Financial Analysis of Microsoft Corporation Essay

3837 Words Mar 11th, 2012 16 Pages
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 …show more content…
Again as with the Current Ratio the figure should always be greater than 1, meaning that there are sufficient assets to repay liabilities: the higher the ratio the greater the liquidity of the firm. Table 2
Change ‘08-‘09 Current Ratio Quick Ratio 25.99% 26.54% 2009 1.82 1.58 2008 1.45 1.25

For Microsoft both their Current and Quick Ratios are higher than 1 for both years and significantly both are increasing from 2008 to 2009. This appears to be due to the raising of long-term debt in 2009 and the fact that the company utilised some of its vast cash reserves. The financial strength of the company remains however and the firm is more than capable of meeting its obligations. Microsoft efficiently utilised its revenues over the years analysed to preserve shareholder value during difficult economic times. Leverage Ratios: Leverage Ratios measure how much debt a firm has taken on it order to generate a return for shareholders. Debt/Equity Ratio = Long-Term Debt/Average Total Equity: This ratio measures how much long-term debt in relation to long-term equity is used to finance the firm’s assets. In other words does the firm use its own cash to finance assets or does it use debt to finance them. The lower the ratio the less leverage the firm is using and therefore has a strong equity position from which to grow the company for its shareholders. Total Debt

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