Financial Analysis of Microsoft Corporation
Overview Microsoft Corporation (Microsoft) is one of the leading providers of software and storage products and services. The company is engaged in developing, manufacturing, licensing, and supporting software products worldwide. Coupled with these activities Microsoft also offers Project Management consultancy services. As one of the largest technology firms in the world Microsoft is at the cutting edge of new technology development and innovation, and as such both existing and potential shareholders expect a return on their investment. It is therefore important for the firm to make efficient use of the resources at their disposal. The following financial analysis of the Fiscal Years 2008 and 2009 will show that over the period Microsoft worked hard for its shareholders but that it was not immune to the global economic downturn and felt this most during the 2009 fiscal period.
Ratio Analysis Overview i Gross Profit Margin Operating Profit Margin Return on Assets Return on Equity Current Ratio Quick Ratio Debit/Equity Ratio Total Debt Ratio Time Interest Earned Asset Turnover Ratio Average Collection Period Inventory Turnover Ratio Change 08-09 -1.99% -5.46% -17.60% -17.60% 25.99% 26.54% 4.99% 3.28% -3.39 4.8% 2009 79.20% 34.85% 19.34% 38.42% 1.82 1.58 9.9% 50.9% 22.65 0.78 77 14.28 2008 80.80% 36.86% 23.47% 46.62% 1.45 1.25 0.0% 48.5% 0.00 0.80 75 13.63 2007 79.08% 36.07%
The above financial analysis is explained in greater detail below with additional commentary. Those ratios which warrant deeper analysis are treated on pages 7-8 in the report. Assumptions are expected in any analysis and as such can be found with explanatory notes on pages 10 through 11 with industry reference statistics for comparison.
i
Please see assumptions on page 9. These are referenced in relation to calculations.
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QUESTION 1: (a) Calculate and interpret the following ratios from the 2009 annual report of Microsoft Corp: Profitability Ratios: Profitability Ratios
Ratio Analysis Overview i Gross Profit Margin Operating Profit Margin Return on Assets Return on Equity Current Ratio Quick Ratio Debit/Equity Ratio Total Debt Ratio Time Interest Earned Asset Turnover Ratio Average Collection Period Inventory Turnover Ratio Change 08-09 -1.99% -5.46% -17.60% -17.60% 25.99% 26.54% 4.99% 3.28% -3.39 4.8% 2009 79.20% 34.85% 19.34% 38.42% 1.82 1.58 9.9% 50.9% 22.65 0.78 77 14.28 2008 80.80% 36.86% 23.47% 46.62% 1.45 1.25 0.0% 48.5% 0.00 0.80 75 13.63 2007 79.08% 36.07%
The above financial analysis is explained in greater detail below with additional commentary. Those ratios which warrant deeper analysis are treated on pages 7-8 in the report. Assumptions are expected in any analysis and as such can be found with explanatory notes on pages 10 through 11 with industry reference statistics for comparison.
i
Please see assumptions on page 9. These are referenced in relation to calculations.
2
QUESTION 1: (a) Calculate and interpret the following ratios from the 2009 annual report of Microsoft Corp: Profitability Ratios: Profitability Ratios