Assignment Content Part I This assignment requires the calculation of four years of ratios for Microsoft. An Excel worksheet with Microsoft financial information is attached. A trend analysis of the Microsoft ratios is required. A second Excel worksheet containing ratios Cicso is attached. A comparison of the Microsoft current year ratios to these three companies is required to provide answers for the three questions below. Complete the following: Using the Microsoft financial statement information provided with the student materials, for the four years in the spreadsheet calculate the following ratios: 1. Current ratio 2. Current cash debt coverage ratio 3. Receivables Turnover ratio (assume all sales are credit sales) 4. Inventory Turnover ratio 5. Debt to Total Assets ratio 6. Times Interest Earned ratio 7. Return on common stockholders’ equity ratio 8. Return on assets ratio 9. Profit margin ratio 10. Price-Earnings ratio A good approach to this section is to have each team member calculate one of the years so teams can compared calculations for accuracy. Appendix Chapter 13A starting on page 665 shows how to calculate all the ratios for the Chicago Cereal Company. For the first section of the team paper, discuss the trends of the Microsoft ratios: Is liquidity stronger or weaker over the four year period? Is the company more or less solvent over the four year period? Is the company more or less efficient in managing inventory and accountsreceivable? Does profitability improve or decline over the four year period? Part II A “ratio summary sheet” is included with the student materials where the ratios for Cisco are entered. Enter the most current year Microsoft ratios into the column provided. Copy the summary of all the companies’ ratios into a table of ratios into a Word document as the beginning of the second section of the team paper. The table is required in the paper so the reader can see all the ratios with the analysis. Develop a 700-1000 word evaluation of the four companies in which the team does the following: Evaluate the financial opportunity presented by the companies. If the team was going to lend money to one of the companies reviewed, which one would it be? Defend the team’s decision by identifying and discussing specific ratios that would be important to a creditor. Evaluate the investment opportunity presented by the companies. If the team could invest $100,000 in one of the companies, which would the team select? Provide the rationale by identifying and discussing specific ratios that would be important for an investor. Evaluate the employment opportunity presented by the companies. If the team members could work for any of the companies, which company would the team select based on the company’s financial position? Defend the team’s decision by discussing the ratios as it relates to the overall financial position of the companies. Overall, which if the companies has the strongest financial position? Which of the companies has the weakest financial position? Refer to the ratios to support the team’s conclusions. Format the assignment consistent with APA guidelines.

 

Trends of Microsoft ratios

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Part 1

Trends of Microsoft Ratios

The current ratio for 2015 is 2.47 while that of 2016 is 2.35. This shows a slight weakness in liquidity between the year 2015 and 2016. The current ratio for 2017 is 2.92, which is a tremendous shift from the previous year, which had recorded a current ratio of 2.35. This increase shows there is an increase in the strength of the company’s liquidity. For the year 2018, the current ratio is 2.90, which represents a slight decrease from the previous year. This shows a decrease in the strength of liquidity in the company. Therefore, the company is seeming to be unstable in liquidity with fluctuations from one year to another.

The current cash debt coverage ratio for the year 2015 is 0.60, which increases progressively through year 2018. The ratio for 2018 is 0.75, which shows a good cash debt coverage. This shows that the company is solvent over the years, with solvency increasing with increase in years.

The inventory turnover ratio for the company is 11.38 for 2015 and increases to 14.56 in 2016. This shows a more efficiency in managing inventory between 2015 and 2016. This trend increases abruptly and shoots to 15.71 in 2017 showing an improved and more efficient way of managing inventory. However, this trend does not continue for long as 2018 records a low inventory turnover ratio of 14.41, which shows a drastic drop in the efficiency of managing inventory.  The trend across the years for inventory management is therefore not increasing nor decreasing but unpredictable. The receivables turnover across the four years is decreasing from 5.23 in 2015 to 4.17 in 2018. This trend shows that the efficiency in receivables management has a downward movement.

 

Part 2

Oracle has the highest current ratio of 3.96 followed by Microsoft which has a current ratio of 2.90. Cisco follows with a ratio of 2.29 and has a meagre current ratio od 1.12. For a short-term render, Oracle will be more preferred for a loan by a creditor than Apple. This is because it has the highest current ratio, which shows that it has higher ability to settle its short-term obligations using its current assets. A creditor comparing these four companies will be more reluctant to offer short-term credit to Apple because its ability to settle its short-term obligations using its current assets is low. A creditor will also consider the current cash debt coverage ratio. This is a ratio which shows the ability of the company to pay its current liabilities from its operations. The higher the ratio the higher the ability. Using this ratio, Microsoft will be more preferred than the other companies since it has the highest ratio. A creditor may have a comparative doubt to lend to Cisco since it has the least current cash debt coverage ratio. The other two companies, Apple and Oracle, have an equal ratio, and a relatively higher ratio compared to Cisco. Therefore, Microsoft would attract a creditor more readily than these other three companies.  Debt to Total assets ratio is also another ratio which is attractive to creditors in determining the credit worthiness of a company. It shows the proportion of the company’s assets which have been financed by other creditors. This ratio is used to determine long term credit worthiness of a company. From our analysis above, the debt to assets ratio is highest for Apple and least for Cisco. Though Cisco has the least debt to total assets ratio compared to the other companies, it is still not very attractive to creditors as this represents a large proportion of credit financed assets.

Apple seems to be so attractive to investors. First, its return on assets is 16.07%, followed from a far by Microsoft with 6.40%. Every investor would wish to see an attractive return on their assets and therefore Apple would present the best opportunity to investors. In addition, its profit margin is the highest at 22.41%, followed by Microsoft with a profit margin of 15%. This is also attractive to investors as investors would wish to invest in a company which gives maximum profit. The times interest earned ratio is also highest for Apple, standing at 23.5, which is a very attractive ratio. Therefore, I would advise the team to invest in Apple for maximum returns.

The financial position of these companies, as measured by the equity ratio, shows that the Apple company is standing out for employees as the stock price is highest standing at 49.36%. This presents a good employment opportunity because the company seems to be stable. The current stock price is also highest for Apple and therefore I would advise a person to seek employment in this company.

Overall, the financial position of companies is generally competitive, with Microsoft and Apple following each other closely. The financial position of Apple seems to be so attractive, with a very good equity ratio and a high current stock price. Generally, Cisco seems to be in the worst financial position, with equity ratio of only 0.2% and current stock price of 45.46.