UM Understanding Managerial Concepts Apple Inc. and Microsoft Essay

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University of Miami


For this assignment, you will analyze and interpret the impact of a firm’s multinational operations on tax rates and financial results

For Apple Inc. and Microsoft Corp. Obtain the 10-K reports for the companies for the latest year.

In your paper,

  • Determine what method each company is using to record foreign currency transactions and foreign currency translation. Support your determination with citations from the 10-K reports of each company.
  • Identify the assets of each company identified as foreign currency derivatives hedges.
  • Identify the liabilities of each company identified as foreign currency derivative liabilities.
  • Explain the impact on each company’s taxes due to multinational operations.
    • Be sure to indicate the direction (positive or negative) of the effect of tax rates in foreign jurisdictions on each company’s effective tax rate.
  • Review the information provided and determine how much of each company’s business occurs in non-US locations.
    • Identify the non-US locations.
    • Identify the most significant non-US location.
  • Explain how much of each company’s sales growth in the most recent fiscal year is due to foreign exchange rates using the management discussion and analysis (MD&A) section of the reports and the supplementary schedules.
  • Compute the gross profit margin, operating profit margin, and net profit margin for these two firms.
  • Compare the margins of the two firms (“Item #8”)
  • Explain the impact of each company’s foreign currency and hedging transactions (gains or losses) on the margins of each firm computed in Item #8.
  • Compare the margins of the two firms, including the relevant information about the impact of foreign currency and hedging transactions.
  • Adjust the earnings of each company to remove the foreign currency and hedging transactions.
    • Restate the earnings on both a pre-tax and after-tax basis.
  • Recalculate the gross profit margin, operating profit margin, and net profit margin for these two firms based on the adjusted earnings.
  • Compare the adjusted margins of the two firms.
  • Within these four pages, provide data tables and calculations. These tables and calculations should be approximately 30% of the total work product.

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Explanation & Answer

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Apple Inc. and Microsoft

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Apple Inc. and Microsoft

Apple Inc. is a global technology company, with its headquarter in Cupertino in
California. The company mainly deals with creating, producing, and selling services, soft wares,
and electronics (Lemay et al., 2018). It is among the largest technology firms in the world. In the
United States, it is among the five biggest technological companies. Steve Jobs, Steve Wozniak,
Ronald Wayne, founded Apple Inc. in 1976. Apple Inc. is among the S&P 500 companies. In
2020, the company made a revenue of up to two hundred and four billion dollars. Microsoft
Corporation is another global technology company based in the United States (Xiong et al.,
2018). The company has its headquarters in Redmond in Washington, D.C. The company
Creates, manufactures, licenses, supports and sells software programs, electronic products, and
personal computers.
The Microsoft Corporation was established in 1975 by Bill Gates and Allen Paul. The
company dominates the technology market, especially from the sales of windows. In 1986, the
company became an IPO. The company generated a total of One hundred and forty-three billion
dollars. Microsoft is the leading Tech company in the United States. The Microsoft Corporation
is among the companies in the S&P 500 companies. The company is the most significant
technology company in the world.
Method for Recording Foreign Currency Transactions
Since the two companies have operations in different countries, they need to convert all
assets and liabilities into one currency for reporting. Therefore, the company must adopt any
methods for recording the foreign transaction. The methods for recording foreign currency
transactions are; current rate method, temporal rate method, and monetary – non-monetary
methods (Weygandt et al., 2018). Apple Inc. uses the temporal rate method. The temporal rate



method is the money exchange technique utilized to transform the abroad subsidiary's monetary
system into the monetary system used by its holding company. It may also be alluded to as the
"currency for reporting" since it is the monetary system utilized in the holding company's
publishing financial statements. The method uses the exchange rate as to when a transaction
occurred. According to the 10-k form for Apple Inc., the company's management considers the
historical to estimate its values.
Microsoft Corporation uses the current rate method. In the current rate method, the value
is estimated using the current exchange rates. According to the 10-k form for Microsoft
corporation, the management monitors its foreign currency exposure daily to optimize its foreign
currency position. The use of current rates is quite significant in reporting
Foreign Currency Derivatives hedges are a method by companies to reduce risk from
transactions in foreign money systems. Foreign currency derivatives are done using cash flows.
In Apple Inc., the following assets are foreign currency derivatives hedges, assets, inventory
cash, vendor nontrade receivables, and payments from debts. The following were liabilities,
account payables and deferred income tax. In Microsoft corporation, the following assets are
foreign currency derivatives hedges, accounts receivable, inventories, and other current assets.
The following liabilities accounts payable, unearned revenue, and income taxes.
In a transnational company, taxes play a critical role in the returns. For Microsoft
Corporation, the taxes are contributing to the reduction of revenue by the company. Taxes harm
income or revenue by Microsoft. In comparison to Microsoft, the Apple Inc. tax has little impact
on the revenue of the company. Therefore, the taxes have a positive impact on the return of the
company cause the company does not suffer many losses.
Non-US Location



The organization s mentioned operating in various geographical areas across the world.
Apart from the United States, Apple Inc. operates in the following regions, Europe, Great China,
Japan, and the rest of Pacific Asia. Among the other regions, it is in Europe that Apple generates
more income, making it a more significant non- Us location. Microsoft Corporation also operates
in a different environment. Some of the places include China, Germany, India, United Kingdom,
Canada, Japan, Iran, North Korea, Cuba, and Syria. The United Kingdom is the significant nonUs location of operation for Microsoft. The revenue and income for Microsoft from the United
Kingdom is high.
The exchange rate is essential for organizations as it helps determine the revenue
amounts made by an organization from sales and the purchase of raw material from foreign
markets. The sale increases because the exchange rate varies, and the currency used continues to
be stronger than others. This reason makes the business realize more in terms of the sale value.
Computation of the Margins
Gross Margin
X = R – COGS/ R
R = Revenue
Microsoft = 61,502 - 32780 / 61,502
Gross Margin = 0.467
Apple Inc. =...

I was having a hard time with this subject, and this was a great help.


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