1. Apple vs. Microsoft
A Financial Analysis by Moshal
Alajaily, Rusty Baggett, Elizabeth
Dowden, and Joseph Serna
2. 24-Sep-11 Percentage 25-Sep-10 Percentage Amount of Change Percentage of Change
Net sales 108249.00 100.00% 65225.00 100.00% 43024.00 65.96%
Cost of sales (64431.00) -59.52% (39541.00) -60.62% (24890.00) 62.95%
Gross margin 43818.00 40.48% 25684.00 39.38% 18134.00 70.60%
Research and development (2429.00) -2.24% (1782.00) -2.73% (647.00) 36.31%
Selling, general and administrative (7599.00) -7.02% (5517.00) -8.46% (2082.00) 37.74%
Operating expenses (10028.00) - (7299.00) - (2729.00) 37.39%
Operating income 33790.00 31.22% 18385.00 28.19% 15405.00 83.79%
Interest and dividend income 519.00 0.48% 311.00 0.48% 208.00 66.88%
Interest expense - - - - - -
Other expense, net (104.00) -0.10% (156.00) -0.24% 52.00 -33.33%
Other income (expense), net 415.00 - 155.00 - 260.00 167.74%
Income before provision for income taxes 34205.00 31.60% 18540.00 28.42% 15665.00 84.49%
Provision for income taxes (8283.00) -7.65% (4527.00) -6.94% (3756.00) 82.97%
Net income 25922.00 23.95% 14013.00 -6.94% 11909.00 84.99%
Horizontal Analysis
Vertical Analysis
Apple Inc., Consolidated Income Statement
USD $ in millions
12 months ended
2011 2010 Increase (Decrease) during 2011
Income Statement (Apple): Horizontal and Vertical Analysis
3. Highlights: Changes in 2011
Apple’s Gross Margin grew by 70%
Operating Expenses increased by 37%
Operating Income increased by 84%
Net income increased by 85%
4. 30-Jun-11 Percent 30-Jun-10 Percent
Amount of
Change
Percentage
of Change
Revenue 69943 100.00% 62484 100.00% 7459 11.94%
Operating expenses:
Cost of revenue 15577 22.27% 12395 19.84% 3182 25.67%
Research and development 9043 12.93% 8714 13.95% 329 3.78%
Sales and marketing 13940 19.93% 13214 21.15% 726 5.49%
General and administrative 4222 6.04% 4063 6.50% 159 3.91%
Total operating expenses 42782 61.17% 38386 61.43% 4396 11.45%
Operating income 27161 38.83% 24098 38.57% 3063 12.71%
Other income (expense) 910 1.30% 915 1.46% -5 -0.55%
Income before income taxes 28071 40.13% 25013 40.03% 3058 12.23%
Provision for income taxes 4921 7.04% 6253 10.01% -1332 -21.30%
Net income 23150 33.10% 18760 30.02% 4390 23.40%
2011 2010
Increase (Decrease)
2011
Microsoft Inc,
Consolidated Income Statement (In millions)
Income Statement (Microsoft): Horizontal and Vertical Analysis
5. Highlights: Changes in 2011
Revenue increase by 12%
Operating Income grew by 13%
Net Income increased by 23%
7. Let’s Make Sense of It!
Apple’s gross profit is 40% lower than
Microsoft.
This means that the margin between selling price and
inventory cost is 81.7% for Microsoft while Apple’s is
41.7%. Too high a margin may result in lost sales.*
Microsoft’s Return on Asset is 3.3% less
than Apple’s.
This says that 23.7% of Microsoft assets generated
Net Income while Apple’s assets generated 27%. Higher
value suggests favorable efficiency (use of assets).*
8. Apple’s Inventory Turnover is 20.2 days longer than that of Microsoft.
Microsoft’s holds its inventory for only 14.8 days while Apple hold’s its
inventory for 35 days. Microsoft is more efficient and liquid.
Microsoft’s Profit Margin is 9% higher than Apple’s.
