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MICROSOFT RATIO ANALYSIS Ranger Campus Islamya University Bahawalpur By Falcon’s Group 2012, 2013, 2014, 2015 Managerial Finance by Madam Rabia
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MICROSOFT RATIO ANALYSIS Ranger Campus Islamya University Bahawalpur
By Falcon’s Group 2012, 2013, 2014, 2015 Managerial Finance by
Madam Rabia
Table of Contents
CONTENTS
1. Group Information (Falcon’s Group) ___________________________________________ 1
2. Microsoft ____________________________________________________________________ 2
a. Introduction ___________________________________________________________________________________ 2
b. LOGO: ________________________________________________________________________________________ 2
c. Founder: Bill Gates _____________________________________________________________________________ 2
3. Annual report ________________________________________________________________ 3
a. Income Statement (2012) ________________________________________________________________________ 3
b. Income Statement (2013) ________________________________________________________________________ 4
c. Income Statement (2014) ________________________________________________________________________ 5
d. Income Statement (2015) ________________________________________________________________________ 6
e. Balance Sheet (2012) ____________________________________________________________________________ 7
f. Balance Sheet (2013) ____________________________________________________________________________ 9
g. Balance Sheet (2014) ___________________________________________________________________________ 11
h. Balance Sheet (2015) ___________________________________________________________________________ 13
4. Important Financial Data ____________________________________________________ 15
5. Rational Analysis ____________________________________________________________ 16
a. Objectives of Rational Analysis __________________________________________________________________ 16
b. INTERESTED PARTIES _____________________________________________________________________________ 16
6. Formulas used for rational analysis ____________________________________________ 17
7. Liquidity Ratio _______________________________________________________________ 18
a. Current Ratio ___________________________________________________________________________________ 18
Reasons ____________________________________________________________________________________________ 18
b. QUICK (ACID-TEST) RATIO ________________________________________________________________________ 19
Reasons ____________________________________________________________________________________________ 19
8. Activity Ratios _______________________________________________________________ 20
a. INVENTORY TURNOVER __________________________________________________________________________ 20
Reasons ____________________________________________________________________________________________ 20
b. AVERAGE COLLECTION PERIOD __________________________________________________________________ 21
Reasons ____________________________________________________________________________________________ 21
c. AVERAGE PAYMENT PERIOD _____________________________________________________________________ 22
Reasons ____________________________________________________________________________________________ 22
Table of Contents
d. TOTAL ASSET TURNOVER _________________________________________________________________________ 23
Reasons ____________________________________________________________________________________________ 23
9. Debt Ratios _________________________________________________________________ 24
a. DEBT RATIO _____________________________________________________________________________________ 24
Reasons ____________________________________________________________________________________________ 24
b. TIMES INTEREST EARNED RATIO ___________________________________________________________________ 25
Reasons ____________________________________________________________________________________________ 25
10. Profitability Ratios _________________________________________________________ 26
a. COMMON-SIZE INCOME STATEMENTS _____________________________________________________________ 26
1) Common Size Income Statement (2012-13) ____________________________________________________ 26
2) Common Size Income Statement (2013-14) ____________________________________________________ 27
3) Common Size Income Statement (2014-15) ____________________________________________________ 28
b. GROSS PROFIT MARGIN _________________________________________________________________________ 29
Reasons ____________________________________________________________________________________________ 29
c. OPERATING PROFIT MARGIN _____________________________________________________________________ 30
Reasons ____________________________________________________________________________________________ 30
d. NET PROFIT MARGIN ____________________________________________________________________________ 31
Reasons ____________________________________________________________________________________________ 31
e. EARNINGS PER SHARE (EPS) ______________________________________________________________________ 32
Reasons ____________________________________________________________________________________________ 32
f. RETURN ON TOTAL ASSETS (ROA) _________________________________________________________________ 33
Reasons ____________________________________________________________________________________________ 33
g. RETURN ON COMMON EQUITY (ROE) _____________________________________________________________ 34
Reasons ____________________________________________________________________________________________ 34
11. Ratios (Summary) _________________________________________________________ 35
12. Conclusion _______________________________________________________________ 36
a. Financial strength for investors: __________________________________________________________________ 36
b. Good sign for suppliers: _________________________________________________________________________ 36
c. Warning sign for Microsoft management: ________________________________________________________ 36
Pg. 01
/Group Information (Falcon’s Group)
1. GROUP INFORMATION (FALCON’S GROUP)
Faiz Ahmed
Roll No 4
Hafiz Zahid
Roll No 7
Saad Ishtiaq
Roll No 33
Hammad Ali
Roll No 36
Umair Khan
Roll No 37
Sikandar Iqbal
Roll No 41
/Group Information (Falcon’s Group)
(FALCON’S GROUP)
Hafiz Zahid
Roll No 7
Hammad Ali
Roll No 36
Sikandar
Roll No 41
Pg. 02 Microsoft
2. MICROSOFT
A. INTRODUCTION
Microsoft Corporation (commonly referred to as Microsoft) is an
American multinational technology headquartered in Redmond, Washington, that
develops, manufactures, licenses, supports and sells computer software, consumer
electronics and personal computers and services.
Its best known software products are the Microsoft Windows line of Operating
systems, Microsoft Office, office suite, and Internet Explorer and Edge web browsers.
It is the world's largest software maker measured by Revenues.
It is one of the world's most valuable companies.
