Ratio Analysis for Microsoft Corp Essay

1801 Words Oct 14th, 2014 8 Pages
Individual research Project on Microsoft Corp. Lise Agnant 3144417

Microsoft Trend and Comparative Financial Analysis

Liquidity
Microsoft’s liquidity ratios depict that the company’s performance is aligned to meet its current obligations. The company has a Current Ratio of 2.50 which is on par with the industry average. This measure signifies that the company is operating at the same level as its competitors at maintaining short-term solvency. With regards to its Quick Ratio, Microsoft is currently showing a lower ratio than the industry average of 3.35. This lower ratio (2.45) is due to the
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Profitability
Microsoft’s profitability ratios indicate that the decisions being made by the executives on liquidity, asset and debt management are nonetheless steering the company to produce at an efficient level. Microsoft generated a Net Income of 16% of dollars invested in average total assets during its fiscal year ending June 2014. During this period, the company made approximately $86 million in sales. Moreover, the Return on Equity ratio of 26% should give the company’s shareholders enough confidence to continue to hold Microsoft stock. The company is currently doing an excellent job of outperforming the industry and generating for shareholders a larger return on their investment. Finally, Microsoft’s Net Profit Margin shows that the company is producing profit per sales at a rate (0.25) heavily resembling that of the industry average.

Debt Utilization
In addition to operating at a level of profitability matching its competitors, Microsoft has gained a competitive edge by maintaining a lower Total Debt ratio. Given the long history of the company in the computer software industry, the company is consistent and stable at maintaining a Debt ratio close to 58% on average while the industry is well above that at 79%. Therefore, by not becoming heavily reliant on loans to finance its assets, the company protects itself from falling into financial difficulty. Microsoft Corp.'s