Question

Taking It to the Net A3 T BTN 5-3 Access the September 24, 2016, 10-K report for Apple, Inc. (ticker: AAPL), filed on October 26, 2016, from the EDGAR filings at SEC.gov Required 1. What products are manufactured by Apple? 2. What inventory method does Apple use? (Hint: See the Note I to its financial statements.) APPLE 3. Compute its gross margin and gross margin ratio for the 2016 fiscal year. Comment on your computations -assume an industry average of 40% for the gross margin ratio. 4. Compute its inventory turnover and days' sales in inventory for the year ended September 24, 2016. Comment on your computations-assume an industry average of 15 for inventory turnover and 9 for days' sales in inventory.

Answer 1

Please note all US Dollar amounts are in millions

1. The products manufactured by Apple are  mobile communication and media devices, personal computers and portable digital music players, and it sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications.

2. Apple's inventory are stated at the lower of cost, computed using the first-in, first-out method and net realizable value.

3. Gross margin= Net sales - Cost of sales= $215,639 - $131,376 = $84,263.

Gross margin ratio= Gross margin/ Net sales= $84,263/$215,639 = 39.1%

The industry average is 40% while Apple gross margin ratio is 39.1% , there is a variance to the effect of weakness in most foreign currencies relative to the U.S. dollar and to a lesser extent, unfavorable leverage on fixed costs from lower net sales, partially offset by a favorable shift in mix to Services.

4. Inventory turnover ratio= Cost of good sold/ Average Inventory = Cost of good sold/ (Opening inventory+Closing inventory/2) = $131,376/(( $2,132+$2,349)/2) = $131,376/ $2,240.5 = 58.64 times.

Days Sales of inventory: (Average Inventory/ Cost of good sold) *365 = ($2,240.5/ $131,376)* 365= 6.23 days.

It looks like Apple sells the entire inventory with 6.23 days while the industry does it in 9 days which is impressive for apple.