B. LOGO:
C. FOUNDER:BILL GATES
Microsoft was founded by Paul Allen and
Bill Gates on April 4, 1975
Stock price:
MSFT (NASDAQ)
$47.11
-0.34 (-0.72%) Oct 9, 4:00 PM EDT - Disclaimer
CEO:
Satya Nadella
Headquarters:
Redmond, Washington, United States
Founded:
April 4, 1975,
Albuquerque, New Mexico, United States
Founders:
Bill Gates, Paul Allen
Subsidiaries:
Microsoft Store, Skype Technologies,
Winternals, More
Pg. 03 Annual report
3. ANNUAL REPORT
A. INCOME STATEMENT (2012)
(In millions, except per share amounts)
Year Ended June 30,
2012
2011
2010
Revenue
$ 73,723
$ 69,943
$ 62,484
Operating expenses:
Cost of Revenue
17,530
15,577
12,395
Research and development
9,811
9,043
8,714
Sales and marketing
13,857
13,940
13,214
General and administrative
4,569
4,222
4,063
Goodwill impairment
6,193
0
0
Total Operating expenses
51,960
42,782
38,386
Operating income
21,763
27,161
24,098
Other income
504
910
915
Income before income taxes
22,267
28,071
25,013
Provision for income taxes
5,289
4,921
6,253
Net income
$ 16,978
$ 23,150
$ 18,760
Pg. 04 Annual report
B. INCOME STATEMENT (2013)
(In millions, except per share amounts)
Year Ended June 30, 2013 2012 2011
Revenue $ 77,849 $ 73,723 $ 69,943 Cost of Revenue 20,249 17,530 15,577
Gross profit 57,600 56,193 54,366 Operating expenses:
Research and development 10,411 9,811 9,043 Sales and marketing 15,276 13,857 13,940 General and administrative 5,149 4,569 4,222 Goodwill impairment 0 6,193 0
Total Operating expenses 30,836 34,430 27,205
Operating income 26,764 21,763 27,161 Other income 288 504 910
Income before income taxes 27,052 22,267 28,071 Provision for income taxes 5,189 5,289 4,921
Net income $ 21,863 $ 16,978 $ 23,150
Pg. 05 Annual report
C. INCOME STATEMENT (2014)
(In millions, except per share amounts)
Year Ended June 30, 2014 2013 2012
Revenue $ 86,833 $ 77,849 $ 73,723 Cost of Revenue 26,934 20,249 17,530
Gross margin 59,899 57,600 56,193 Research and development 11,381 10,411 9,811 Sales and marketing 15,811 15,276 13,857 General and administrative 4,821 5,149 4,569 Goodwill impairment 0 0 6,193 Integration and restructuring 127 0 0
Operating income 27,759 26,764 21,763 Other income, Net 61 288 504
Income before income taxes 27,820 27,052 22,267 Provision for income taxes 5,746 5,189 5,289
Net income $ 22,074 $ 21,863 $ 16,978
Pg. 06 Annual report
D. INCOME STATEMENT (2015)
(In millions, except per share amounts)
Year Ended June 30, 2015 2014 2013
Revenue $ 93580
$ 86833 $ 77,849
Cost of Revenue 33038 26934 20,249
Gross margin 60542 59899 57,600 Research and development 12046 11381 10411 Sales and marketing 15713 15,811 15276 General and administrative 4611 4821 5149 Goodwill 0 0 0 Impairment, Integration and restructuring 10011 127 0
Operating income 18161 27759 26764 Other income, Net 346 61 288
Income before income taxes 18507 27,820 27052 Provision for income taxes 6314 5746 5,189
Net income $ 12193 $ 22074 $ 21,863
Pg. 07 Annual report
E. BALANCE SHEET (2012)
(In millions)
June 30,
2012 June 30,
2011
Assets
Current assets:
Cash and cash equivalents $ 6,938 $ 9,610
Short-term investments (including securities loaned of $785 and $1,181) 56,102 43,162
Total cash, cash equivalents, and short-term investments 63,040 52,772
Accounts receivable, net of allowance for doubtful accounts of $389 and $333 15,780 14,987
Inventories 1,137 1,372
Deferred income taxes 2,035 2,467
Other 3,092 3,320
Total current assets 85,084 74,918
Property and equipment, net of accumulated depreciation of $10,962 and $9,829 8,269 8,162
Equity and other investments 9,776 10,865
Goodwill 13,452 12,581
Intangible assets, net 3,170 744
Other long-term assets 1,520 1,434
Total assets $ 121,271 $ 108,704
Pg. 08 Annual report
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,175 $ 4,197
Current portion of long-term debt 1,231 0
Accrued compensation 3,875 3,575
Income taxes 789 580
Short-term unearned revenue 18,653 15,722
Securities lending payable 814 1,208
Other 3,151 3,492
Total current liabilities 32,688 28,774
Long-term debt 10,713 11,921
Long-term unearned revenue 1,406 1,398
Deferred income taxes 1,893 1,456
Other long-term liabilities 8,208 8,072
Total liabilities 54,908 51,621
Commitments and contingencies
Stockholders' equity:
Common stock and paid-in capital - shares authorized 24,000; outstanding 8,381 and 8,376 65,797 63,415
Retained earnings (deficit), including accumulated other comprehensive income of $1,422 and $1,863 566 (6,332)
Total stockholders' equity 66,363 57,083
Total liabilities and stockholders' equity $ 121,271 $ 108,704
Pg. 09 Annual report
F. BALANCE SHEET (2013)
(In millions)
June 30,
2013
June 30,
2012
Assets
Current assets:
Cash and cash equivalents $ 3,804
$
6,938
Short-term investments (including securities
loaned of $579 and $785) 73,218 56,102
Total cash, cash equivalents, and short-term
investments 77,022 63,040
Accounts receivable, Net of allowance for doubtful
accounts of $336 and $389 17,486 15,780
Inventories 1,938 1,137
Deferred income taxes 1,632 2,035
Other 3,388 3,092
Total current assets 101,466 85,084
Property and equipment, Net of accumulated
depreciation of $12,513 and $10,962 9,991 8,269
Equity and other investments 10,844 9,776
Goodwill 14,655 13,452
Intangible assets, Net 3,083 3,170
Other long-term assets 2,392 1,520
Total assets $ 142,431
$
121,271
Pg. 10 Annual report
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,828
$
4,175
Current portion of long-term debt 2,999 1,231
Accrued compensation 4,117 3,875
Income taxes 592 789
Short-term unearned Revenue 20,639 18,653
Securities lending payable 645 814
Other 3,597 3,151
Total current liabilities 37,417 32,688
Long-term debt 12,601 10,713
Long-term unearned Revenue 1,760 1,406
Deferred income taxes 1,709 1,893
Other long-term liabilities 10,000 8,208
Total liabilities 63,487 54,908
Commitments and contingencies
Stockholders' equity:
Common stock and paid-in capital - shares
authorized 24,000; outstanding 8,328 and 8,381 67,306 65,797
Retained earnings (deficit) 9,895 (856)
Accumulated other comprehensive income 1,743 1,422
Total stockholders' equity 78,944 66,363
Total liabilities and stockholders' equity $ 142,431
$
121,271
Pg. 11 Annual report
G. BALANCE SHEET (2014)
(In millions)
June 30,
2014
June 30,
2013
Assets
Current assets:
Cash and cash equivalents $ 8,669
$
3,804
Short-term investments (including securities
loaned of $541 and $579) 77,040 73,218
Total cash, cash equivalents, and short-term
investments 85,709 77,022
Accounts receivable, Net of allowance for doubtful
accounts of $301 and $336 19,544 17,486
Inventories 2,660 1,938
Deferred income taxes 1,941 1,632
Other 4,392 3,388
Total current assets 114,246 101,466
Property and equipment, Net of accumulated
depreciation of $14,793 and $12,513 13,011 9,991
Equity and other investments 14,597 10,844
Goodwill 20,127 14,655
Intangible assets, Net 6,981 3,083
Other long-term assets 3,422 2,392
Total assets $ 172,384
$
142,431
Pg. 12 Annual report
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 7,432
$
4,828
Short-term debt 2,000 0
