Professional Documents
Culture Documents
Financial Statements
Analysis
Submitted by:
Muhammad Arif Shah
ID No: 2882
Semester: 5th
Under the Guidance of:
SIR. MUHAMMAD ANEES
Lecturer in Financial Statement Analysis
City University of Information Technology
1. Acknowledgment: 02
2. Executive Summary: 03
3. Nature of Business: 04
17. Comments: 23
19. Observations: 25
21. Conclusion: 27
22. References: 28
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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ACKNOWLEDGEMENT:
(Al-Quran)
All acclamation to ALLAH, who has empowered and enabled me to
accomplish the perspectives of the project successfully. First of all, I would
like to thank my ALLAH Mighty, who really helps me in every problem during
the completion of this project. I would like to express my sincere and humble
gratitude to ALLAH Almighty, whose blessings; help guidance has been a real
source of all my achievements in my entire life.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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EXECUTIVE SUMMARY:
Microsoft provides software and services that help people
communicate, do their work, be entertained, and manage their personal lives.
Microsoft’s commitment and responsibilities as a global corporate citizen are
grounded in their company mission and values, manifested through their
business practices and operations, and carried out by thousands of Microsoft
employees and supplies worldwide. Responsible Business Practice; Microsoft
organizes their Global Citizenship Initiative this ways to help ensure it
business strategies fully support their commitment to corporate governance,
business ethics, and global citizenship. Our software products and services
include operating systems for servers, personal computers, and intelligent
devices; server applications for distributed computing environments;
information worker productivity applications; business solutions applications;
high-performance computing applications; software development tools; and
video games. Online offerings and information are delivered through Bing,
Windows Live, Office Live, our MSN portals and channels, and the Microsoft
Online Services platform which includes offerings for businesses such as
Microsoft Dynamics CRM Online, Exchange Hosted Services, Exchange Online,
and Share Point Online. We also conduct research and develop advanced
technologies for future software products and services.
From the Balance sheet, I conclude the there is decrease total cash
and short-term investment, the figure reduces from $ 37,756 million to $
34,161 million with a 10.5% of decrease, whereas; the total current assets
has increase of $ 273 million. The total operating expenses has increased by:
$ 2,583 million with a ratio increase 10.23% and net income increase to $
12,599 million. Microsoft’s has tremendously increased the per capita income
of the company in year: 2006 upto $ 12,599 million with a net increase of $
345 million and with 2.81% of increase, but in 2006 the company’s
investment income is greatly reduce $ 277 million with a net fall of 13.4%
from the pervious year; i.e. 2005. Microsoft’s should give more attention
towards short term investments including securities.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Nature of Business:
Microsoft provides software and services that help people
communicate, do their work, be entertained, and manage their personal lives.
Over the past 30 year, innovate technology has transformed how we access
and share information, changed the ways of business and institutions operate,
and make the world smaller by giving us instant access to people and
resources everywhere.
Microsoft was founded in 15th Sep, 1975 and remains a leader in the
wave of innovation that has crated so much new opportunity, convenience,
and values over the past three decades. During that time, Microsoft has
crated many new products, added new lines of Business, and openhanded
their operation worldwide, along the ways, Microsoft was guided by their
corporate mission and the six core values it reflects and will continue to guide
us in the future.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Objectives of the Project:
So far, as Microsoft is concerned the objectives is to find out the whole
funds investment and its areas of investment including its future analysis,
which will assisted in comparing the other software relating to this project is
as follows:-
Balance Sheet;
Income Statement;
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Limitation of the Project:
At the last instance, I try my best to collect adequate data for
completing all the aspect for Financial Condition of Microsoft in a collective
manner. Though, it is a time consuming process, which will Carrey more
result-oriented information to the organization. But to some extent I tried my
all effort to make it best in spite of my following limitations:-
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Framework for
Financial Analysis
Trend / Seasonal
Component
How much funding will be
1. Analysis of the funds required in the future?
needs of the firm. Is there a seasonal
component?
Framework for
Financial Analysis
Health of a Firm
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Framework for
Financial Analysis
Framework for
Financial Analysis A
Financial
Manager
must
consider
all three
1. Analysis of the funds
needs of the firm. Determining jointly
2. Analysis of the financial
the when
financing
condition and profitability
needs of
determinin
of the firm. g the
the firm.
3. Analysis of the business financing
risk of the firm.
needs of
the firm.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Framework for
Financial Analysis
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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1. LIQUIDITY RATIOS:
YEAR:
2005 2006
Current Assets
Current Ratio: =
Current Liabilities 48,737 49,010
⇒ 16,877 22,442
⇒ 2.89 2.18
COMPARISON:
Microsoft’s had strong Current Ratio in 2005 as compared to 2006, so
the company was in stronger position in 2005. Theses calculation
also indicated that Microsoft had almost $3 to meet $1 current
liabilities, on the other hand; it had in the 2006 2.18 $ to meet $1
current liabilities.
