Financial analysis microsoft

1、4.0 Financial analysis 4.1 Liquidate abilityAnalysis of enterprise's liquidate ability is very important. As for the creditor: through the analysis of liquidate ability, especially for banks, liquidate ability analysis is the main aspects of the enterprise's evaluation. Through the analysis

2、of solvency, we can determine its funds for safety and profitability. If the enterprise debt paying ability is weak, businesses may not be able to complete. This will directly affect their economic interest. Through the analysis of debt paying we can optimize the capital structure of solvency and re

3、duce financial risk.4.1.1Ratio analysis Table 1 The ratio trend of Microsoft during 2009-2013Year20092010201120122013Current ratio1.8472.2382.7912.7562.92Quick ratio 0.9840.9850.9790.9830.979Cash ratio1.751.94In general, it is believed that the current ratio should reach 2 or more. The h

4、igher the current ratio is, the stronger the solvency is. When the liquidity ratio presents a downward tendency and the solvency will also decline. The table 1 shows that the current ratio of Microsoft is more than two. And the trend of current ratio is still in a growth. This indicates that the sol

5、vency and ability to maintain normal business activities have increased. The quick ratio is nearly 1 and comes to a steady state. This is mean that its solvency is normal and it can maintain certain profitability. Cash ratio is also an important index to evaluate the liquidity. Cash ratios reflect t

6、he liquidity of company immediately. The index is usually around 2.0. Table 1 shows the cash ratio is normal in 2009-2013. On the one hand it shows the ability to pay directly is well, on the other hand, it also show that Microsoft make good use of cash assets and put cash into operation.4.1.2. Comp

7、arison of three companies in liquidate ability Table 2 the liquidate comparison of three companies in 2013 CompaniesIndexMicrosoftAppleGoogleAverageWorking capital(Billion)65.8728.9953.1149.32Current ratio 2.921.694.603.07Quick ratio 0.9791.551.641.39Cash ratio 2.243.434.863.51Compared with the othe

8、r two companies, we can see that Microsoft working capital ratio is higher than the Apple and Google. The high working capital indicates the company's solvency is strong. Second Microsoft current ratios are higher than the Apple and lower than Google which indicates a strong short-term solvency.

9、 Third, Microsoft Quick Ratio lower than the average 1.39 which indicates that corporate solvency below the industry average. Fourth, Microsoft cash ratio is less than the other companies and lower than the industry average which indicates Microsofts cash to repay short-term ability of debt is weak

10、than other two companies. After a comprehensive analysis, we can see that liquidate ability has improved in the past five years. But the company's short-term solvency is lower than the industry average. 4.2 Operation ability4.2.1 Account receivable turnover ratioOperating ability refers to the a

11、bility to run enterprise business. It means that businesses can use the assets to earn profits. The business operations capabilities include: inventory turnover, accounts receivable turnover, business cycles such as mobile asset turnover and total asset turnover. These ratios reveal the situation of

12、 enterprises operating working capital and reflect the corporate management of economic resources. The faster turnover of corporate assets is, the higher the liquidity, solvency of the companies is.Table 3 Accounts receivable turnover ratio of Microsoft during 2011-2013 YearIndex201120122013Revenue7

13、0.4373.0179.42Account receivable12.212.7314.12Receivable turnover (times)5.775.745.62Receivable turnover (day)62.3662.7764.00The results above show that the company's accounts receivable turnover ratio had declined slightly in 2011-2013. The turnover rate is 5.77 times and decreases to 5.62 time

14、s in 2013. And turnover days increase from 62.36 days to 64 days. This not only shows the company's operating capacity has weakened, but it also will negatively affect the liquidity of current assets and asset turnover rate.4.2.2 Inventory turnover ratioIn general, the higher the inventory turno

15、ver rate indicates faster realization of inventory. Therefore, we cannot store inventories too much, because it may use up a lot of funds. But we also cannot store inventories too little, because it may cause the interruption of production or sales. Inventories must maintain in a reasonable structur