Current portion of long-term debt 0 2,999
Accrued compensation 4,797 4,117
Income taxes 782 592
Short-term unearned Revenue 23,150 20,639
Securities lending payable 558 645
Other 6,906 3,597
Total current liabilities 45,625 37,417
Long-term debt 20,645 12,601
Long-term unearned Revenue 2,008 1,760
Deferred income taxes 2,728 1,709
Other long-term liabilities 11,594 10,000
Total liabilities 82,600 63,487
Commitments and contingencies
Stockholders' equity:
Common stock and paid-in capital - shares
authorized 24,000; outstanding 8,239 and 8,328 68,366 67,306
Retained earnings 17,710 9,895
Accumulated other comprehensive income 3,708 1,743
Total stockholders' equity 89,784 78,944
Total liabilities and stockholders' equity $ 172,384
$
142,431
Pg. 13 Annual report
H. BALANCE SHEET (2015)
(In millions)(Unaudited)
June 30,
2015
June 30,
2014
Assets
Current assets:
Cash and cash equivalents $ 5,595
$
8,669
Short-term investments (including securities
loaned of $75 and $541) 90,931 77,040
Total cash, cash equivalents, and short-term
investments 96,526 85,709
Accounts receivable, Net of allowance for doubtful
accounts of $335 and $301 17,908 19,544
Inventories 2,902 2,660
Deferred income taxes 1,915 1,941
Other 5,461 4,392
Total current assets 124,712 114,246
Property and equipment, Net of accumulated
depreciation of $17,606 and $14,793 14,731 13,011
Equity and other investments 12,053 14,597
Goodwill 16,939 20,127
Intangible assets, Net 4,835 6,981
Other long-term assets 2,953 3,422
Total assets $ 176,223
$
172,384
Pg. 14 Annual report
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 6,591
$
7,432
Short-term debt 4,985 2,000
Current portion of long-term debt 2,499 0
Accrued compensation 5,096 4,797
Income taxes 606 782
Short-term unearned Revenue 23,223 23,150
Securities lending payable 92 558
Other 6,766 6,906
Total current liabilities 49,858 45,625
Long-term debt 27,808 20,645
Long-term unearned Revenue 2,095 2,008
Deferred income taxes 2,835 2,728
Other long-term liabilities 13,544 11,594
Total liabilities 96,140 82,600
Commitments and contingencies
Stockholders' equity:
Common stock and paid-in capital - shares
authorized 24,000; outstanding 8,027 and 8,239 68,465 68,366
Retained earnings 9,096 17,710
Accumulated other comprehensive income 2,522 3,708
Total stockholders' equity 80,083 89,784
Total liabilities and stockholders' equity $ 176,223
$
172,384
Pg. 15 Important Financial Data
4. IMPORTANT FINANCIAL DATA
2012 2013 2014 2015
A/P Current Year 4175 4828 7432 6591
A/R Current Year 15789 17486 19544 17908
Average Inventory 1254.5 1537.5 2299 2781
Average Assets 114987.5 131851 157407.5 174303.5
Average Equity 61723 72653.5 84364 84933.5
CGS 17530 20249 26934 33038
Gross Profit 56193 57600 59899 60542
Interest Expense 380 429 597 781
Inventory 1137 1938 2660 2902
Net Income 16978 21863 22074 12193
Operating Income 21763 26764 27759 18161
Preferred Dividend 0 0 0 0
Previous Inventory 1372 1137 1938 2660
Revenue / Sales 73723 77849 86833 93580
Total Assets 121271 142431 172384 176223
Total Assets Current Year 121271 142431 172384 176223
Total Assets Previous Year 108704 121271 142431 172384
Total Current Asset 85084 101466 114246 124712
Total Current Liabilities 32688 37417 45625 49858
Total Equity Current Year 66363 78944 89784 80083
Total Equity Previous Year 57083 66363 78944 89784
Total Liabilities 54908 63487 82600 96140
Total Share Outstanding 8506 8470 8399 8254
Pg. 16 Rational Analysis
5. RATIONAL ANALYSIS
“Ratio analysis involves methods of calculating and interpreting financial ratios to
analyze and monitor the firm’s performance. The basic inputs to ratio analysis are the
firm’s income statement and balance sheet.”
“It is only means of better understanding of financial strength and weakness of a firm.”
“Ratios are proved as the basic instrument in the control process and act as back
bone in schemes of the business forecast.”
A. OBJECTIVES OF RATIONAL ANALYSIS
To determine the ability of the firm to meet its current obligation.
To determine the limit or extent to which the firm has used its borrowed funds.
To determine the efficiency with which the firm is utilizing in generating sales revenue.
To determine the operating efficiency and performance of the company.
B. INTERESTED PARTIES
Ratio analysis of a firm’s financial statements is of interest to shareholders, creditors,
and the firm’s own management.
Both current and prospective shareholders are interested in the firm’s current and
future level of risk and return, which directly affect share price.
The firm’s creditors are interested primarily in the short-term liquidity of the company
and its ability to make interest and principal payments. A secondary concern of
creditors is the firm’s profitability; they want assurance that the business is healthy.
Management, like stockholders, is concerned with all aspects of the firm’s financial
situation, and it attempts to produce financial ratios that will be considered favorable
by both owners and creditors.
In addition, management uses ratios to monitor the firm’s performance from period to
period.
RATIO ANALYSIS
RATIO ANALYSIS IS
ONE OF THE MOST
POWERFUL TOOLS OF
FINANCIAL ANALYSIS
WHICH HELPS IN
ANALYZING AND
INTERPRETING THE
HEALTH OF THE FIRM.
Pg. 17 Formulas used for rational analysis
6. FORMULAS USED FOR RATIONAL ANALYSIS
1. Current ratio = Current asset / Current liabilities
2. Quick ratio = (Total Cash + Account Receivable) / Total current liabilities
Quick ratio = (Current assets - Inventory) / Current liabilities
3. Inventory turnover = CGS / AVG Inventory
4. AVG Inventory = (Inventory current year + Inventory previous year) / 2
5. AVG collection period = Account receivable Average / (Annual sales / 365)
6. AVG payment period = Account payable Average / (Annual purchase / 365)
7. Total asset turnover = Sales / Average Total assets
8. Debt ratio = Total liabilities / Total assets
9. Times interest earned ratio = Earnings before interest, taxes / interest expense
10. Gross profit margin = gross profit / Sales
11. Operating profit margin = Operating income / Sales
12. Net profit margin = Net income / Sales
13. EPS = (Earnings before interest, taxes - Preferred dividend) / Total share
outstanding
14. ROA = Earnings before interest, taxes / AVG Total assets
15. ROE = Earnings before interest, taxes / AVG Total equity
Pg. 18
7. LIQUIDITY RATIO
The two basic measures of liquidity are the current ratio and the quick (acid
A. CURRENT RATIO
The current ratio, one of the most commonly cited financial ratios, measures thefirm’s ability to meet its short
A liquidity ratio calculated as c
Microsoft Corp.'s current ratioto 2014 and from 2014 to 2015
Current ratio tells us the short term solvency of the firm and tells the ability of the firm to repay its short term obligations. In against the $ 1 2014) which shows that Microsoft 2015 as compared to 2012, 2013 and 2014
REASONS
Increase in Current liabilities was
Increase in Current asset were
LIQUIDITY LIQUIDITY IS A FIRM’S ABILITY TO SATISFY ITS SHORT-TERM OBLIGATIONS AS THEY COME DUE.
