Financial Analysis of Microsoft Corp. Essay

This report is issued in order to inform the public about Microsoft Corpo dimensionn. We analyzed the profitability and liquidity of this fraternity. In addition, we were able to generate recommendations for investments or credits in Microsoft for the best interest of the public. Profitability ratios refer to the relative rate to what an actual created profit. Through these ratios the phoner is allowed to see how profitable the social club. In addition it can serve as an examination of the overall performance of the companys operations and how do these compare to past performances or different companies. The ratios in which accounting system measures the profitability of a company are Profit Margin, equipment casualty over Earnings, feign over on Equity and Return on Assets.In terms of Profit Margin it has a high ratio, which means that our company is turning 76.3% more of to each one dollar that we cover. The results of this could be the increase in the bill sold, incre ase in the value, and decrease in costs. Compared to apple, whose profit margin ratio is 46.2%, Microsoft is able to be more profitable in terms of profit margin. The Price over Earnings ratio encourages to determine how much does a share cost is compare to how much the company is earning and it is interpreted as how dogged it go away take you to earn back what you invested in a company. In this case for someone who invests in Microsoft it will take them approximately 15.3 years, compare to Apples 13.5 years, to earn back the amount that they will invest.The Return on Equity ratio helps to measure the profitability of a company for the investor and how it manages its equity. In this case, Microsoft experiences a 10.3% of Return on Equity. Ideally, a company would like to perk up a higher Price over Earnings ratio compared to Apples 51.5% Return o n Equity, Microsoft stands at a lower percentage which cleverness not attract others to invest in the company. Return on Assets rat io evaluates how a company is able to produce a profit before being on debt it reflects on the efficiency of the management. In this case Microsofts 5.9% was again below Apples 33.4% in its ratio. coin Flows are the inflows and outflows of cash in a company, which are directly related to the revenues and expenses in Microsofts income statement. The Net Income that Microsoft recorded for 2012 was $16,978.00 and its Cash Flows from Operating Activities equaled to 31,626.00. In this case the company recorded higher cash flows from operating activities compared to its net income. This was a result of the companys management on its received liabilities and its current pluss. Also, the addition in depreciation and amortization, goodwill, and stock-based compensation these accounts are not part of the cash flows yet they still make an impact on the income of the company.Liquidity being, that which represents how fast the company is able to convert its assets into cash, is denoted with va rious ratios. The current ratio (D) takes the current assets of a unswerving and divides them by the firms current liabilities. Currently Microsofts current ratio is 2.9, showing that its current assets exceeds its current liabilities. Apple Inc., which is Microsofts contender, has 1.6 for its current ratio indicating that its not as riotous in converting its assets into cash.Another liquidity ratio is the nimble ratio (E) this ratio is calculated by subtracting inventory from current assets and dividing that difference by the firms current liabilities. Microsofts quick ratio is 2.6, showing that the company is still doing well in converting its assets into cash even after removing its most liquid asset inventory. Apples quick ratio is 1.1, which shows how much inventory constructs the companys current assets. Microsoft has been doing actually well indoors its liquidity measures and meets its obligations as they suit due.When discussing solvency, we analyze ratios that measure the long-term liability of a dividing line to pay off its debts. The times interest earned ratio (H) is a solvency ratio fetching earnings before interest and tax, and dividing that hail by the interest expense. Microsofts times interest earned ratio is 87.7, showing that this firm is very no-hit especially before any interest or tax is deducted from its overall earnings. Apples times interest earned ratio could not be calculated due to the fact that their data didnt indicate a specific interest expense to complete the equation. Another solvency ratio is the debt to equity ratio (I) taking the firms fall liabilities and dividing that total by owners equity.Currently Microsofts debt to equity ratio is 0.8, showing that there is less risk among the firms financials. This as well means that the company doesnt curse too much on external lenders. Apples debt to equity ratio seems to also be within good standing because it is .5, so it doesnt rely too much on external lenders eith er. Overall, both liquidity and solvency ratios represent how financially stable this company is within converting its current debt into cash as well as its long-term debt. In most cases Apple Inc. falls behind Microsoft Corp. within its curt and long term debt solvency.When analyzing Microsofts capital structure the percentage of liabilities that construct the firms total assets is 42.87%. Showing that less than half of the firms total assets are represented by liabilities. Now the percentage of the total assets that are represented by stockholders equity is 57.12%. Showing that stockholders equity represents jolly more than half of Microsofts total assets.When analyzing the capital structure of Microsofts competitor Apple, there are distinct differences. The percentage of liabilities that construct the firms total assets is 