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Principles of Finance: Financial Analysis

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Principles of Finance: Financial Analysis

 

Liquidity Ratios: Microsoft

Current Ratio = Current Assets

Current Liabilities

                        = 175,552

                             69,420

                        = 2.53

It implies that Apple Inc. can pay its current liabilities 0.46 times using cash and cash equivalent only. Compared to Microsoft Corporation, Apple Inc. has a lower ability to pay its current liabilities

Cash Ratio = Cash and Cash Equivalents

Current Liabilities

                    = 11,356 

                       69,420

                   = 0.16

It implies that Microsoft Corporation can pay its current liabilities 0.16 times using cash and cash equivalent only. Compared to Apple Inc., Microsoft Corporation has a lower Cash Ratio and thus less liquid. 

 

 

Liquidity Ratios: Apple

Current Ratio = Current Assets

Current Liabilities

                        = 162,819

105,718

= 1.54

This means that Apple Inc. can pay for its current liabilities 1.54 times. Compared to Microsoft Corporation, Apple Inc. has a lower ability to pay its current liabilities

 

Cash Ratio = Cash and Cash Equivalents

Current Liabilities

                 = 48,844

                   105,718

                  = 0.46

It implies that Apple Inc. can pay its current liabilities 0.46 times using cash and cash equivalent only.

 

 

 

 

Quick Ratio = Cash +A/C Receivable +SE

                                    Current Liabilities

= 133,819

69,420

= 1.93

With a quick ratio of 1.93 which is higher than 1, it means Microsoft Corporation has enough quick assets to pay its current liabilities

 

 

 

Activity Ratio

Asset Turnover Ratio = Revenue

                                    Total Assets

            = 125,843

                                      286,556

                                    = 0.44

This implies that for every dollar of asset, Microsoft Corporation generates 0.44 cents.

 

 

 

Quick Ratio = Cash + A/C Receivable + SE

            Current Liabilities

                        = 48,844 + 51,713

                               105,718

                        = 0.95

With a quick ratio of 1.95 which is lower than 1, it means Apple Inc. does not have enough quick assets to pay its current liabilities. Compared to Microsoft Corporation, Apple Inc. has a lower ability to pay its current liabilities using quick assets.

Activity Ratio

Asset Turnover Ratio = Revenue

                                    Total Assets

                                    = 260,174

                                       338,516

= 0.77

This implies that for every dollar of asset, Apple Inc. generates 0.77 cents. Compared to Microsoft Corporation, Apple Inc. is more efficient in the use of its assets.

 

Profitability Ratios

Net Profit Margin = Net Profit

       Revenue

                             = 39,240

125,843

                            = 0.31

This implies that Microsoft Corporation has 0.33 dollars for every sales dollar.

 

 

 

Return on Assets = Net Income

                               Total Assets

                             = 39,240

   286,556

                             = 0.14

This implies that Microsoft Corporation 0. 14 times efficient in converting the amount used to purchase assets into net income.

 

 

 

 

Profitability Ratios

Net Profit Margin = Net Profit

       Revenue

                             = 55,256

                                260,174

=0.21

This implies that Apple Inc. has 0.21 dollars for every sales dollar. Compared to Microsoft Corporation, Apple Inc. has a lower net profit margin implying that it does not do better in managing its expenses.

Return on Assets = Net Income

                               Total Assets

                             = 55,256

                                338,516

                              = 0.21

This implies that Apple Inc. is 0. 21 times efficient in converting the amount used to purchase assets into net income. Compared to Microsoft Corporation, Apple Inc. is more efficient in converting purchased assets into net income.

 

Return on Equity = Net Income

Shareholders’ Equity

= 39,240

102,330

= 0.38

This implies that for every dollar of Microsoft Corporation common shareholders’ equity, it earns 0.38 return on investment.

 

 

 

Leverage Ratios: Microsoft

Debt to Equity = Total Debt

Shareholders’ Equity

                        =184,226

                           102,330

                        = 1.80 

This implies that Microsoft Corporation debt is 1.80 times more than the shareholder’s equity. Compared to Apple Inc. Microsoft Corporation is more financially stable as it has a lower debt to equity ratio.

Return on Equity = Net Income

Shareholders’ Equity

                             = 55,256

                                90,488

= 0.61

This implies that for every dollar of Apple Inc. common shareholders’ equity, it earns 0.61 return on investment. Compared to Microsoft Corporation, Apple Inc. has a higher ratio indicating its more growing that Microsoft Corporation.

 

Leverage Ratios: Apple

Debt to Equity = Total Debt

Shareholders’ Equity

                        = 248,028

                             90,488

= 2.52

This implies that Apple Inc. debt is 2.52 times more than the shareholder’s equity.

 

 

Debt to Capital = Total Debt

Debt + Capital

                        = 184,226

                            286,556

                        = 0.64

This implies that Microsoft Corporation depends on 0.64 dollars of every dollar on the day to day activities. Compared to Apple Inc. Microsoft is safer to invest in has lower investment risk.

Debt to Assets = Total Debt

Total Assets

                        = 184,226

                            286,556

                        = 0.64

This implies that Microsoft Corporation has more assets than liabilities and can pay off its obligation by its assets if needed. Compared to Apple Inc. Microsoft

 

 

 

 

Debt to Capital = Total Debt

Debt + Capital

                        = 248,028

                            338,516

                        = 0.73

This implies that Apple Inc. depends on 0.73 dollars of every dollar on debts.

 

 

 

Debt to Assets = Total Debt

Total Assets

                        = 248,028

                           338,516

                        = 0.73

This implies that Apple Inc. has more assets than liabilities and can pay off its obligation by its assets if needed.

 

 

References

Annualreports.com. (2020). Annualreports.com. Retrieved 16 July 2020, from http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2019.pdf

Microsoft.com. (2020). Microsoft 2019 Annual Report. Retrieved 16 July 2020, from https://www.microsoft.com/investor/reports/ar19/index.html

 

 

 

 

 

 

 

 

 

 

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