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The performance difference between Apple and BlackBerry in regard to inventory turnover (COGS/ Inventory) is even more striking. Cost of goods sold(COGS) captures the firm’s production cost of merchandise it has sold. Inventory is the cost of the firm’s merchandise to be sold. This ratio indicates how
much of a firm’s capital is tied up in its inventory. Apple turned over its inventory 111 times during 2012, which implies that the company had very littlecapital tied up in its inventory. Apple benefited from strong demand for its products, as well as an effective management of its global supply chain. Thevast majority of Apple’s manufacturing is done in China by lowcost producer Foxconn, which employs over 1.2 million people. In contrast, BlackBerry haslikely higher production costs because it uses higher-cost suppliers than Apple. BlackBerry’s suppliers are located in the United States (e.g., Qualcommand Jabil Circuit) and Luxembourg, countries with a much higher cost structure than that of Foxconn in China.In stark contrast, BlackBerry turned over its inventory only 11.5 times. In comparison to BlackBerry, Apple turned over its inventory almost 10 times faster!This big difference can be explained by a pronounced decline in demand for BlackBerry products and disappointing new product launches. Consumerscontinued to migrate away from BlackBerry smartphones to Apple iPhones and Android-based devices. Apple benefited from greater economies of scale(a decrease in per-unit cost as output increased) because it sold more than four times as many iPhones as BlackBerry sold smartphones in 2012 (136million iPhones vs. 33 million BlackBerrys). Moreover, BlackBerry’s new product launches such as the Playbook (a tablet computer) ﬂopped. At the sametime, demand for the Apple iPad soared.The final set of financial ratios displayed in Exhibit MC16.1 concerns the effectiveness of a company’s receivables and payables. These are part of acompany’s cash ﬂow management; they indicate the company’s eﬃciency in extending credit, as well as collecting debts. Higher ratios of receivablesturnover (Revenue/Accounts receivable) imply more eﬃcient management in collecting accounts receivable and shorter durations of interest-free loans tocustomers (i.e., time until payments are due). In contrast, payables turnover (Revenue/Accounts payable) indicates how fast the firm is paying its creditorsand how much it benefits from interest-free loans extended by its suppliers. A lower ratio indicates more eﬃcient management in paying creditors andgenerating interest-free loans from suppliers. In the two dimensions of cash ﬂow management, Apple displays a clear advantage over BlackBerry. Apple ispaid much faster than BlackBerry. This might be explained by the fact that Apple’s customers are mainly individual consumers who tend to pay with cash orcredit cards at the time of purchase, while BlackBerry’s most important customers are corporate IT departments and governments who request to beinvoiced, and thus pay later. On the other hand, Apple is taking quite a bit longer to pay its creditors. Due to its stronger negotiating power, Apple mightalso be able to extend its payment periods, while BlackBerry is required to pay its creditors more quickly.