36.06%. Showing that unlike Microsofts percentage of liabilities to assets, there are a lot fewer liabilities representing the total assets of the firm. Now the percentage of stockholders equity that constructs the total assets of the firm is 64.93%. Showing that more than half of the firms total assets are constructed out of its stockholders equity. Apple seems to have fewer liabilities supporting its total assets and a higher percentage of stockholders equity. Overall, it seems that Microsoft Corp. has a significantly different capital structure than that of its competitor Apple Inc..IFRS refers to the International Financial Reporting Standards it is a set of accounting standards constructed by an independent, not-for-profit organization called the International Accounting Standards identity card (IASB). IFRS provides regulation for the company to prepare its financial statements off of, rather than setting rules for industry-specific reportage. The International Accounting Standards Board (IASB) is an independent, private-sector body based in London that currently develops and approves International Financial Reporting Standards. T he IASB is thoroughly responsible for all technical matters of the IFRS Foundation including, the full finesse in developing and pursuing its agenda, subject to certain consultation requirements with the Trustees and the public, and exposure drafts, following the approval and issuing of Interpretations developed by the IFRS Interpretations Committee.Some of the differences between IFRS and generally accepted accounting principles is that IFRS is considered to be more of a principles based accounting standard whereas in contrast the U.S. GAAP is considered more of a rule based accounting standard. chthonian IFRS, the LIFO method for accounting for inventory costs is not allowed. Under U.S. GAAP, either LIFO or FIFO inventory can be used. The move to a single method of inventory costing could potentially enhanced similarities between countries, and removes the conduct for analysts to adjust LIFO inventories in their comparison analysis.The reporting for each would differ. For insta nce the treatment of intangible under U.S. GAAP is recognized at fair value, while under IFRS, it is only recognized if the asset will have a future(a) economic benefit and has measured reliability. Under IFRS, if inventory is written down, the write down can be reversed in future periods if specific criteria are met. Under U.S. GAAP, once inventory has been written down, any reversal is prohibited. The potential adoption of IFRS is likely to impact not only reporting structures but also how individual transactions are captured and processed. In many cases, operating leases under GAAP could become finance leases under IFRS. Impacts could be largely identified on taxes and balance sheet ratios. IFRS may generate running obligations sooner than under GAAP due to the more likely than not principle. Contracts would need to be evaluated carefully under GAAP.Based on the previous analyses of the companys data I can say I would definitely loan money to Microsoft Corp. short-term and lon g-term. The liquidity of the company calculated using current ratio and quick ratio represents how fast the company is able to convert its assets into cash. eyesight that the firm showed signs of quick asset to cash turnover within both current and quick ratio, shows that they are able to pay off any loans they might incur. In contrast to Apple its contender, which had low ratios depicting negative signs of asset to cash turnover.When looking at the solvency measures, we can see the long-term viability of a business to pay off its debts. We used the times interest earned ratio and the debt to equity ratio to depict what trend this firm had with balancing debt. Microsoft seemed to show very high earnings before interest and taxes, which resulted in a high times interest earned ratio overall. This high ratio means that this firm has great ability in paying off its interest and debt this serves to be another viable reason for Microsoft to be approved for a loan. Another solvency measu re that was taken was through the debt to equity ratio, which represents the degree to which the assets of the business are financed by the debts and the shareholders equity of a business. This ratio showed that Microsofts overall business doesnt rely too much on the external lenders of the company.It shows it can attain profit through its own activities, and therefore has overall less risk. Overall, due to the fact that Microsoft has quick asset to cash turnover, increasingly high earnings before interest and tax, and a low debt to equity ratio Microsoft would be an ideal candidate for short and long term loans. When discussing whether an individual should buy, sell, or hold on the stock of this company, I would recommend the hold on stocks. Based on the profitability ratios, which help us calculate how a firm is performing, Microsoft, compared to its competition Apple, is behind in terms of profitability.Microsoft has a higher profit margin then Apple does however, its price over earnings, returns on equity and returns on assets fall below its competition. This can be a discouragement for anyone who is interested in the company. Yet, even though Microsofts overall profitability is not as good as Apples profitability, there could be still a chance in which the company can provide investors with more profitable income since the company is not at risk. Thus, this could take longer then expected, that is why it is better to hold on the stocks of this company. So, I recommend this individual hold on their stocks and see how the turnout ends for the most recent advancements Microsoft has made as a company, and from those figures on either decide to sell or buy more stocks.