CURRENT RATIO
A MEASURE OF
LIQUIDITY
CALCULATED BY
DIVIDING THE
FIRM’S CURRENT
ASSETS BY ITS
CURRENT
LIABILITIES.
Liquidity Ratio
LIQUIDITY RATIO
measures of liquidity are the current ratio and the quick (acid
CURRENT RATIO
The current ratio, one of the most commonly cited financial ratios, measures thefirm’s ability to meet its short-term obligations.
A liquidity ratio calculated as current assets divided by current liabilities.
2012 2013 2014 2015
current ratio 2.60 2.71 2.50 2.50
Microsoft Corp.'s current ratio increased from 2012 to 2013 but deteriorated from 2013 to 2014 and from 2014 to 2015
Current ratio tells us the short term solvency of the firm and tells the ability of the firm to repay its short term obligations. In Microsoft the firm has 2.5 rate
in loan while current ratio was 2.6 (in 2012), 2.71 (in 2013) an2014) which shows that Microsoft has less ability to repay its short term obligations in 2015 as compared to 2012, 2013 and 2014
Increase in Current liabilities was less in 2013 as compared to 2014 and 2015
Current asset were more as compared to 2012
2.60
2.71
2.50
2012 2013 2014 2015
CURRENT RATIO
Liquidity Ratio
measures of liquidity are the current ratio and the quick (acid-test) ratio.
The current ratio, one of the most commonly cited financial ratios, measures the
urrent assets divided by current liabilities.
2015
2.50
deteriorated from 2013
Current ratio tells us the short term solvency of the firm and tells the ability of the firm to rate, ability to repay
current ratio was 2.6 (in 2012), 2.71 (in 2013) and 2.5 (in epay its short term obligations in
less in 2013 as compared to 2014 and 2015
2.50
2015
Pg. 19
B. QUICK (ACID
A liquidity ratio calculated as (cash plus shortreceivables) divided by current liabilities.
Microsoft Corp.'s quick ratio 2014 and from 2014 to 2015
Quick ratio measures on the sale of inventory. Micro(in 2012), 2.53 (in 2013) and 2.31short term obligations without relying on the sale of inventory was more in 2013 which is now decreased I
REASONS
Increase in Current liabilities was less in 2013 as compared to 2014 and 2015
Increase in cash and receivables was more as compared to 201
QUICK RATIO
A MEASURE OF
LIQUIDITY
CALCULATED BY
DIVIDING THE
FIRM’S CURRENT
ASSETS MINUS
INVENTORY BY ITS
CURRENT
LIABILITIES.
Liq
QUICK (ACID-TEST) RATIO
A liquidity ratio calculated as (cash plus short-term marketable investments plus receivables) divided by current liabilities.
2012 2013 2014 2015
quick ratio 2.41 2.53 2.31 2.30
Microsoft Corp.'s quick ratio increased from 2012 to 2013 but deteriorated from 2013 to 2014 and from 2014 to 2015
Quick ratio measures the firm’s ability to pay off short term obligations without relying on the sale of inventory. Microsoft has the quick ratio of 2.30 while Quick ratio was 2.41 (in 2012), 2.53 (in 2013) and 2.31 (in 2014) which shows that Microsoft’s ability to pay off
rt term obligations without relying on the sale of inventory was more in 2013 which is now decreased In 2015
Increase in Current liabilities was less in 2013 as compared to 2014 and 2015
Increase in cash and receivables was more as compared to 201
2.41
2.53
2.31
2012 2013 2014 2015
QUICK RATIO
Liquidity Ratio
term marketable investments plus
2015
2.30
deteriorated from 2013 to
the firm’s ability to pay off short term obligations without relying soft has the quick ratio of 2.30 while Quick ratio was 2.41
(in 2014) which shows that Microsoft’s ability to pay off rt term obligations without relying on the sale of inventory was more in 2013 which is
Increase in Current liabilities was less in 2013 as compared to 2014 and 2015
Increase in cash and receivables was more as compared to 2012
2.30
2015
Pg. 20
8. ACTIVITY RATIOS
A. INVENTORY TURNOVER
An activity ratio
Inventory turnover = Cost of revenue ÷ Inventories
Microsoft Corp.'s inventory turnover deteriorated from but then improved from 2014 to 2015
Inventory turnover is calculated by dividing the CGS by inventory. The inventory turnover of Microsoft is 11.88 times. Here the best ratio is in 2012 that is 13.97 much more than 13.17 (in 2013), 11.72 (in
REASONS
Even increase in sales in 2014 was more then 2012, 2013, decrease in inventory was very high in 2012why Inventory turnover
ACTIVITY RATIOS
MEASURE THE
SPEED WITH WHICH
VARIOUS
ACCOUNTS ARE
CONVERTED
INTO SALES OR
CASH—INFLOWS OR
OUTFLOWS
INVENTORY
TURNOVER
MEASURES THE
ACTIVITY, OR
LIQUIDITY, OF A
FIRM’S INVENTORY.
Activity Ratios
ACTIVITY RATIOS
INVENTORY TURNOVER
An activity ratio calculated as cost of goods sold divided by inventory.
Inventory turnover = Cost of revenue ÷ Inventories
2012 2013 2014
inventory turnover 13.97 13.17 11.72
Microsoft Corp.'s inventory turnover deteriorated from 2012 to 2013 and but then improved from 2014 to 2015
Inventory turnover is calculated by dividing the CGS by inventory. The inventory turnover of Microsoft is 11.88 times. Here the best ratio is in 2012 that is 13.97 much more than 13.17 (in 2013), 11.72 (in 2014) and 11.88 (in 2015)
in sales in 2014 was more then 2012, 2013, and 2015decrease in inventory was very high in 2012 as compared to 2013, 2014, 2015
Inventory turnover is highest in 2012
13.97
13.17
11.72 11.88
2012 2013 2014 2015
INVENTORY TURNOVER
Activity Ratios
calculated as cost of goods sold divided by inventory.
