Microsoft

Ratio Analysis

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 Categories of Fin. Ratios
 Liquidity: Ability to meet current obligations
 Asset Mgmt: Proper & effective use of assets
 Asset utilization (i.e., Total Asset Turnover Ratio:
 TAT = Sales / T. Assets
 Debt Mgmt: extent of debt & level of safety
afforded creditors
 Debt utilization (i.e., Equity Multiplier:
 EM = T. Assets / T. Eqty
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Liquidity Ratios
 Can the company meet its short-term
obligations using resources it currently
has on hand?

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Current and Quick Ratios for 5
years.

2018 2017 2016 2015 2014

CR 2.9 2.48 2.35 2.5 2.5
QR 2.74 2.37 2.22 2.3 2.31

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 Comments on CR and QR

 Microsoft Current ratio is mostly similar in all

years shows company has its ability to pay
back its short term liabilities. Ratio is more
than 1 which means that company has its
ability.
 Microsoft quick ratios are very efficient
because they are higher than 1 which means
that company can easily pay its debts without
inventory.
 Liquidity position is Good. 5
Asset Management Ratios
 How efficiently does firm use its assets?
 How much does firm have tied up in
assets for each dollar of sales?

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 Fixed Assets and Total Assets
Turnover Ratios

2018 2017 2016 2015 2014

FA TO 4.15 4.27 5.14 6.75 7.55
TA TO 0.44 0.41 0.46 0.54 0.55

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 Fixed Assets and Total Assets
Turnover Ratios
 FA turnover: expected to exceed industry average.
Good.
 TA turnover not up to industry average. Implication?
 Microsoft Total asset turnover ratio is a lot in favor of
the company because it goes upward in 2018 relative
to 2017 which means that company goes in a good
situation and has a ability to has a higher efficiency of
total asset to generate sales.

Caused by excessive current assets (A/R and inventory).

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Debt Management Ratios
 Does company have too much debt?
 Can company’s earnings meet its debt
servicing requirements?

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 Calculate the Debt –To-Equity Ratio,
Interest Coverage Ratios.

2018 2017 2016 2015 2014

D/E 0.92 1.19 0.75 0.44 0.25
IC 67.55 26.74 59.36 1210.7 -

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 Calculate the Debt –To-Equity Ratio,
Interest Coverage Ratios.

 The D/E ratio goes on decreasing every

year from 2014 to 2018 this shows the
dependency of the company on creditor
financing is decreasing every year which
is positive sign for the company.

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