Financial Analysis of Microsoft Corp. Essay

2293 Words Feb 5th, 2013 10 Pages
This report is issued in order to inform the public about Microsoft Corporation. We analyzed the profitability and liquidity of this company. In addition, we were able to provide recommendations for investments or credits in Microsoft for the best interest of the public.
Profitability ratios refer to the relative measure to what an actual created profit. Through these ratios the company is allowed to see how profitable the company. In addition it can serve as an examination of the overall performance of the company’s operations and how do these compare to past performances or other companies. The ratios in which accounting measures the profitability of a company are Profit Margin, Price over Earnings, Return on Equity and Return on
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Microsoft’s times interest earned ratio is 87.7, showing that this firm is very successful especially before any interest or tax is deducted from its overall earnings. Apple’s times interest earned ratio could not be calculated due to the fact that their data didn’t indicate a specific interest expense to complete the equation. Another solvency ratio is the debt to equity ratio (I); taking the firms total liabilities and dividing that total by owners’ equity. Currently Microsoft’s debt to equity ratio is 0.8, showing that there is less risk among the firm’s financials. This also means that the company doesn’t rely too much on external lenders. Apple’s debt to equity ratio seems to also be within good standing because it is .5, so it doesn’t rely too much on external lenders either. Overall, both liquidity and solvency ratios represent how financially stable this company is within converting its current debt into cash as well as its long-term debt. In most cases Apple Inc. falls behind Microsoft Corp. within its short and long term debt solvency. When analyzing Microsoft’s capital structure the percentage of liabilities that construct the firm’s total assets is 42.87%. Showing that less than half of the firm’s total assets are represented by liabilities. Now the percentage of the total assets that are represented by stockholders’ equity is 57.12%. Showing that stockholder’s equity represents slightly more than half of