2015
11.88
2012 to 2013 and 2013 to 2014
Inventory turnover is calculated by dividing the CGS by inventory. The inventory turnover of Microsoft is 11.88 times. Here the best ratio is in 2012 that is 13.97 much more
and 2015 but because as compared to 2013, 2014, 2015 that’s
11.88
2015
Pg. 21
B. AVERAGE
The average collection period, or average age of accounts receivable, is useful in evaluating credit and collection policies. It is arrived at by sales into the accounts receivable balance
Microsoft Corp.'s to 2014 but then improved
Average collection period measures the average number of days that a company takes to collect revenue after a sale has been made. It is a financial ratio that illustrates how well a company'saverage collection period is 73.042012), 77.98 (in 2013) and 77.83
REASONS
Because decrease in account receivables was very high in 2015 as compared to 2012, 2013, and 2014 that’s why
AVERAGE
COLLECTION
PERIOD
THE AVERAGE
AMOUNT OF TIME
NEEDED TO
COLLECT
ACCOUNTS
RECEIVABLE.
Activity Ratios
AVERAGE COLLECTION PERIOD
The average collection period, or average age of accounts receivable, is useful in evaluating credit and collection policies. It is arrived at by dividing the average daily sales into the accounts receivable balance
2012 2013 2014
average collection period 76.19 77.98 77.83
Microsoft Corp.'s average collection period deteriorated from 2012 to 2013 and to 2014 but then improved from 2014 to 2015 exceeding 2013 level.
collection period measures the average number of days that a company takes to collect revenue after a sale has been made. It is a financial ratio that illustrates how well a company's accounts receivables are being managed. Microsoft’s
erage collection period is 73.04 (in 2015) which is best as compared to 76.1977.98 (in 2013) and 77.83 (in 2014)
Because decrease in account receivables was very high in 2015 as compared to 2012, 2013, and 2014 that’s why Average collection period was best in 2015
76.19
77.98 77.83
73.04
2012 2013 2014
AVERAGE COLLECTION PERIOD
Activity Ratios
The average collection period, or average age of accounts receivable, is useful in dividing the average daily
2014 2015
77.83 73.04
2012 to 2013 and 2013 from 2014 to 2015 exceeding 2013 level.
collection period measures the average number of days that a company takes to collect revenue after a sale has been made. It is a financial ratio that
are being managed. Microsoft’s ich is best as compared to 76.19 (in
Because decrease in account receivables was very high in 2015 as compared to 2012, was best in 2015
73.04
2015
AVERAGE COLLECTION
Pg. 22
C. AVERAGE PAYMENT
The average payment period, or average age of accounts payable, is calculated in the same manner as the average collection period.
average payment period
Microsoft Corp.'s payables turnover declined from then increased from 2014 to 2015 exceeding 2013 level.
Average payment period indicates the number of days that the account payable relative to revenue the company has. An the company delays paying its suppliers
Microsoft’s average payment period 87.16 days (in 2012), 81.14 days (in 2013) and 83.07
REASONS
Because decrease in account payables was very high in 2015 as compared to 2012, 2013, and 2014 that’s why
AVERAGE
PAYMENT PERIOD
THE AVERAGE
AMOUNT OF TIME
NEEDED TO PAY
ACCOUNTS
PAYABLE
Activity Ratios
AVERAGE PAYMENT PERIOD
The average payment period, or average age of accounts payable, is calculated in the same manner as the average collection period.
2012 2013 2014
average payment period 87.16 81.14 83.07
Microsoft Corp.'s payables turnover declined from 2012 to 2013 and then increased from 2014 to 2015 exceeding 2013 level.
Average payment period indicates the number of days that the account payable relative to revenue the company has. An increase of Days Payable may suggest that the company delays paying its suppliers
Microsoft’s average payment period 77.46 days (in 2015) is better as compared to 7.16 days (in 2012), 81.14 days (in 2013) and 83.07 days (in 2014)
Because decrease in account payables was very high in 2015 as compared to 2012, 2013, and 2014 that’s why average payment period was best in 2015
87.16
81.1483.07
77.46
2012 2013 2014 2015
AVERAGE PAYMENT PERIOD
Activity Ratios
The average payment period, or average age of accounts payable, is calculated in
2014 2015
83.07 77.46
2012 to 2013 and 2013 to 2014 but
Average payment period indicates the number of days that the account payable increase of Days Payable may suggest that
) is better as compared to days (in 2014)
Because decrease in account payables was very high in 2015 as compared to 2012, was best in 2015
77.46
2015
AVERAGE PAYMENT PERIOD
Pg. 23
D. TOTAL ASSET TURNOVER
Microsoft Corp.'s total asset turnover deteriorated frombut then improved from 2014 to 2015 not reaching 2013 level.
Asset Turnover measures how quickly a company turns over its asset through sales.
Microsoft Asset 2013), 0.55 (in 2014) and 0.54 (in 2015
REASONS
Because total assets average was less in 2012 as comparwhy total assets turnover was high in 2012
TOTAL ASSET
TURNOVER
INDICATES THE
EFFICIENCY WITH
WHICH THE FIRM
USES ITS ASSETS TO
GENERATE SALES.
Activity Ra
TOTAL ASSET TURNOVER
2012 2013 2014
total asset turnover 0.64 0.59 0.55
Microsoft Corp.'s total asset turnover deteriorated from 2012 to 2013 andbut then improved from 2014 to 2015 not reaching 2013 level.
measures how quickly a company turns over its asset through sales.
Microsoft Asset Turnover was 0.64 (in 2012) which was better as compared to 0.59 (in 2013), 0.55 (in 2014) and 0.54 (in 2015)
total assets average was less in 2012 as compared to 2013, 2014, 2015 that’s why total assets turnover was high in 2012
0.64
0.59
0.550.54
2012 2013 2014 2015
TOTAL ASSET TURNOVER
Activity Ratios
2015
0.54
2012 to 2013 and 2013 to 2014
measures how quickly a company turns over its asset through sales.
h was better as compared to 0.59 (in
ed to 2013, 2014, 2015 that’s
0.54
2015
TOTAL ASSET TURNOVER
Pg. 24
9. DEBT RATIOS
A. DEBT RATIO
The higher this ratio, the greater the amount of other people’sgenerate profits.
Microsoft Corp.'s debtfrom 2013 to 2014 and from 2014 to 2015.
The debt ratio measures the
Microsoft debt ratio is 0.55 (in 2015) which shows that degree of indebtedness of Microsoft is greater in 2015as compared to 0.42014)
REASONS
Because increase2014 but increase in asset in 2015 was lower than 2014 that’s why debt ratio was higher in 2015
DEBT RATIOS
MEASURES THE PROPORTION OF TOTAL ASSETS FINANCED BY THE FIRM’S CREDITORS
DEBT RATIOS
DEBT RATIO
he higher this ratio, the greater the amount of other people’s money being used to generate profits.
