Microsoft Corporation's Income Statement

One of the first steps in evaluating the financial health of a company is to determine its liquidity and solvency. Last year Target’s current ratio was 0.91 and reflected the sudden increase in accounts payable and overall liabilities involving the data breach during their peak season. In the two years prior, in 2011 and 2012, the current ratios were 1.71 and 1.17, respectively. In both years, their current ratio was above the industry average of 1.15 however these fluctuating numbers indicate there was a fault in managing their short term liquidities (Morning Star, 2014). When compared to

Microsoft has their dominance of the industry at stake. They could potentially come out on top if left to continue their current tactics. They are masterfully “marketing their products” and it is paying off for them (Love, 1997).

Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1.

One competitive strategy that Microsoft may consider would be lowering the price of the software. Microsoft’s current OS average cost is $200 but can be as high as six to seven hundred, while Apple currently offers theirs on average at about $50. Lowering the average cost of the OS could increase demand as well as sales (“Calibex”, 1999-2015).

First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003.

Liquidity ratios are the measure of a company’s ability to meet its short term liabilities by converting its assets into cash without losing value. The results of the liquidity ratios depend on the outcome of Current ratio and quick ratio. In the appendix-I, in 2011 Target had better Current ratio

Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash

Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.

Liquidity In analyzing liquidity of the company, the current ratio is not very telling of a falling company. The company increased its ratio throughout the period of the income statement thus building upon its company assets and allowing for a 6-1 ratio of assets over its liabilities. This implies the company is still able to operate sufficiently even though it did not make its optimum current ratio of about 8-1. However, when one takes the inventory out of the equation with the quick ratio, the numbers show the true strength of short term liquidity. The numbers are still good, and do not indicate failure – but are

The financial statements included tend to combine cash and marketable securities into a category labeled “cash and cash equivalents”. If the cash ratio is recalculated using this value instead of simply cash than the ratio improves to 1.10, which shows much stronger liquidity capabilities.

Microsoft are situated within the top 20 largest companies functioning in the world, with turnover figures of 60-70 billion dollars a year (E-how, 2011).

Attached is an Income Statement from 2005 to 2007 (Microsoft Corporation Annual Report, 2008). As you can see, revenues and net income have continued to increase over the years. Earnings per share have increased as well. This shows that Microsoft is in a good financial standing. This means they are able to pay their shareholders and increase what they

Microsoft Corporation is a public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions. Established on April 4, 1975 to develop

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.

We feel it important to compare Microsoft’s ratios not only to other companies and industry norms,