Introduction of Microsoft company

In the year 1975, Microsoft is established as a multinational technological company in Washington. The mission of the Microsoft company is to allow people and organizations worldwide to comprehend their potential by generating technology that transforms and enables people to communicate, work, and play. Microsoft created advanced tools and platforms to deliver quick and efficient solutions for large and small-scale business to enhance their outcomes. Microsoft is a worldwide company with various offices in more than 100 countries in the world and its main branch in Washington.  (Zachary, Hall, & Montevirgen, 2024). In addition, the Microsoft is generating revenue by designing developing and supporting several software products and services and by providing relevant advertising to global customers. Furthermore, (Microsoft Corporation Inc, 2023).Microsoft provides operating systems, business applications and productivity applications, software development, and video games. Finally, Microsoft provides technology and resources to create a secure work atmosphere for the people.

Financial ratios

            Financial ratios represent numerical values to create insights about the specific company. In addition, the firm uses the balance sheet, currency flow, and revenue statement, along with other economic statements, to extract financial percentages. Additionally, the financial fractions will help understand the firm profitability operational efficiency and liquidity through the business assets and expenditures of the particular period. Furthermore, stakeholders and business analysts calculate the financial ratios to understand the business performance and market value, benchmarking, and competitor analysis (Suthar, 2018). So, estimating financial ratios of a particular period will be helpful in business development.

We will use the final ratios for comparison with other companies in the same industries to determine if our business performance is good or worse and make informed decisions for the future development of the company. The organization uses these ratios to gain insights and obtain an overall view of its monetary health through the system of measurement. So, several parts of financial ratios are broken down into efficiency ratios, market value ratios, leverage ratios, profitability ratios, and liquidity ratios.

Liquidity ratios

Organizations use liquidity ratios to determine the performance of working capital such as revenue availability to reach present obligations. (Lalithchandra & Rajendhran, 2021). This analysis is significant for stakeholders and creditors to compare the current operations of past periods. We segregate the liquidity ratios into several parts, including current and quick ratios.

• Current Ratio: Organizations use their present assets, such as money, cash equivalents, and inventories, to pay off their accounts payable, rather than the current ratio determining this. Users of the balance sheet calculate the current ratio for investors. This ratio shows that the current assets outnumber the current liabilities.

In Microsoft company, the current assets are $184,257. It is the sum of accounts, inventories, and other current assets. The current liabilities are $104,149, by adding other liabilities, short-term revenue, and accounts payable. The current ratio of Microsoft company was1.8 or 2 in the year 2023. This is current fraction is more than it indicates the particular business is efficient. In Microsoft, it shows that each dollar on the account is payable a near to twice.

• Acid test ratio: The organization calculates its quick ratio using this method. It includes the assessment of liquid assets such as currency, current liabilities, currency equivalents, and wanted securities. These expenses have less liquidity and are not considered in the inventory and prepaid expenses.

For Microsoft company, the total cash is $111,262 and accounts receivable are $48,688, marketable securities are $76,558. The current liabilities are $104,149. The total quick ratio of Microsoft was 1.8 in the year 2023. The acid test ratio is the overall picture of business financial terms. This ratio must be more than 1 is good for the business and it is an easy method to calculate short-term liquidity.

Leverage ratios

The leverage ratio calculates the finance business operations for the long and short-term debts of the organization. The organization finances its operations and assets with a leverage ratio of obligation to equity. (Hayes, 2023). Various types of leverage ratios are used by stockholders and lenders, forecasters (DiLallo, 2023). Several ratios are used to calculate the leverage ratio, including the debt-to-asset ratio and debt-to-equity ratio. These ratios help calculate the business operations costs to gain a consideration of in what way the variations will impact operational revenue.

• Debt to asset ratio: The debt and asset ratio helps analyze the organization’s debts. The organization’s leverage ratios are very important for understanding its capital structure. Organizations or investment entities measure their debt-to-assets ratio using interest liabilities or organizational debt.

The debt-to-asset fraction is above 1. 0 means that organizations have higher debts than then assets and if the final ratio is lower than 1.0, it indicates that specific organizations have higher assets than debts. From the given Microsoft company, the total liabilities are $ 205,753 and total assets are $411,976 in the year 2023. The debt-to-asset fraction is 0.5. The debt-to-asset ratio is less than 1. So, Microsoft company has more assets than debts. The representation of debt to asset ratio between 3 to 6.0 is beneficial for the organization.