Microsoft has a Profit Margin of 33% and Apple only has 24%. Microsoft
more efficiently covers its operating expenses with its selling price.
Higher values suggests favorable return on each dollar of sales.*
9. Who has the better Income Statement?
Apple Inc.
Because it has better profitability ratios than
Microsoft. This says that Apple has better
sustainability and can last better in the long run.
10. Balance Sheet (Apple): Horizontal and Vertical Analysis
ASSETS
Current assets: 24-Sep-11 Percentage 25-Sep-10 Percentage Amount Change Percentage of Change
Cash and cash equivalents 9,815 8.43% 11,261 14.98% -1,446 -12.84%
Short-term marketable securities 16,137 13.87% 14,359 19.10% 1,778 12.38%
Accounts receivable, less allowances of $53 and $55,
respectively
5,369 4.61% 5,510 7.33% -141 -2.56%
Inventories 776 0.67% 1,051 1.40% -275 -26.17%
Deferred tax assets 2,014 1.73% 1,636 2.18% 378 23.11%
Vendor non-trade receivables 6,348 5.45% 4,414 5.87% 1,934 43.82%
Other current assets 4,529 3.89% 3,447 4.58% 1,082 31.39%
Total current assets 44,988 38.66% 41,678 55.44% 3,310 7.94%
Long-term marketable securities 55,618 47.79% 25,391 33.77% 30,227 119.05%
Property, plant and equipment, net 7,777 6.68% 4,768 6.34% 3,009 63.11%
Goodwill 896 0.77% 741 0.99% 155 20.92%
Acquired intangible assets, net 3,536 3.04% 342 0.45% 3,194 933.92%
Other assets 3,556 3.06% 2,263 3.01% 1,293 57.14%
Total assets 116,371 100.00% 75,183 100.00% 41,188 54.78%
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable 14,632 12.57% 12,015 15.98% 2,617 21.78%
Accrued expenses 9,247 7.95% 5,723 7.61% 3,524 61.58%
Deferred revenue 4,091 3.52% 2,984 3.97% 1,107 37.10%
Total current liabilities 27,970 24.04% 20,722 27.56% 7,248 34.98%
Deferred revenue – non-current 1,686 1.45% 1,139 1.51% 547 48.02%
Other non-current liabilities 10,100 8.68% 5,531 7.36% 4,569 82.61%
Total liabilities 39,756 34.16% 27,392 36.43% 12,364 45.14%
Shareholders’ equity:
Common stock, no par value; 1,800,000 shares authorized;
929,277 and 915,970 shares issued and outstanding,
respectively
13,331 11.46% 10,668 14.19% 2,663 24.96%
Retained earnings 62,841 54.00% 37,169 49.44% 25,672 69.07%
Accumulated other comprehensive income/(loss) 443 0.38% -46 -0.06% 489 -1063.04%
Total shareholders’ equity 76,615 65.84% 47,791 63.57% 28,824 60.31%
Total liabilities and shareholders’ equity 116,371 100.00% 75,183 100.00% 41,188 54.78%
Horizontal Analysis
Vertical Analysis
Apple Inc., Consolidated Balance Sheet
(In millions, except number of shares which are reflected in thousands)
Increase (Decrease) during 20112011 2010
11. Highlights: Changes in 2011
Current Assets increased by 8% and made up 39% of Total Assets
Total Assets increased by 55%
Current Liabilities increased by 35% but only made up 24% of Total
Liabilities and Stockholders’ Equity
Total Liabilities increased by 45%, but only made up 34%
of Total Liabilities and Stockholders’ Equity
Stockholder’s Equity increased by 60% and made up 66% of Total
Liabilities and Stockholders’ Equity
12. Balance Sheet (Microsoft): Horizontal and Vertical Analysis
Assets
30-Jun-11 Percent 30-Jun-10 Percent
Amount of
Change
Percent of
Change
Current assets:
Cash and cash equivalents 9610 8.84% 5505 6.39% 4105 74.57%
Short-term investments (including
securities loaned of $1,181 and $62)
43162 39.71% 31283 36.33% 11879 37.97%
Accounts receivable, net of allowance for
doubtful accounts of $333 and $375
14987 13.79% 13014 15.11% 1973 15.16%
Inventories 1372 1.26% 740 0.86% 632 85.41%
Deferred income taxes 2467 2.27% 2184 2.54% 283 12.96%
Other 3320 3.05% 2950 3.43% 370 12.54%
Total current assets 74918 68.92% 55676 64.65% 19242 34.56%
Property and equipment, net of
accumulated depreciation of $9,829 and
$8,629
8162 7.51% 7630 8.86% 532 6.97%
Equity and other investments 10865 10.00% 7754 9.00% 3111 40.12%
Goodwill 12581 11.57% 12394 14.39% 187 1.51%
Intangible assets, net 744 0.68% 1158 1.34% -414 -35.75%
Other long-term assets 1434 1.32% 1501 1.74% -67 -4.46%
Total assets 108704 100.00% 86113 100.00% 22591 26.23%
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable 4197 3.86% 4025 4.67% 172 4.27%
Short-term debt 0 0.00% 1000 1.16% -1000 -100.00%
Accrued compensation 3575 3.29% 3283 3.81% 292 8.89%
Income taxes 580 0.53% 1074 1.25% -494 -46.00%
Short-term unearned revenue 15722 14.46% 13652 15.85% 2070 15.16%
Securities lending payable 1208 1.11% 182 0.21% 1026 563.74%
Other 3492 3.21% 2931 3.40% 561 19.14%
Total current liabilities 28774 26.47% 26147 30.36% 2627 10.05%
Long-term debt 11921 10.97% 4939 5.74% 6982 141.36%
Long-term unearned revenue 1398 1.29% 1178 1.37% 220 18.68%
Deferred income taxes 1456 1.34% 229 0.27% 1227 535.81%
Other long-term liabilities 8072 7.43% 7445 8.65% 627 8.42%
Total liabilities 51621 47.49% 39938 46.38% 11683 29.25%
Stockholders’ equity:
Common stock and paid-in capital –
shares authorized 24,000;
outstanding 8,376 and 8,668
63415 58.34% 62856 72.99% 559 0.89%
Retained deficit, including accumulated
other comprehensive income
of $1,863 and $1,055 -6332 -5.82% -16681 -19.37% 10349 -62.04%
Total stockholders’ equity 57083 52.51% 46175 53.62% 10908 23.62%
Total liabilities and stockholders’
equity
108704 100.00% 86113 100.00% 22591 26.23%
Horizontal Analysis
Vertical Analysis
Microsoft Inc.
Consoldated Balance Sheets
(In millions)
2011 2010
Increase (Decrease) during
2011
13. Highlights: Changes in 2011
Current Assets increased by 35% and made up 69% of Total Assets
Total Assets increase by 26%
Current Liabilities increased by 10% and made up 26% of Total Liabilities
and Stockholders’ Equity
Total Liabilities increase by 29% and made up 47% of Total Liabilities
and Stockholders’ Equity
Total Stockholder’s Equity increased by 24% and made up 53% of
Total Liabilities and Stockholders’ Equity
15. Let’s Make Sense of It!
Apple has $29,126 less than Microsoft in Working Capital
At $46,144, Microsoft is more equipt to short term obligations than Apple who has
$17018 in Working Capital
Apple’s Accounts Receivable Turnover is 14.9 higher than Microsoft’s
A high ratio could indicate that customers are becoming less capable of paying
obligations. Microsoft has a better ratio at 5.0 times while Apple is 19.9 times.
Apple’s Asset Turnover is .38 times higher than Microsoft
At 1.1 times, Apple is more efficient at using its resources to generate sale than
Microsoft who has an Asset Turnover of .72 times.