YEAR:
2005 2006
Current Assets-Inv.
Quick Ratio: =
Current Liabilities 48,737-491 49,010-1,478
⇒ 16,877 22,442
⇒ 2.86 2.12
COMPARISON:
Microsoft’s had strong Quick Ratio in 2005 as compared to 2006, so
the company was in stronger position in 2005 to meet their current
liabilities with Quick Assets i.e. Cash / Bank Deposits/ M/S & A/R.
Moreover; the two years calculation indicated that the firm had
almost $3 & $2 Quick Assets to meet $ 1 current liabilities.
YEAR:
2005 2006
Net Working Capital
N.W. Cap. Ratio: =
Current Liabilities 31,860 26,568
⇒ 70,815 69,597
⇒ 45% 38%
COMPARISON:
Net Working Capital Ratios indicated that the company was in
stronger position in 2005 as compared to 2006.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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YEAR:
2005 2006
Curr. Asset –(R/A+Inv.)
Cash Ratio: =
Current Liabilities 48,737-[7180+491] 49,010[9316+1478]
⇒ 16,877 22,442
⇒ 2.43 1.70
COMPARISON:
Cash Ratio indicated that in 2005 the firm had $2.43 to meet 1 $
short term liability, while, in 2006 had $1.70 to meet 1$, so it
showed that the firm was much stronger position in 2005 to meet their
current liabilities with the most current assets i.e. Cash & M/S.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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2. EFFICIENCY RATIOS
YEAR:
2005 2006
Annual Net Credit Sales
Receivable Turnover: =
Receivable 39,788 44,282
⇒ 7,180 9,316
⇒ 5.54 4.75
COMPARISON:
In 2005, the firm was efficient to receive its R/A as compare to
2006, the above mentioned calculation showed that firm was much
better positions as compared to 2006.
YEAR:
2005 2006
No. of Days in a Year
Avg. Collection Period: =
Receivable Turnover 365 365
⇒ 5.54 4.75
⇒ 66 Days 77 Days
COMPARISON:
The Firms received its R/A in 66 Days in 2005, while in 2006 it’s
was 77 Day, this indicated that the firms performance was better in
2005.
YEAR:
2005 2006
Cost of Goods Sold
Days Sales Inv. : =
Inventory 6,200 7,650
⇒ 7,180 9,316
⇒ 0.86 0.82
COMPARISON:
In 2005, the effectiveness of the inventory management practices of
the firm was better as compared to 2006
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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YEAR:
2005 2006
No. of Days in Year
Inv. Turnover in Day : =
Inventory Turnover 365 365
⇒ 0.86 0.82
COMPARISON:
In 2005, the effectiveness of the inventory management practices of
the firm was better as compared to 2006.
YEAR:
2005 2006
Inventory
Days’ Sales Inv. : =
Cost of Goods Sold/365 491 1,478
⇒ 6,200/365 7,650/365
⇒ 29 Days 70 Days
COMPARISON:
In 2005, the effectiveness of the inventory management practices of
the firm was better as compared to 2006.
YEAR:
2005 2006
Sales
Total Assets Turnover : =
Total Assets 39,788 44,282
⇒ 70,815 69,597
⇒ 56% 63%
COMPARISON:
The Assets Turnover Ratios of 2006 indicated that the firm
effectively utilized its assets to generate sales, as compared to
2005.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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3. PROFITABILITY RATIOS:
YEAR:
2005 2006
Net Income
Profit Margin : =
Sales 12,254 12,599
⇒ 39,788 44,282
⇒ 30% 28%
COMPARISON:
In 2005, the firm Profit Margin is greater than 2006, is cleared
show the profitably of the firm after taking account of all expenses
an income taxes was better than 2006
YEAR:
2005 2006
Net Income +Int{EBT}
Return on Assets: =
Total Assets 12,254 12,599
⇒ 70,815 69,597
⇒ 17% 18%
COMPARISON:
In 2006, the firms ROA ratio performance was better than 2005, this
indicated that the profitably on the assets of the firm after all
expenses and tax was better than 2005.