16、e and reliable quality. Secondly, the inventory is an important part of current assets, its quality and liquidity have a significant impact on corporate liquidity ratio, and it also affects the company's short-term solvency. Therefore, we must strengthen the management of inventories to improve

17、liquidity and profitability of inventories investments.Table 4 Inventory turnover ratio of Microsoft during 2011-2013 YearIndex201120122013Cost of service70.4373.0179.42Inventories1.5121.4592.07Inventory turnover (times) 18.1022.7115.72Inventory turnover (days)19.8915.8522.89The results show that th

18、e company's inventory turnover rate in 2011 has increased over 2011, but then it decreased in 2013. The number of inventory turnover rose by 22.71 times to 18.1 times and then went down to 15.72 times. Turnover days reduced from 19.89 days to 15.85 days and then increased to 22.89 days. This ref

19、lects the annual inventory management of company in 2012 was in a high efficiency and the efficiency in 2013 was in a relative low state. The reason may be related to the reduction of inventory in 2012 and there was a high rate of inventory in 2013. So Microsoft should strength the management of inv

20、entory in the following years.4.2.3 Turnover of current assets In the given period, the more turnover of current assets show the better use of current assets. The fewer number of days turnover time show current asset occupied shorter times during the period of production and marketing. Table 5 turno

21、ver of current assets of Microsoft during 2011-2013 YearIndex201120122013Revenue27.3733.1332.55Current asset72.2483.89100.3Turnover of currentassets (times)0.380.390.32Turnover of currentassets (days)950.18911.571109.31From the table 5, we can see that the companys turnover of current assets had inc

22、reased by 197.74 days than in 2012 which means that the occupancy of current assets had reduced.4.3 Debt paying abilityThe analysis of debt paying ability is very important for the company and shareholders.The debt paying ability means that whether company can pay the money to the debtor including t

23、he principle and interest. The ability is an important indicator to reflect the companys financial situation. Through the analyzing of debt paying ability, we can examine the capacity and business continuity risks and it also contributes to forecast future corporate earnings. The debt paying ability

24、 including two aspects that are short-term debt paying ability and long-term debt paying ability.4.3.1 The short-term debt paying abilityShort-term debt paying ability is the ability of companies to repay short-term debt. The lack of short-term debt paying will not only affect the company's cred

25、it and also increase future costs and the difficulty of raising funds. In general, companies should use current assets to pay back current liabilities rather than relying on the sale of long-term assets. So we use the relationship of current assets and current liabilities to measure short-term debt

26、paying ability.Table 6 The working capital of Microsoft during 2011-2013Year Index201120122013Current asset74.91885.084101.466Current liability28.77432.68837.417Working capital46.14452.39664.0494.3.2 Long-term debt paying abilityYear Index201120122013Total asset108.704121.271142.431Total liability51

27、.62154.90863.487Asset-liability ratio4Growth rate-2.34%4.88%1.58%4.4 Profit abilityWe can analysis the profit ability from three parts that are revenue, profit and gross profit. 4.4.1 Income quality analysis Do enterprises only rely on profits to survive? In 1990s, there is the most prosp

28、erous time in which western countries economic had developed in a high rate. But there are still many companies went bankrupt. Empirical data showed that during this period there were four out of ten companies went bankrupt, and there are three of them are profitable and only one is a loss. This sho

29、ws that the business does not depend on the profits to survive. So, what do companies rely on to survive in the end? The answer is that companies rely on cash flow to survive. As long as cash flow is failure, the capital chain will break and the business will die. Therefore, when we analysis the fin

30、ancial statement, we should take the quality of income into first consideration. Because the revenue from sale of goods or provision of services acquired is the most stable and most reliable source of cash flow. By analyzing the quality of income, statement users can evaluate the core competitivenes

