The information about Microsoft, given earlier in this chapter, is quite old. Yo
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Question
The information about Microsoft, given earlier in this chapter, is quite old. You have just found a good position in the finance department at Microsoft, at their headquarters office in Redmond, WA. Your first assignment is to find the current values of the financial ratios. You should focus on the ratios related to the short-term financial management of the company. Do you find any significant changes in these values, compared to the numbers for 2001? Comment on the significance of these changes. Please show your source as you will have to find present values
Microsoft Profile, January 1, 2001 Ratios & Statistics Ratios PE Ratio (TTM P/E High -Last 5 Yrs. P/E Low - Last 5 Yrs. 2 Company Industry S&P 500 27.81 86.12 28.93 85.56 32.43 27.351713 32.46 48.25 1.80 Price to Sales (TTM) Price to Book MRQ Price to Tangible Book MRQ) 5.77 Price to Cash Flow (TTM 26.07 28.65 25.43 Price to Free Cash Flow (TTM 20.86 45.99 45.81 % Owned Institutions 1.6717.045418 5.77 13.25 784 16.20 11.63 38.20 57.72 Dividends Dividend Yield Company Industry S&P 500 0.00 0.27 Dividend Yield-5 Year Avg 0.00 Dividend 5 Year Growth Rate . Payout Ratio (10.39 8.87 0.21 0.00 24.73 Growth Rates (%) Revenue (MRQ vs Qur1 Yr. Ago 7.73 Revenue (TTM) vs TTM1 Yr Ago 16.25 Revenue -5 Yr. Growth Rate 30.46 EPS MRQ vs Qt. 1 Yr. Ago 17.72 34.94 31.16 EPS (TTM vs TTM1Yr. Ago 17.7819.15 26.31 EPS -5Yr. Growth Rate Capital Spending-5 Yr. Growth Rate 12.17 Company Industry S&P 500 37.28 40.76 43.19 19.73 42.42 20.41 17.18 20.35 Financial Strength Quick Ratio MRO Current Ratio(MRQ) LT Debt to Equity MRQ) Total Debt to Equity Interest Coverage (TTM) Company Industry S&P 500 3.00 2.99 3.22 1.21 0.60 0.91 (12.55 10.65 0.00 0.00 Profitability Ratios (%) Gross Margin (TTM) Gross Margin 5 Yr. Avg. EBITD Margin (TTM) EBITD 5 Yr. Avg Operating Margin (TTM)46 Operating Margin 5 - Yr. Avg 42.91 Company Industry S&P 500 86.53 50.12 48.27 49.5425.17 23.77 7.92 23.78 21.69 18.53 16.07 17.64 77.35 74.98 46.74 19.38 5Explanation / Answer
Short-term financial management stands for management of current assets and current liabilities.
Management of both current assets and liabilities efficiently is very important for an organization for trade-off between risk and return
Ratios related to current assets and liabilities are:
1. Current Ratio: Also known as the Working Capital Ratio and measures the short-term financial health of a company.
Current Ratio= Current Assets/ Current Liabilities
The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. The higher the current ratio, the more capable the company is of paying its obligations.
Microsoft Corp has a current ratio of 2.90. It generally indicates good short-term financial strength.
2. Quick Ratio: Measures if an asset can be liquidated to cash in a short period of time without the loss of value. The quick ratio is more conservative than the Current Ratio because it excludes inventories from current assets. a high or increasing quick ratio generally indicates that a company is experiencing solid top-line growth, quickly converting receivables into cash, and easily able to cover its financial obligations. Such companies often have faster inventory turnover and cash conversion cycles.
Quick Ratio: Liquid Assets/Current Liabilities
Microsoft Corp's Quick Ratio for the fiscal year that ended in Jun. 2018 is calculated as:
2.86
3. Inventory Turnover Ratio: Measures how fast the company turns over its inventory within a year.
= Cost of Goods Sold/Average Inventory at Cost
OR
= Net Sales/Average Inventory at Cost
OR
= Cost of Goods Sold / Average Inventory at Selling Price
OR
Microsoft Corp's inventory turnover for the quarter that ended in Jun. 2018 was 4.11.
A higher inventory turnover means the company has light inventory. Therefore the company spends less money on storage, write downs, and obsolete inventory. If the inventory is too light, it may affect sales because the company may not have enough to meet demand.
Source: Microsoft official website.
Current Ratio (Q: Jun. 2018 ) = Total Current Assets (Q: Jun. 2018 ) / Total Current Liabilities (Q: Jun. 2018 ) = 169662 / 58488 = 2.90Related Questions
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