RATIO ANALYSIS

Ratio Analysis Microsoft Corporation

RATIO ANALYSIS

2
Ratio Analysis Microsoft Corporation
Liquidity Ratio: Short-term Solvency

Current Ratio
Current Assets/ Current Liabilities

2015
2.50

2014
2.50

Quick Ratio
Current Assets - Inventory/ Current Liabilities

2.44

2.45

Cash Ratio
Cash/ Current Liabilities

0.11

0.19

21.82

90.31

32

36

Average Collection Period

Account Receivable/Average Daily Sales
Days Inventory Held
Inventory/ Avg. Daily Cost of Sales

Activity Ratio/ Asset Management

Inventory Turnover
Cost of Goods Sold/ Inventory

2015
11

2014
10

Fixed Asset Turnover

Net Sales/ Fixed Assets

1.82

1.49

Total Asset Turnover

Net Sales/ Total Assets

0.53

0.50

RATIO ANALYSIS

Leverage Ratio/ Debt Management

Debt Ratio
Total Liabilities/ Total Assets

2015
55%

2014
48%

Debt-to-Equity
Total Liabilities/ Stockholders' Equity

1.20

0.92

Times Interest Earned

Operating Profit/ Interest Expense

Profitability Ratios
Gross Profit Margin
Gross Profit/ Net Sales

2015
65%

2014
69%

Operating Profit Margin

Operating Profit/ Net Sales

19%

32%

Net Profit Margin

Net Earnings / Net Sales

13%

25%

7%

13%

15%

25%

Return on Assets (ROA)/ Investment (ROI)

Net Earnings/ Total Assets
Return on Equity
Net Earnings/ Stockholders' Equity

RATIO ANALYSIS

Market Ratios
Earnings Per Common Shares (EPS)
Net Income/ Avg. Shares Outstanding

1.49

2.66

Price-to-Earning
Market Price of Common Stock/ EPS

5.62

3.10

Dividend Payout Ratio

Dividends per Share/ EPS

81.05%

40.22%

Dividend Yield
Dividends per Share/ Market Price of Common stock

2.86%

2.99%

Financial ratios of a company are good indicators of financial performance. Ratios for
Microsoft Corporation have been calculated to evaluate its financial performance. These ratios
can be compared with the industry averages to determine the position of the company, as
compared to its competitors in the same market. The liquidity position of Microsoft measured
through current ratio, quick ratio Cash Ratio, Average Collection Period and Days Inventory
Held shows that Microsoft liquidity position has improved from last year. Microsoft has the
ability to meet its short-term cash needs. A decline in average collection period depicts that the
company is able to collect cash from its debtors in 22 days, which is significantly less than last
years i.e. 90 days.
The firms ability to effectively utilize its assets has also improved with increase in total
asset and fixed asset turnover. Looking at the debt management ratios, it can be said that
financial leverage of the company has increase. The proportion of its debt to total asset has
increased, showing that 55% of the total assets are financed through debt, which was 48% last
year. The profitability position of Microsoft has declined from last year the Net profit margin has
significantly decreased from 25% to 13%. Market ratios are useful for investors to determine the

RATIO ANALYSIS

return on their investments. Particularly, EPS is useful for investors; however, Microsofts EPS
has declined. It is important to compare the companys ratios with its competitors to get a better
picture. The liquidity position of Microsoft measured through current ratio is less than industry
average. The company is also less efficient than other players in the industry in its ability to
manage assets (Asset Turnover). Furthermore, the leverage position of the company is better than
industry average. In comparison to its competitors the company is less leveraged. The company
is also relatively less profitable than its competitors, as the EBITDA margin is less than industry
average.

