Microsoft and Ibm Financial Performance

2384 WordsMar 29, 200810 Pages
Running Head: MICROSOFT AND IBM FINANCIAL PERFORMANCE Microsoft and IBM Financial Performance Team E Managerial Finance I FIN/475 University of Phoenix Rene Niese April 7, 2008 Microsoft and IBM Financial Performance Introduction Team E has been charge with the task of preparing an analysis to evaluate Microsoft and IBM’s financial performance. This will be done by using trends, financial ratio analysis, and the firms’ most recent statements of cash flow. Team E will evaluate each firm’s financial performance for the last two years by (1) performing financial ratio analysis, (2) performing trend analysis, and (3) compare and contrast the findings. Team E’s analysis will include: Current Ratio – is an indication…show more content…
Quick determines a company 's financial strength or weakness. The quick ratio for Microsoft is 2.12 in 2006 and 1.64 in 2007. Microsoft’s numbers fell slightly in 2007, but the company’s overall strength remains strong. IBM’s numbers were 1.04 in 2006 and 1.40 in 2007. This indicated the company is gaining strength and moving in the right direction. Debt-To-Equity Ratio The Debt to Equity Ratio reviews financial leverage of a company by determining how much of their equity and debt is used by the company to finance its assets. The closer the number to one (1), the more leveraged a firm is. (Investopedia, 2008). IBM shows a very modest 3.23 for 2007 and 2.62 for 2006 versus the highly leveraged Microsoft, showing 1.03 in 2007 and .74 in 2006. Highly leveraged companies are more of a risk than modestly leveraged companies. In times of economic stress, the higher leveraged company could see reduced sales/revenues and be unable to cover liabilities. However, a more highly leveraged company will also likely do better than a modestly leveraged company when sales boom. By reviewing the trends, both companies were more leveraged in 2007 over 2006. Both companies may chose to increase assets in 2007 in an effort to increase shareholder wealth. Debt to Equity Ratio Microsoft 2007 2006 Total Debt 32,074,000.00 29,493,000.00 Total Equity 31,097,000.00 1.03 40,104,000.00 0.74 (Microsoft, 2008) Debt to Equity Ratio IBM

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