Homework SourseInstructions Answer the last three questions using the infor
Instructions: Answer the last three questions using the information below.
Microsoft Corp. (MSFT)
What does each ratio reveal about the company?
| Instructions: Answer the last three questions using the information below. Microsoft Corp. (MSFT) | ||||
| Ratios | Industry Average Ratio | Three Year Company Ratio Results | ||
| 2015 | 2016 | 2017 | ||
| Year(s) | Year | Year | Year | |
| Debt/Equity | 0.96 | 1.178639661 | 1.687167521 | 2.33019311 |
| Current | 3.43 | 2.47340222 | 2.352881716 | 2.477273079 |
| Quick Ratio | 3.28 | 1.944246379 | 1.907778358 | 2.060858245 |
| Return on Assets | 5.49 | 0.069952697 | 0.091252316 | 0.097589713 |
| Return on Equity | 17.23 | 0.178219848 | 0.245866967 | 0.30844425 |
| Net Profit Margin | 11.57 | 0.130294935 | 0.196882325 | 0.235730962 |
| Instructions: | ||||
| Discuss the following questions throughly (2-3 sentences). | ||||
| What does each ratio reveal about the company? | ||||
| Have the ratios improved or worsened over time? Explain why you think this happened. | ||||
| Compare the company ratio results with the industry average ratios. What do the numbers reveal? | ||||
Solution
1) What does each ratio reveal about company ?
Debt / Equity Ratio < 1 means a more financial stable Business.
Debt / Equity Ratio = 1 means both Creditors and Investors have Equal Stake in business.
Debt / Equity Ratio > 1 means more risky to creditors and Investors
Here Ratio is greater than 1, so business will be risky for creditors and investors.
A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments.
Quick Ratio lower than 1 means that company is relying heavily on inventories or other assets to pay short term liabilities and may soon can be bankrupt. quick ratio higher than 1 means the better of company\'s liquidity position.
Here company\'s ratio is 2, so company is having better liquidity position and had have higher account receivables.
Return on Assets shows the percentage of profit a company earns in relation to its overall resourses.
Here company is having ratio of 0.09, means company is having profits from its business.
Return on Equity (ROE) is an indicator of company\'s profitability by measuring how much profit the company generates with the money invested by common stock owners. ROE is also and indicator of how effective management is at using equity financing to fund operations and grow the company
Here ROE is 0.30 means company\'s is profitable to its shareholders or investors.
Net Profit Margin Ratio is the percentage of net profit relative to the revenue earned during a period.
Here company\'s having ratio of 0.23, that means business is profitable for the company.
2) Have the ratios improved or worsened over time? Explain why you think this happened.
3) Compare the company ratio results with the industry average ratios. What do the numbers reveal ?
Company\'s ROE is way behind industry average. Its a disadvange in competitive market as Investors/shareholder\'s will invest in companies who will provide them better returns.
Provide Feedback...............................
| Debt / Equity | 2.33 | Debt / Equity Ratio < 1 means a more financial stable Business. Debt / Equity Ratio = 1 means both Creditors and Investors have Equal Stake in business. Debt / Equity Ratio > 1 means more risky to creditors and Investors Here Ratio is greater than 1, so business will be risky for creditors and investors. |
|---|---|---|
| Current Ratio | 2.47 | A current ratio of 2 would mean that the company has 2 times more current assets than current liabilities. A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments. |
| Quick ratio | 2.06 | Quick Ratio lower than 1 means that company is relying heavily on inventories or other assets to pay short term liabilities and may soon can be bankrupt. quick ratio higher than 1 means the better of company\'s liquidity position. Here company\'s ratio is 2, so company is having better liquidity position and had have higher account receivables. |
| Return on Assets | 0.09 | Return on Assets shows the percentage of profit a company earns in relation to its overall resourses. Here company is having ratio of 0.09, means company is having profits from its business. |
| Return on Equity | 0.30 | Return on Equity (ROE) is an indicator of company\'s profitability by measuring how much profit the company generates with the money invested by common stock owners. ROE is also and indicator of how effective management is at using equity financing to fund operations and grow the company Here ROE is 0.30 means company\'s is profitable to its shareholders or investors. |
| Net Profit margin | 0.23 | Net Profit Margin Ratio is the percentage of net profit relative to the revenue earned during a period. Here company\'s having ratio of 0.23, that means business is profitable for the company. |