Equity Ratio

• Debt-to-equity ratio: The organization’s debt liabilities are used to calculate the shareholder’s equity ratio. It is essential for investors that debt obligation has higher importance in business.

The high debt ratio shows that the organization is browsing capital from the market to invest for the organization’s operations and the low debt ratio is an organization using its assets and borrowing less funding from the market. Coming to Microsoft company, total liabilities are $205,753 and the shareholder’s equity is $206,223. The debt-to-equity ratio is 1.0 in the year 2023. The debt-to-equity ratio must be 1.0 to 1.5. so, Microsoft company wants to take more actions to increase the debt-to-equity ratio.

Efficiency ratio

            The efficiency fraction shows how the organization utilizes the capital to generate sales. The organization effectively implements its assets, capital, and resources to generate income. (Kenton, 2024). The financial analysis uses several efficiency ratios to understand the organization’s efficiency and aims at various types of operations like how the organization uses assets and cash flow, inventory.  Various ratios, including inventory turnover ratio and asset turnover ratio, are used to calculate the efficiency ratio.

• Asset turnover ratio: The organization uses this fraction to calculate how the company assets are used to generate sales for profitability (Karan). Share is measured as net sales per unit of regular assets for total asset turnover.

The higher ratio of asset turnover ratio specifies the efficient use of assets and the low ratio means the organization not utilizing the assets efficiently. The good asset ratio is 2.0 and more. From the Microsoft report, the net sales are $72,361 and the average total assets are the average of starting assets and ending assets divided by 2. The average total assets are$411,970.00. The asset turnover ratio is 0.2 in 2023. So, Microsoft asset is not efficiently using its company assets to generate sales. Compared to the previous year Microsoft has increased their asset to turnover ratio. Microsoft needs more informed decisions and actions to generate sales by using organization assets.

Inventory Ratio

• Inventory turnover ratio: The establishment uses this fraction to calculate the efficiency of managing its inventory. The average inventory is used to calculate the inventory turnover ratio, determining the cost of goods sold.

Reaching high inventory turnover is very important because the high turnover action leads to a decrease the storage and other expenses. Additionally, the low turnover ratio indicates that sales are very poor. Furthermore, from the statistical report of Microsoft, the cost of goods sales is $65,863 and the average inventory is $2,500. So, the inventory turnover ratio is 26.3. Finally, the Microsoft company indicates a high inventory turnover relation.

Profitability ratio

The profitability ratios calculate the capability of the organization to produce revenue relative to revenue, operating expenses, and properties of the balance sheet during a precise time. So, it indicates that how an organization uses its assets to generate profit and stockholders value (Sari & Daryanto, 2021). Gross profit margin and operating margins are separated as different types of profitability.

• Gross profit margin: This fraction is a profitability fraction and it compares the profits to the organization’s gross margin. It indicates the profit of the organization afterward paid for the cost of goods sold.

The ratio shows the fraction of the profit of each dollar that the organization holds as a gross profit. Microsoft company operating gross profits are $146,056 and net sales are $212,000 (Microsoft Corporation Inc, 2023). Then the gross margin ratio is 0.69 means 69%. At Microsoft Company, we engage $0.69 and sell properties for $0.34. The gross margin ratio is important to compare the organization’s gross margin to another gross margin in the same industry. Furthermore, by using comparisons people will gain insights about the cost-efficient production in an organization. By comparing Microsoft’s gross profit to Google’s margin ratio, Microsoft’s ratio is higher than Google’s.

Operating Costs

• Operating margin ratio:  This ratio is also known as return of sales. Operating costs are deducted to calculate this fraction’s revenue. More then, operating income is calculated by dividing the revenue by it. Lastly, the sales produce this margin, leaving the amount after paying the operating costs.

The final ratio of operating margin shows how efficiently an organization is managing there is reducing the costs to generate profits. In addition, the microsoft company, the operating income is $26,895 and net sales are $212,000(Microsoft Corporation Inc, 2023). Additionally, by dividing the operating income by the net sales, the operating margin ratio is 0.13 means 13%. Furthermore, a lower number of operating margin ratios is a positive sign and it shows that operating expenses are becoming a gradually lower fraction of net sales. 2023 and 212,000 represent the annual income of Microsoft company. So, the operating income is $26,895 and net sales are $212,000. Finally, ratio of the operating margin is 0.13 means 13%. In every dollar, the business retains 13 cents as operating profit.