16. Let’s Make Sense of It!
Apple’s Debt to Asset Ratio is 12.8% less than Microsoft
At 34.2%, Apple is more solvent than Microsoft who has a ratio of 47%.
Apple’s Return on Common Stockholders’ Equity is 6.72% less than Microsoft
Microsoft’s 40.55% Return on Common Stockholders’ Equity shows that they have
a stronger performance from a common stockholders’ perspective than Apple who
has 33.83%.
17. 2011 Ratios Compared to 2010*
Apple
• Working Capital: $20,956
• Accounts Receivable Turnover: 14.7 times
• Asset Turnover: 1.0 times
• Debt to Asset Ratio: 36.4%
• Return on Common Stockholders’ Equity: 29.32%
Microsoft
• Working Capital: $29,529
• Accounts Receivable Turnover: 5 times
• Asset Turnover: 1 times
• Debt to Asset Ratio: 46%
• Return on Common Stockholders’ Equity: 40.63%
*Compared to ratios on the previous slide.
18. Who has the better Balance Sheet?
Microsoft
Because on the Balance Sheet Microsoft shows to have
better ratios in the liquidity and profitability ratios so they
are stronger in the short term and long term.
19. Statement of Cash Flows (Apple): Horizontal Analysis
Three years ended September 24, 2011 2011 2010 Amount of Change Percentage of Change
Cash and cash equivalents, beginning of the year 11,261 5,263 5,998 113.97%
Operating activities:
Net income 25,922 14013 11909 84.99%
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation, amortization and accretion 1,814 1,027 787 76.63%
Share-based compensation expense 1,168 879 289 32.88%
Deferred income tax expense 2,868 1,440 1,428 99.17%
Changes in operating assets and liabilities:
Accounts receivable, net 143 -2,142 2,285 -106.68%
Inventories 275 -596 871 -146.14%
Vendor non-trade receivables -1,934 -2,718 784 -28.84%
Other current and non-current assets -1,391 -1,610 219 -13.60%
Accounts payable 2,515 6,307 -3,792 -60.12%
Deferred revenue 1,654 1,217 437 35.91%
Other current and non-current liabilities 4,495 778 3,717 477.76%
Cash generated by operating activities 37,529 18,595 18,934 101.82%
Investing activities:
Purchases of marketable securities -102,317 -57,793 -44,524 77.04%
Proceeds from maturities of marketable securities 20,437 24,930 -4,493 -18.02%
Proceeds from sales of marketable securities 49,416 21,788 27,628 126.80%
Payments made in connection with business acquisitions, net of cash acquired -244 -638 394 -61.76%
Payments for acquisition of property, plant and equipment -4,260 -2,005 -2,255 112.47%
Payments for acquisition of intangible assets -3,192 -116 -3,076 2651.72%
Other -259 -20 -239 1195.00%
Cash used in investing activities -40,419 -13,854 -26,565 191.75%
Financing activities:
Proceeds from issuance of common stock 831 912 -81 -8.88%
Excess tax benefits from equity awards 1,133 751 382 50.87%
Taxes paid related to net share settlement of equity awards -520 -406 -114 28.08%
Cash generated by financing activities 1,444 1,257 187 14.88%
(Decrease)/increase in cash and cash equivalents -1,446 5,998 -7,444 -124.11%
Cash and cash equivalents, end of the year 9,815 11,261 -1,446 -12.84%
Supplemental cash flow disclosure:
Cash paid for income taxes, net 3,338 2,697 641 23.77%
Increase (Decrease) during 2011
Apple Inc., Statements of Cash Flows
(In millions)
20. Highlights: Changes in 2011
Beginning cash increased by 114%
Cash generated by Operating Activities increased by 478%
Cash used in Investing Activities increased by 192%
Cash generated by financing activities increased by 15%
There was a decrease in cash of $7,444
Cash at the end of the year is $9,815
21. Statement of Cash Flows (Microsoft): Horizontal Analysis
(In millions)