2012 2013 2014 2015
debt ratio 0.45 0.45 0.48 0.55
Microsoft Corp.'s debt-to-capital ratio was same from 2012 to 2013 but from 2013 to 2014 and from 2014 to 2015.
The debt ratio measures the proportion of total assets financed by the firm’s creditors
Microsoft debt ratio is 0.55 (in 2015) which shows that degree of indebtedness of is greater in 2015as compared to 0.45 (in 2012), 0.45 (in 201
Because increase in total liabilities in 2015 was very high as compared to 2012, 2013, 2014 but increase in asset in 2015 was lower than 2014 that’s why debt ratio was higher
0.45 0.450.48
2012 2013 2014 2015
DEBT RATIO
Debt Ratios
money being used to
2015
0.55
was same from 2012 to 2013 but deteriorated
proportion of total assets financed by the firm’s creditors
Microsoft debt ratio is 0.55 (in 2015) which shows that degree of indebtedness of (in 2013) and 0.48 (in
in total liabilities in 2015 was very high as compared to 2012, 2013, 2014 but increase in asset in 2015 was lower than 2014 that’s why debt ratio was higher
0.55
2015
Pg. 25
B. TIMES INTEREST EARNE
The times interest earned ratio, sometimes called the interest coverage ratio, measures the firm’s ability to make contractual interest payments. The higher its value, the better able the firm is to fulfill its
Microsoft Corp.'s interest coverage ratiofrom 2013 to 2014 and from 2014 to 2015.
Measures the firm’s ability to make the interest coverage ratio.
Microsoft Corp.'s interest coverage ratio is lowest (23) in 2015 that was 57 (in 2012), 62 (in 2013) and 46 (in 2014)
REASONS
Because increase in interest expense was lower in 2013 and increase in EBIT was higher in 2013 that’s why coverage ratio was higher in 2013
TIMES INTEREST
EARNED RATIO
RATIOS THAT
MEASURE THE
FIRM’S ABILITY TO
PAY CERTAIN FIXED
CHARGES.
TIMES INTEREST EARNED RATIO
The times interest earned ratio, sometimes called the interest coverage ratio, measures the firm’s ability to make contractual interest payments. The higher its value, the better able the firm is to fulfill its interest obligations.
2012 2013 2014
times interest earned ratio 57 62 46
Microsoft Corp.'s interest coverage ratio increased from 2012 to 2013 butfrom 2013 to 2014 and from 2014 to 2015.
Measures the firm’s ability to make contractual interest payments; sometimes called the interest coverage ratio.
Microsoft Corp.'s interest coverage ratio is lowest (23) in 2015 that was 57 (in 2012), 62 (in 2013) and 46 (in 2014) was best in 2013 (62)
increase in interest expense was lower in 2013 and increase in EBIT was higher in 2013 that’s why coverage ratio was higher in 2013
5762
46
2012 2013 2014 2015
TIMES INTEREST EARNED RATIO
Debt Ratios
The times interest earned ratio, sometimes called the interest coverage ratio, measures the firm’s ability to make contractual interest payments. The higher its value, the better
2014 2015
46 23
increased from 2012 to 2013 but deteriorated
contractual interest payments; sometimes called
Microsoft Corp.'s interest coverage ratio is lowest (23) in 2015 that was 57 (in 2012), 62
increase in interest expense was lower in 2013 and increase in EBIT was higher
23
2015
TIMES INTEREST EARNED
Pg. 26 Profitability Ratios
10. PROFITABILITY RATIOS
A. COMMON-SIZE INCOME STATEMENTS
A useful tool for evaluating profitability in relation to sales is the common-size income statement. Each item on this statement is expressed as a percentage of sales. Common-size income statements are especially useful in comparing performance across years because it is easy to see if certain categories of expenses are trending up or down as a percentage of the total volume of business that the company transacts.
1) COMMON SIZE INCOME STATEMENT (2012-13)
In % with sales
2013 2012 Evaluation
Revenue 100.00 100.00 Same
Cost of Revenue 26.01 23.78 Worse
Gross profit 73.99 76.22 Worse
Research and development 13.37 13.31 Worse
Sales and marketing 19.62 18.80 Worse
General and administrative 6.61 6.20 Worse
Goodwill impairment 0.00 8.40 Better
Operating income 34.38 29.52 Better
Other income 0.37 0.68 Worse
Income before income taxes 34.75 30.20 Better
Provision for income taxes 6.67 7.17 Better
Net income (loss) 28.08 23.03 Better
COMMON-SIZE
INCOME
STATEMENTS
AN INCOME
STATEMENT IN
WHICH EACH ITEM
IS EXPRESSED AS A
PERCENTAGE OF
SALES.
Pg. 27 Profitability Ratios
2) COMMON SIZE INCOME STATEMENT (2013-14)
In % with sales
2014 2013 Evaluation
Revenue 100 100 Same
Cost of Revenue 31.02 26.01 Worse
Gross margin 68.98 73.99 Worse
Research and development 13.11 13.37 Better
Sales and marketing 18.21 19.62 Better
General and administrative 5.55 6.61 Better
Integration and restructuring 0.15 0.00 Worse
Operating income 31.97 34.38 Worse
Other income, Net 0.07 0.37 Worse
Income before income taxes 32.04 34.75 Worse
Provision for income taxes 6.62 6.67 Better
Net income 25.42 28.08 Worse
Pg. 28 Profitability Ratios
3) COMMON SIZE INCOME STATEMENT (2014-15)
In % with sales
2015 2014 Evaluation
Revenue 100.00 100.00 Same
Cost of Revenue 35.30 31.18 Worse
Gross margin 64.70 68.82 Worse
Research and development 12.87 13.11 Better
Sales and marketing 16.79 18.21 Better
General and administrative 4.93 5.39 Better
impairment integration and restructuring 10.70 0.15 Worse
Operating income (loss) 19.41 31.97 Worse
Other income, Net 0.37 0.07 Better
Income (loss) before income taxes 19.78 32.04 Worse
Provision for income taxes 6.75 6.62 Worse
Net income (loss) 13.03 25.42 Worse
Pg. 29
B. GROSS PROFIT MARGIN
The gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods.
Microsoft Corp.'s gross profit margin deteriorated from and from 2014 to 2015.
Microsoft Corp.'s gross profit margin was best in 2012 that was 76.22 as compared to 73.99 (in 2013) 68.98 (in 2014) 64.7 (in 2015)
REASONS
Because sales were lower in 2012 but gross profit was higher in 2012 that’s why gross profit margin wa
GROSS PROFIT
MARGIN
MEASURES THE
PERCENTAGE OF
EACH SALES
DOLLAR
REMAINING AFTER
THE FIRM HAS PAID
FOR ITS GOODS.