Market value ratios

Market value ratios are used to determine the value of organization’s stocks. The organization of market sales is entire sales with all business sales of the trade where it operates. Various ratios, such as the dividend yield ratio and book value per share fraction, are used to divide market value ratios.

• Book value per share ratio: Firstly, the company calculates its book value per share using this ratio. Secondly, in Kenton’s book, we obtain the final ratio (the Book-to-Market Ratio) by dividing the outstanding shares’ total value (represented by shareholder’s equity) into it. More then, the book value is an indicator of the business stocks. Lastly, it helps to use the forecast of the market price of shares within a period.

The shareholders at Microsoft own $7,432 in preferred equities and $206,223 in outstanding shares. The book value ratio is $27.75. the book value ratio may not be accurate. So, it will understand the economic or market value of the share. Sometimes, these ratios overestimated the market values due to the asset being obsolete.

• Earnings per share ratio: Firstly, this ratio indicates the organization’s stability to generate income for the shareholders (Islam, Khan, Choudhury, & Adnan). More then, they are various formulas are available to measure the earning per share ratio. Lastly, the business earnings ratio will compare the earnings of shares in the same business.

In Microsoft company, the net earnings gained by subtracting the net income with preferred dividends is $72,361 and outstanding shares are $7,472. So, the final ratio of earnings per share is 9.68. Finally, the businesses primarily use this ratio to estimate the value of each share in the business, demonstrating the value of the individual share ownership.

Conclusion

The present report describes about financial ratios of Microsoft company. Financial ratios are used to express the company’s performance in numerical values. Additionally, in this paper, we discuss five types of financial ratios. In addition, financial ratios and Microsoft company are involve in the calculations of this. The Microsoft company has maintained good financial ratios but asset to turnover ratio and debt-to-equity ratios need more strategic actions to increase the ratios. Furthermore, the accuracy of all financial ratios relies on the formulas used and the data inputted.) So, more dependency on these values leads to some potential risks. However financial ratios are important to evaluate the corporation’s performance.

References

DiLallo, M. (2023, November). What Is a Leverage Ratio? Retrieved from The Motley Fool: https://fool.com/terms/l/leverage-ratio/

Hayes, A. (2023, November). Leverage Ratio: What It Is, What It Tells You, How to Calculate. Retrieved from Investopedia: https://www.investopedia.com/terms/l/leverageratio.asp

Islam, R., Khan, *. T., Choudhury, T. T., & Adnan, A. M. (n.d.). How Earning Per Share (EPS) Affects Share Price and Firm Value. European Journal of Business and Management.

Karan, R. (2023, November). Efficiency Ratio Explained: Calculation, Types, Examples, How to Improve? Retrieved from Shiksha: https://www.shiksha.com/online-courses/articles/efficiency-ratio-blogId-144397

Kenton, W. (2022). Book-to-Market Ratio: Definition, Formula, and Uses. Retrieved from Investopedia: https://www.investopedia.com/terms/b/booktomarketratio.asp

Kenton, W. (2024, June). Efficiency Ratio: Definition, Formula, and Example. Retrieved from Investopedia: https://www.investopedia.com/terms/e/efficiencyratio.asp

Lalithchandra, & Rajendran, B. N. (2021). Liquidity Ratio: An Important Financial Metrics. Turkish Journal of Computer and Mathematics Education, 12(2), 1113-1114.

Microsoft Corporation Inc. (2023). Microsoft Corporation. Washington: Microsoft Corporation Inc.

Sari, B. P., & Daryanto, W. M. (2021). Profitability Ratio Analysis As Measurement Tool Of Financial Performance. International Journal of Business, Economics and Law, 24(3), 82-87.

Suthar, K. U. (2018). Financial Ratio Analysis: A Theoretical Study. International Journal of Research in all Subjects in Multi Languages, 6(3), 61-64.

Zachary, G. P., Hall, M., & Montevirgen, K. (2024, July). Microsoft Corporation. Retrieved from Britannica Money: https://www.britannica.com/money/Microsoft-Corporation

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