31、s of enterprises which rely on the main business to create cash flow. The market share is one of the most important evaluation of whether an enterprise has core competitiveness. Quality analysis focuses on revenue growth and volatility. The higher of the growth is, the better the quality of income i

32、s. Because this indicates that the ability to generate cash flow through the enterprise's main business is stronger. The greater the volatility is, the worse the quality of income is. This indicates that corporate cash flow and the ability to create income is more unstable. The most effective wa

33、y to analysis revenue growth and volatility is to make a trend report. Table 1 shows the trend report with the three major companies during the year of 2009-2013. The sales revenue in 2009 is the base of other years.Tbale1 Revenue comparison of Microsoft, Apple and GoogleCompanies2009201020112012201

34、3MicrosoftBillion58.6563.6270.4373.0179.42Tendency100.00%108.47%120.09%124.48%135.41%AppleBillion43.6462.43106153.1170.9Tendency100.00%143.06%242.90%350.82%391.61%GoogleBillion22.682734.5344.8154.86Tendency100.00%119.05%152.25%197.57%241.89%The table above shows that in the past five years, Microsof

35、t's annual revenues are growing in a low rate. Apple annual revenue in 2013 is three time of revenue in 2009 which has grown that Apple Company has made great breakthrough. As we can see from the picture 1, in 2009 the revenue of Apple is lower than Microsoft, but in the following years, Apple h

36、as a high rate growth which is higher than other two companies. But we also see that the Apple Company growth slowed down after a big growth. This mean that core competitiveness of Apple Company has decreased and it is unstable. The big growth of Apple Company is benefited from the innovation of Ste

37、ve Jobs. And we can learn from the table 1 and picture 1 that even though the revenue of Microsoft and Google grow is a lower rate. But the rate of increase is stable. And we can see the revenue gap between two companies is reducing. From this point, we can say that the competitiveness of Microsoft

38、is decreasing.Picture 1 Trend of revenue Microsoft, Apple and Google4.4.2 Profits quality analysis.Profit is one of the most important indicator of business performance. And profit is the largest source of value for its shareholders. The analysis of income quality is same as the revenue. The analysi

39、s of income quality also focused on profit growth and volatility. The higher growth and smaller volatility is, the better the quality of profits is. Table 2 reveals the net profit growth and volatility of three companies during the period 2009 to 2013. Table 2 Profit comparison of Microsoft, Apple a

40、nd GoogleCompanies20092010201120122013MicrosoftBillion15.119.322.9717.8720.93Tendency100.00%127.81%152.12%118.34%138.61%AppleBillion8.27113.4325.5240.5637.87Tendency100.00%143.06%242.90%350.82%391.61%GoogleBillion5.0937.7259.16810.8112.04Tendency100.00%151.68%180.01%212.25%236.40%In terms of profit

41、growth, the Apple Company had grown fastest. And the profit is match with the revenue. The profit of Apple in 2013 is nearly four times than the 2009. And it is also nearly the two times than Microsoft and three times than Google. As we can see during 2012 the profit of Microsoft had decreased. But

42、the revenue of Microsoft in 2012 was increasing. From the financial statement we can see the research expense and advertising and promotion expenses had increased.On the other hand, the net profit volatility of Apple and Microsoft were significantly greater than the volatility of Google. During 2012

43、 and 2013 there was a greater volatility for the company of Microsoft and Apple. But net profit of Google had no significant fluctuations in other years which indicates its low business risk. Conversely, the companies of Microsoft and Apple net profit were up and down, which may be present a changin

44、g trend and indicate that they have a little high business risk. 3 Gross margin analysis.The gross profit margin is equal to gross profit divided by sales revenue and gross profit equals to gross sales revenue minus the cost of sales and sales taxes combined. The level of gross profit not only directly affect the level of sales and decide to the level of investment promotion and advertising. In a highly competitive environment, sustainable development of enterprises depends largely on t