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