Financial Analysis of Microsoft Corporation

3839 Words Mar 13th, 2012 16 Pages
Overview Microsoft Corporation (Microsoft) is one of the leading providers of software and storage products and services. The company is engaged in developing, manufacturing, licensing, and supporting software products worldwide. Coupled with these activities Microsoft also offers Project Management consultancy services. As one of the largest technology firms in the world Microsoft is at the cutting edge of new technology development and innovation, and as such both existing and potential shareholders expect a return on their investment. It is therefore important for the firm to make efficient use of the resources at their disposal. The following financial analysis of the Fiscal Years 2008 and 2009 will show that over the period Microsoft …show more content…
As shown on Table 1 the figures for Operating Margin and ROA are high for Microsoft which indicates efficient use of their real assets. The firm’s biggest combined expense shown on their Income Statement is that of R&D and Sales and Marketing (like most technology firms). These essentially are assets that are not capitalised on the Balance Sheet but which generate huge returns for the firm and 3

shareholders. Therefore when ROE is analysed beside Microsoft’s ROA, the drop on ROE warrants further investigation. Liquidity Ratios: Liquidity ratios determine a company's ability to pay off its short-term debts obligations. When the value of the ratio is high this means that there is a larger margin of safety to cover short-term debts. Current ratio =Current Assets/Current Liabilities: Current ratio indicates the extent to which the company is able to pay back its short-term liabilities (under one year) using its short-term assets without having to resort to selling its fixed assets to do so. Ideally the figure should always be greater than 1, meaning that there are sufficient assets to repay liabilities. Quick Ratio =Current Assets - (Inventories, Deferred income taxes ² & Other current assets)/Current Liabilities: The Quick ratio indicates very much the same information as the Current
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