RATIO ANALYSIS

6
References

Microsoft Corp. (2015), Financials, Data Retrieved from: http://finance.yahoo.com/q?s=MSFT,

Microsoft Corp. (2015), Financials, Data Retrieved from:
http://www.bloomberg.com/research/stocks/financials/ratios.asp?ticker=MSFT,

RATIO ANALYSIS

7
Appendices
Appendix A: Microsoft Income Statement
30-Jun-2014
30-Jun-2015 ($) ($)
93,580,000
86,833,000
33,038,000
27,078,000

Period Ending
Total Revenue
Cost of Revenue
Gross Profit

60,542,000

59,755,000

12,046,000

11,381,000

20,324,000
10,011,000

20,488,000
127,000

Operating Expenses
Research Development
Selling General and
Administrative
Non Recurring
Others

Total Operating Expenses

Operating Income or
Loss
Income from Continuing
Operations
Total Other Income/Expenses Net
Earnings Before Interest And
Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Minority Interest

27,759,000

346,000

61,000

18,507,000

27,820,000

18,507,000
6,314,000

Net Income From Continuing Ops

Non-recurring Events
Discontinued Operations
Extraordinary Items
Effect Of Accounting Changes
Other Items

18,161,000

27,820,000
5,746,000
-

12,193,000

22,074,000

RATIO ANALYSIS

Net Income
Preferred Stock And
Other Adjustments
Net Income
Applicable To
Common Shares
Average Shares
Outstanding
Market Value per
Share

12,193,000
-

22,074,000
-

12,193,000

22,074,000

8,177,000

8,299,000

42.29

35.78

RATIO ANALYSIS

9
Appendix B: Balance Sheet
30-Jun-2015
($)

Period Ending

30-Jun-2014
($)

Assets
Current Assets
Cash And Cash Equivalents
Short Term Investments
Net Receivables
Inventory
Other Current Assets
Total Current Assets
Long Term Investments
Property Plant and Equipment
Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges

5,595,000
90,931,000
19,823,000
2,902,000
5,461,000

8,669,000
77,040,000
21,485,000
2,660,000
4,392,000

124,712,000
12,053,000
14,731,000
16,939,000
4,835,000

114,246,000
14,597,000
13,011,000
20,127,000
6,981,000

2,953,000

Total Assets

3,422,000
-

176,223,000

172,384,000

12,385,000

13,569,000

7,484,000
29,989,000

2,000,000
30,056,000

49,858,000
27,808,000
13,544,000

45,625,000
20,645,000
11,594,000

4,930,000

4,736,000

Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term
Debt
Other Current Liabilities
Total Current Liabilities
Long Term Debt
Other Liabilities
Deferred Long Term Liability
Charges
Minority Interest
Negative Goodwill
Total Liabilities

96,140,000

82,600,000

RATIO ANALYSIS
Stockholders' Equity
Misc Stocks Options Warrants
Redeemable Preferred Stock
Preferred Stock
Common Stock
Retained Earnings
Treasury Stock
Capital Surplus
Other Stockholder Equity

10

68,465,000
9,096,000

68,366,000
17,710,000
-

2,522,000

3,708,000

Total Stockholder Equity

80,083,000

89,784,000

Net Tangible Assets

58,309,000

62,676,000

RATIO ANALYSIS

11
Appendix C: Cashflow Statement

Period Ending
Net Income
Operating Activities, Cash Flows Provided By or Used
In
Depreciation
Adjustments To Net Income
Changes In Accounts Receivables
Changes In Liabilities
Changes In Inventories
Changes In Other Operating Activities

30-Jun-2015 ($) 30-Jun-2014 ($)

12,193,000
22,074,000

5,957,000
9,417,000
1,456,000
-79,000
-272,000
408,000

5,212,000
4,321,000
-1,120,000
2,562,000
-161,000
-657,000

29,080,000

32,231,000

Investing Activities, Cash Flows Provided By or Used

In
Capital Expenditures
Investments
Other Cash flows from Investing Activities

-5,944,000
-12,868,000
-4,189,000

-5,485,000
-7,324,000
-6,024,000

Total Cash Flows From Investing Activities

-23,001,000

-18,833,000

Financing Activities, Cash Flows Provided By or Used

In
Dividends Paid
Sale Purchase of Stock
Net Borrowings
Other Cash Flows from Financing Activities

-9,882,000
-13,809,000
13,661,000
362,000

-8,879,000
-6,709,000
6,962,000
-39,000

Total Cash Flows From Financing Activities

Effect Of Exchange Rate Changes

-9,080,000
-73,000

-8,394,000
-139,000

Change In Cash and Cash Equivalents

-3,074,000

4,865,000

Total Cash Flow From Operating Activities

RATIO ANALYSIS

12
Appendix D: Industry Average