net Income -14.43Net Income Applicable To Common Shares -14.43

MicrosoftRevenueTotal Revenue -8.83Cost of Revenue -0.78Gross Profit -13.22

Operating ExpensesResearch Development -0.48Sales and marketing -6.47General and Administrative -1.04Operating Income or Loss 11.13

Income from Continuing OperationsTotal Other Income/Expenses Net -224.57Earnings Before Interest and Taxes 6.72Income Before Tax 6.72Income Tax Expense -53.23Net Income From Continuing Ops 37.77Net Income 37.77Net Income Applicable To Common Shares 37.77

Horizontal Analysis: (2016 vs 2015)Balance Sheet

Apple Microsoft

Current AssetsCash And Cash Equivalents -3.0 16.4Short Term Investments 127.9 17.4Net Receivables -3.4 2.1Inventory -9.2 -22.4Other Current Assets -45.1 7.9Total Current Assets 19.6 13.7Long Term Investments 3.9 -13.5Property Plant and Equipment 20.2 24.6Goodwill 5.8 5.5Intangible Assets -17.6 -22.8Other Assets 61.5 16.8Total Assets 10.8 11.0

Apple Microsoft

Current LiabilitiesAccounts Payable -2.2 5.3Short/Current Long Term Debt 5.5 72.4Other Current Liabilities -9.6 12.2Total Current Liabilities -2.0 19.6Long Term Debt 41.4 46.7Other Liabilities 7.9 0.7Deferred Long Term Liability Charges -19.2 133.5Total Liabilities 13.1 28.9

Stockholders' EquityCommon Stock 14.0 -0.4Retained Earnings 4.4 -74.9Other Stockholder Equity -283.8 -39.1Total Stockholder Equity 7.5 -10.1Net Tangible Assets 8.4 -13.6

Ratio Analysis

RatiosType of ratio Apple 2016 Microsoft 2016 Apple 2015 Microsoft 2015

Current ratio 1.35 2.35 1.1 2.47

Quick ratio 1.33 2.31 1.08 2.41

Inventory Turnover 59.63 12.72 -- --

Price per earnings 13.9 29.8 11.4 36.8

Net profit margin 21% 19.7% 22.8% 13%

Interesting Observations about Ratio AnalysisInteresting Observations:

● Microsoft is a lot more liquid● Apple has an incredibly high inventory turnover rate● Apple and Microsoft have comparable price per earnings, and both saw a large drop from last

2015 to 2016● Apple had a higher net profit margin than Microsoft

So which company seems to be doing better?

Conclusions

Questions?