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Ratio Analysis For Microsoft Corp

1790 words - 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 ...view middle of the document...

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 debt-to-equity ratio improved from Q2 2014 to Q3 2014 and from Q3 2014 to Q4 2014.

Market Values
Microsoft’s Market Value Ratios do not provide management with a strong positive inclination as to what the investors think of the company’s future outlook. The Price per Earnings ratio show how much investors are willing to pay for the firm’s stock. Based on a Price per Earnings ratio of 0.21, Microsoft is performing below the industry average rate of 0.34. However, when looking at previous quarters, the company depicts better signs of a Price per Earnings ratios. Increasing the company’s market price per share by 41% as it had in Q2, Microsoft’s P/E ratio would be more attractive at approximately 0.30. This same implication can be said about the company’s current Price per Cashflow ratio. Nonetheless, the current standing of the company continues to draw in investors although it can do a better job of attracting investors away from its competitors.

Based on Microsoft’s financial standing, the company is generally performing at the industry level which is depicted by the close proximity of the ratios (as represented by the bars) in the chart above.

Business Ethics and Corporate Governance
Microsoft enforces their Standards of Business Conduct to ensure the company embodies the highest ethical and legal behavior. All employees, directors, and executive officers must understand and comply with the Microsoft Standards. In ambiguous circumstances, they must request guidance to resolve the business practice or compliance concern. They are expected to be...

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