Profitability Ratios
GROSS PROFIT MARGIN
The gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods.
2012 2013 2014
gross profit margin 76.22 73.99 68.98
Microsoft Corp.'s gross profit margin deteriorated from 2012 to 2013 and 2014 to 2015.
Microsoft Corp.'s gross profit margin was best in 2012 that was 76.22 as compared to 73.99 (in 2013) 68.98 (in 2014) 64.7 (in 2015)
Because sales were lower in 2012 but gross profit was higher in 2012 that’s why gross profit margin was higher in 2012
76.2273.99
68.98
64.70
2012 2013 2014 2015
GROSS PROFIT MARGIN
Profitability Ratios
The gross profit margin measures the percentage of each sales dollar remaining after
2015
64.70
2012 to 2013 and 2013 to 2014
Microsoft Corp.'s gross profit margin was best in 2012 that was 76.22 as compared to
Because sales were lower in 2012 but gross profit was higher in 2012 that’s why gross
64.70
2015
GROSS PROFIT MARGIN
Pg. 30
C. OPERATING PROFIT MAR
The operating profit margin measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted. It represents the “pure profits” earned on eachprofits are “pure” because they measure only the profitsearned on operations and ignore interest, taxes, and preferred stock dividends. A high operating profit margin is preferred
Microsoft Corp.'s operating profit margin from 2013 to 2014 and from 2014 to 2015.
Microsoft Corp.'s operating profit margin was best in 2013to 29.52 (in 2012
REASONS
Because sales were lower in 2013 but operating profit was higher in 2013 that’s why operating profit margin was higher in 2013
OPERATING PROFIT
MARGIN
MEASURES THE
PERCENTAGE OF
EACH SALES
DOLLAR
REMAINING
AFTER ALL COSTS
AND EXPENSES
OTHER THAN
INTEREST, TAXES,
AND PREFERRED
STOCK DIVIDENDS
ARE DEDUCTED;
THE “PURE
PROFITS” EARNED
ON EACH SALES
DOLLAR.
Profitability Ratios
OPERATING PROFIT MARGIN
The operating profit margin measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted. It represents the “pure profits” earned on each profits are “pure” because they measure only the profits earned on operations and ignore interest, taxes, and preferred stock dividends. A high operating profit margin is preferred
2012 2013 2014
operating profit margin 29.52 34.38 31.97
Microsoft Corp.'s operating profit margin increased from 2012 to 2013 but from 2013 to 2014 and from 2014 to 2015.
Microsoft Corp.'s operating profit margin was best in 2013 that was 34.38 as compared 2012) 31.97 (in 2014) 19.41 (in 2015)
Because sales were lower in 2013 but operating profit was higher in 2013 that’s why operating profit margin was higher in 2013
29.52
34.3831.97
19.41
2012 2013 2014 2015
OPERATING PROFIT MARGIN
Profitability Ratios
The operating profit margin measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends
sales dollar. Operating
earned on operations and ignore interest, taxes, and preferred stock dividends. A high
2014 2015
31.97 19.41
increased from 2012 to 2013 but deteriorated
that was 34.38 as compared
Because sales were lower in 2013 but operating profit was higher in 2013 that’s why
19.41
2015
OPERATING PROFIT MARGIN
Pg. 31
D. NET PROFIT MARGIN
Microsoft Corp.'s net profit margin 2013 to 2014 and from 2014 to 2015.
Microsoft Corp.'s net profit margin was best in 2013 that was 28.08 as compared to 23.03 (in 2012) 25.42 (in 2014) 13.03 (in 2015)
REASONS
Because sales were lower in 201margin was higher in 2013
NET PROFIT
MARGIN
MEASURES THE
PERCENTAGE OF
EACH SALES
DOLLAR
REMAINING
AFTER ALL COSTS
AND EXPENSES,
INCLUDING
INTEREST, TAXES,
AND PREFERRED
STOCK DIVIDENDS,
HAVE BEEN
DEDUCTED.
Profitability Ratios
NET PROFIT MARGIN
2012 2013 2014
net profit margin 23.03 28.08 25.42
Microsoft Corp.'s net profit margin increased from 2012 to 2013 but 2013 to 2014 and from 2014 to 2015.
Microsoft Corp.'s net profit margin was best in 2013 that was 28.08 as compared to 23.03 (in 2012) 25.42 (in 2014) 13.03 (in 2015)
Because sales were lower in 2013 but net profit was higher in 2013 that’s why margin was higher in 2013
23.03
28.08
25.42
13.03
2012 2013 2014 2015
NET PROFIT MARGIN
Profitability Ratios
2015
13.03
increased from 2012 to 2013 but deteriorated from
Microsoft Corp.'s net profit margin was best in 2013 that was 28.08 as compared to
profit was higher in 2013 that’s why net profit
13.03
2015
Pg. 32
E. EARNINGS PER SHARE (
The firm’s earnings per share (EPS) stockholders and management. As we noted earlier, EPS represents the number of dollars earned during the period on behalf of each outstanding share of common stock
Microsoft Corp.'s EPS increased from 2012 to 2013 and from 2013 to 2014 but deteriorated from 2014 to 2015.
EPS is measurement of the amount of a company's profit by each outstanding share of common stock
Microsoft Corp.'s EP(in 2013) 1.48 (in 2015)
REASONS
Because EBIT wascompared to that of 2012 and 2013 that’s why outstanding in 2015 was lower than 2014 but as EBIT was also lower in 2015 that’s why EPS was not higher in 2015
EARNINGS PER
SHARE (EPS)
EPS REPRESENTS
THE NUMBER OF
DOLLARS EARNED
DURING THE PERIOD
ON BEHALF OF
EACH
OUTSTANDING
SHARE OF COMMON
STOCK
Profitability Ratios
EARNINGS PER SHARE (EPS)
earnings per share (EPS) is generally of interest to present or prospective stockholders and management. As we noted earlier, EPS represents the number of dollars earned during the period on behalf of each outstanding share of common
2012 2013 2014 2015
EPS 2.00 2.58 2.63 1.48
Microsoft Corp.'s EPS increased from 2012 to 2013 and from 2013 to 2014 but deteriorated from 2014 to 2015.