Year Ended June 30, 2011 2010 Amount of Change Percent of Change
Cash and cash equivalents, beginning of period 5505 6076 -571 -9.40%
Operating Activities
Net income 23150 18760 4390 23.40%
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other 2766 2673 93 3.48%
Stock-based compensation expense 2166 1891 275 14.54%
Net recognized losses (gains) on investments and derivatives -362 -208 -154 74.04%
Excess tax benefits from stock-based compensation -17 -45 28 -62.22%
Deferred income taxes 2 -220 222 -100.91%
Deferral of unearned revenue 31227 29374 1853 6.31%
Recognition of unearned revenue -28935 -28813 -122 0.42%
Changes in operating assets and liabilities: 0
Accounts receivable -1451 -2238 787 -35.17%
Inventories -561 -44 -517 1175.00%
Other current assets -1259 464 -1723 -371.34%
Other long-term assets 62 -223 285 -127.80%
Accounts payable 58 844 -786 -93.13%
Other current liabilities -1146 451 -1597 -354.10%
Other long-term liabilities 1294 1407 -113 -8.03%
Net cash from operations 26994 24073 2921 12.13%
Investing Activities
Additions to property and equipment -2355 -1977 -378 19.12%
Acquisition of companies, net of cash acquired -71 -245 174 -71.02%
Purchases of investments -35993 -30168 -5825 19.31%
Maturities of investments 6897 7453 -556 -7.46%
Sales of investments 15880 15125 755 4.99%
Securities lending payable 1026 -1502 2528 -168.31%
Net cash used in investing -14616 -11314 -3302 29.19%
Financing
Short-term debt borrowings (repayments), maturities of 90 days or less, net -186 -991 805 -81.23%
Proceeds from issuance of debt, maturities longer than 90 days 6960 4167 2793 67.03%
Repayments of debt, maturities longer than 90 days -814 -2986 2172 -72.74%
Common stock issued 2422 2311 111 4.80%
Common stock repurchased -11555 -11269 -286 2.54%
Common stock cash dividends paid -5180 -4578 -602 13.15%
Excess tax benefits from stock-based compensation 17 45 -28 -62.22%
Other -40 10 -50 -500.00%
Net cash used in financing -8376 -13291 4915 -36.98%
Effect of exchange rates on cash and cash equivalents 103 -39 142 -364.10%
Net change in cash and cash equivalents 4105 -571 4676 -818.91%
Cash and cash equivalents, end of period 9610 5505 4105 74.57%
Increase (Decrease) in 2011
Microsoft Inc.,
Consolidated Statement of Cash Flows (In Millions)
22. Highlights: Changes in 2011
Beginning cash decreased by 9%
Cash from Operating Activities increased by 12%
Cash used in Investing Activities increased by 29%
Cash used in Financing Activities Decreased by 37%
Ending cash increased by 75%
24. Let’s Make Sense of It!
Microsoft has $7260 less than Apple
At $41,789, Apple is more capable of financing new
investments and paying additional dividends, while Microsoft
only has $34,529
Microsoft has a Current Cash Debt Coverage .4 less than
Apple
At 1.4 times, Apple is more solvent and more capable to pay
obligations in the long term while Microsoft only has a Current
Cash Debt Coverage of 1.0
25. Who has the better Statement of Cash Flows?
Apple
Because Apple had better liquidity and
solvency ratios.
26. So Which Company is the better Investment?
Apple
Liquidity Ratios: 1/4
Microsoft
Liquidity Ratios: 3/4
Solvency Ratios: 2/2 Solvency Ratio 0/2
Profitability Ratio: 3/5 Profitability Ratio: 2/5
Liquidity Ratios measure company’s ability to pay obligations in the short term. Microsoft was more
liquid for 75% of the ratios.
Solvency Ratios measure a company’s ability to survive over a long period of time.
Apple had 100% of the ratios.
Profitability Ratios measure a company’s income or operating success, and ability to grow.
Apple had 60% of the ratios.
