Financial Statement Analysis for Microsoft Corporation
Financial Statement Analysis
A financial statement analysis will be presented for Microsoft Corporation. “Microsoft Corporation is engaged in developing, manufacturing, licensing and supporting a range of software products and services for different types of computing devices†(MSN.com, 2010). This corporation trades publicly (NASDAQ: MSFT) and does business in Puerto Rico with offices in Guaynabo, PR (services) and Humacao, PR (manufacturing and services). To measure their progress, all kinds of companies, for profit or non-profit, rely on accounting. We will take a look at different ratios, margins and other indicators that can help assess a company in accounting terms.
Ratios, margins and financial leverage The following figures are taken from the latest 12 months of data available, in this case for the latest 12 months ending in September 2010. For Microsoft, the quick ratio is defined as “cash and equivalents plus receivables, divided by current liabilities†(Forbes, 2010) is 2.1. A company with a Quick Ratio of less than one is unable to pay back their current liabilities. The current ratio, total current assets divided by total current liabilities resulted in 2.3. The higher the current ratio, the more assertion the short term creditor is paid in full and on time.
With the DuPont ratio “assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). DuPont analysis tells us that ROE is affected by three things: Operating efficiency, Asset use efficiency, and, Financial leverage†(Investopedia, 2010).
“ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)â€Â
The profit margin is the net profit (after taxes), divided by revenue, expressed as a percentage. For Microsoft during this period the profit margin is 84.8%. A low profit margin indicates a low margin for safety, a risk
A financial statement analysis will be presented for Microsoft Corporation. “Microsoft Corporation is engaged in developing, manufacturing, licensing and supporting a range of software products and services for different types of computing devices†(MSN.com, 2010). This corporation trades publicly (NASDAQ: MSFT) and does business in Puerto Rico with offices in Guaynabo, PR (services) and Humacao, PR (manufacturing and services). To measure their progress, all kinds of companies, for profit or non-profit, rely on accounting. We will take a look at different ratios, margins and other indicators that can help assess a company in accounting terms.
Ratios, margins and financial leverage The following figures are taken from the latest 12 months of data available, in this case for the latest 12 months ending in September 2010. For Microsoft, the quick ratio is defined as “cash and equivalents plus receivables, divided by current liabilities†(Forbes, 2010) is 2.1. A company with a Quick Ratio of less than one is unable to pay back their current liabilities. The current ratio, total current assets divided by total current liabilities resulted in 2.3. The higher the current ratio, the more assertion the short term creditor is paid in full and on time.
With the DuPont ratio “assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). DuPont analysis tells us that ROE is affected by three things: Operating efficiency, Asset use efficiency, and, Financial leverage†(Investopedia, 2010).
“ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)â€Â
The profit margin is the net profit (after taxes), divided by revenue, expressed as a percentage. For Microsoft during this period the profit margin is 84.8%. A low profit margin indicates a low margin for safety, a risk
References: Forbes. (2010). Microsoft Corporation Financial Ratios. Retrieved from http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=msft Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2008). Introduction to management accounting (14th ed.). Upper Saddle River, NJ: Pearson- Prentice Hall. Investopedia. (2010). Dupont analysis definition. Retrieved from http://www.investopedia.com/terms/d/dupontanalysis.asp MSN.com (2010). Microsoft Corp: Company Report. Retrieved from http://moneycentral.msn.com/companyreport?Symbol=MSFT YCharts. (2010). Microsoft Asset Utilization. Retrieved from http://ycharts.com/companies/MSFT/asset_utilization