EPS is measurement of the amount of a company's profit by each outstanding share of
Microsoft Corp.'s EPS was best in 2014 that was 2.63 as compared to 2.00 (in 2012) 2.58 (in 2015)
was highest in 2014 and shares outstanding were lower in 2014 as compared to that of 2012 and 2013 that’s why EPS was higher in 2014 even share outstanding in 2015 was lower than 2014 but as EBIT was also lower in 2015 that’s why EPS was not higher in 2015
2.00
2.58 2.63
2012 2013 2014 2015
EPS
Profitability Ratios
is generally of interest to present or prospective stockholders and management. As we noted earlier, EPS represents the number of dollars earned during the period on behalf of each outstanding share of common
Microsoft Corp.'s EPS increased from 2012 to 2013 and from 2013 to 2014 but
EPS is measurement of the amount of a company's profit by each outstanding share of
S was best in 2014 that was 2.63 as compared to 2.00 (in 2012) 2.58
highest in 2014 and shares outstanding were lower in 2014 as er in 2014 even share
outstanding in 2015 was lower than 2014 but as EBIT was also lower in 2015 that’s why
1.48
2015
Pg. 33
F. RETURN ON TOTAL ASSE
Measures the overall effectiveness of management in generating profits with its available assets; also called the
Microsoft Corp.'s ROA and from 2014 to 2015.
Return on assets (ROA) measures the rate of return on the total assets (shareholder equity plus liabilities). It measushareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. Microsoft Corp.'s efficiency at generating profits from shareholders' equity plus its liabilit14.77 (in 2012) 14.02
REASONS
Because EBIT was higher in 2014 and 2013 and total assets were lower in 2013 and 2012 that’s why ROA was higher in 2013
RETURN ON TOTAL
ASSETS (ROA)
MEASURES THE
OVERALL
EFFECTIVENESS OF
MANAGEMENT
IN GENERATING
PROFITS WITH ITS
AVAILABLE ASSETS;
ALSO CALLED THE
RETURN ON
INVESTMENT (ROI).
Profitability Ratios
RETURN ON TOTAL ASSETS (ROA)
Measures the overall effectiveness of management in generating profits with its ailable assets; also called the return on investment (ROI).
2012 2013 2014 2015
ROA 14.77 16.58 14.02 7.00
Microsoft Corp.'s ROA increased from 2012 to 2013 but deteriorated from 2013 to 2014 and from 2014 to 2015.
Return on assets (ROA) measures the rate of return on the total assets (shareholder equity plus liabilities). It measures a firm's efficiency at generating profits from shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. Microsoft Corp.'s efficiency at generating profits from shareholders' equity plus its liabilities was better in 2013 that was 16.58 as compared to
14.02 (in 2014) 7.0 (in 2015)
Because EBIT was higher in 2014 and 2013 and total assets were lower in 2013 and 2012 that’s why ROA was higher in 2013
14.77
16.58
14.02
2012 2013 2014 2015
ROA
Profitability Ratios
Measures the overall effectiveness of management in generating profits with its
deteriorated from 2013 to 2014
Return on assets (ROA) measures the rate of return on the total assets (shareholder res a firm's efficiency at generating profits from
shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. Microsoft Corp.'s efficiency at generating profits from
ies was better in 2013 that was 16.58 as compared to
Because EBIT was higher in 2014 and 2013 and total assets were lower in 2013 and 2012
7.00
2015
Pg. 34
G. RETURN ON COMMON EQU
Generally, the owners are better off the higher is this return.
Microsoft Corp.'s ROE and from 2014 to 2015.
Return on Equity (ROE) measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity. Microsoft Corp.'s efficiency at generating profits from every unit of shareholders' equity was better in 2013 that was 30.09 as compared to 27.51 (in 2012) 26.17 (in 2014) 14.36 (in 2015)
REASONS
Because EBIT was higher in 2014 and 2013 and total equity was lower in 2013 and 2012 that’s why ROE
RETURN ON
COMMON EQUITY
(ROE)
MEASURES THE
RETURN EARNED ON
THE COMMON
STOCKHOLDERS’
INVESTMENT IN THE
FIRM.
Profitability Ratios
RETURN ON COMMON EQUITY (ROE)
Generally, the owners are better off the higher is this return.
2012 2013 2014 2015
ROE 27.51 30.09 26.17 14.36
Microsoft Corp.'s ROE increased from 2012 to 2013 but deteriorated from 2013 to 2014 and from 2014 to 2015.
Return on Equity (ROE) measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. It measures a firm's efficiency at
ing profits from every unit of shareholders' equity. Microsoft Corp.'s efficiency at generating profits from every unit of shareholders' equity was better in 2013 that was 30.09 as compared to 27.51 (in 2012) 26.17 (in 2014) 14.36 (in 2015)
EBIT was higher in 2014 and 2013 and total equity was lower in 2013 and 2012 was higher in 2013
27.5130.09
26.17
14.36
2012 2013 2014 2015
ROE
Profitability Ratios
deteriorated from 2013 to 2014
Return on Equity (ROE) measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. It measures a firm's efficiency at
ing profits from every unit of shareholders' equity. Microsoft Corp.'s efficiency at generating profits from every unit of shareholders' equity was better in 2013 that was 30.09 as compared to 27.51 (in 2012) 26.17 (in 2014) 14.36 (in 2015)
EBIT was higher in 2014 and 2013 and total equity was lower in 2013 and 2012
14.36
2015
Pg. 35 Ratios (Summary)
11. RATIOS (SUMMARY)
2012 2013 2014 2015
Current ratio 2.60 2.71 2.50 2.50
Quick ratio 2.41 2.53 2.31 2.30
Inventory turnover 13.97 13.17 11.72 11.88
Average collection period 76.19 77.98 77.83 73.04
Average payment period 87.16 81.14 83.07 77.46
Total asset turnover 0.64 0.59 0.55 0.54
Debt ratio 0.45 0.45 0.48 0.55
Times interest earned ratio 57 62 46 23
Gross profit margin 76.22 73.99 68.98 64.70
Operating profit margin 29.52 34.38 31.97 19.41
Net profit margin 23.03 28.08 25.42 13.03
EPS 2.00 2.58 2.63 1.48
ROA 14.77 16.58 14.02 7.00
ROE 27.51 30.09 26.17 14.36
Pg. 36 Conclusion
12. CONCLUSION
After all the findings, it is concluded that financial ratios are the basic and most important part of any business. It describes the firm’s financial position.
A. FINANCIAL STRENGTH FOR INVESTORS:
Microsoft Corp has current ratio of 2.50 and quick ratio of 2.30 in 2015. It generally indicates good short-term financial strength, which is positive for investors to invest in Microsoft
B. GOOD SIGN FOR SUPPLIERS:
Average payment period is reduced from 87.16 to 77.46 days in last year. An increase of Days Payable may suggest that the company delays paying its suppliers. so decrease in Average payment period is a good sign for suppliers
C. WARNING SIGN FOR MICROSOFT MANAGEMENT:
Gross profit margin, Operating profit margin and Net profit margin are continuously declining which is a warning sign for Microsoft management