YEAR:
2005 2006
Net Income +Int{EBT}
Return on Equity: =
Shareholders’ Equity 12,254 12,599
⇒ 48,115 40,104
⇒ 25% 35%
COMPARISON:
In 2006, the firms ROE ratio performance was better than 2005, this
indicated that the profitably on the Shareholders’ Equity of the
firm after all expenses and tax was better than 2005.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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YEAR:
2005 2006
Dividends
Payout Ratio: =
Earnings (EPS) 3.40 0.35
⇒ 2.25 2.41
⇒ 1.51 0.84
COMPARISON:
The Company Payout Ratio in 2005 was absolutely higher which is
almost: 150 % as compared to 2006 where it was 84%, this indicated
that the company some hidden reserve in its accounts
YEAR:
2005 2006
Earnings (EPS)
Retained Earning Ratio:
Dividends 2.25 2.41
⇒ 3.40 0.35
⇒ 66% 84%
COMPARISON:
In these two year; the company RE Ratios is absolutely high, for the
detail see last, in which I discussed them in details
YEAR:
2005 2006
Plowback: = 1-Payout Ratio
⇒ 1-1.51 1-0.84
⇒ -0.51 0.16
COMPARISON:
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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YEAR:
2005 2006
Growth in Equity from
Plowback x ROE
Plowback : =
-0.51*0.17 0.16*0.18
⇒ -8.67% 2.88%
COMPARISON:
In growth in equity from Plowback in 2005, it’s indicated Negative
growth, while in 2006 it’s was 2.88% almost 3.00%, which good
enough.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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4. Financial Leverage Ratios:
YEAR:
2005 2006
Long-Term Debt
Capitalization Ratio: =
Capitalization*(Debt+Equity) 5,823 7,051
⇒ 48,115+5,823 40,104+7,051
⇒ 11% 15%
COMPARISON:
This Ratio indicated that the firm had 11% long term debt in 2005,
while in 2006, the firmed is financed by 15% long term debt, this
indicated that was in better position in 2005 as compared to 2006
YEAR:
2005 2006
Long-Term Debt
Debt to Equity Ratio: =
Shareholders’ Equity 5,823 7,051
⇒ 48,115 40,104
⇒ 12% 18%
COMPARISON:
Debt To Equity Ratio indicated, that the how much the firm’s assets
supported by debt financing, this is cleared from the calculation,
the firms was in better position in 2005 as compared to 2006.
YEAR:
2005 2006
Total Liabilities*
Total Debt Ratio: =
Total Assets* 16,877+5,823 22,442+7,051
⇒ 70,815 69,597
⇒ 32% 42%
COMPARISON:
This ratio indicates, that the how much the firm’s assets supported
by total liabilities, it cleared from the picture, the firms was in
better position in 2005 as compared to 2006.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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5. Interest Coverage Ratios:
YEAR:
2005 2006
EBIT
Time Interest Earned: =
Interest Expense 14,561 16,472
⇒ 2,067 1,790
⇒ 7.044% 9.20%
COMPARISON:
Microsoft had 9.20% interest Earned ratio in 2009, which is good
sing for the company.
YEAR:
2005 2006
EBIT+ Depreciation *
Cash Coverage : =
Interest Expense 14,561 16,472
⇒ 2,067 1,790
⇒ 7.044% 9.20%
COMPARISON:
Microsoft had 9.20% interest Earned ratio in 2006, which is good
sign for the company. While in 2005, it wash 7.044% which is
comparatively less than 2006.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Balance Sheets (Annex-A):
From the Balance sheet, I conclude the there is decrease total cash
and short-term investment, the figure reduces from $ 37,756 million to $
34,161 million with a 10.5% of decrease, whereas; the total current assets
has increase of $ 273 million. But the total current liability has been increased
$ 16,877 million to $ 22,442 million with a total change of $ 5,565 million and
75.2% in change where as the stock holder’s equity has been tremendously
reduction of $ 8,011 million. But overall the balance sheet show net decease
of $ 1,218 million from the previous year. The statements are not satisfactory
according to me, but I think there must be some hidden reserve investment
or some gain kept secret which is not furnished for valuation of statement.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Summarized table of Ratios Analysis of Microsoft.
YEAR:
SR.#: RATIO’S NAME:
2005 2006
1. LIQUIDITY RATIOS:
9 Current Ratio: 2.89 2.18
9 Quick Assets Ratio: 2.86 2.12
9 NWC Ratio: 45% 38%
9 Cash Ratio: 2.43 170
2. EFFICIENCY RATIOS:
9 Relievable Turnover: 5.54 4.75
9 Avg. Collection Period: 66 Days 77 Days
9 Days’ Sales Inventory: 0.86 0.82
9 Inv. Turnover in Days: 424 Days 445 Day
9 Days’ Sales Innovatory: 29 Days 70 Days
9 Assets Turnover: 56% 63%
3. PROFITABILITY:
9 Profit Margin: 30% 28%
9 Return on Assets: 17% 18%
9 Return on Equity: 25% 35%
9 Payout Ratio: 1.51 .84
9 Retained Earning Ratio: 66% 84%
9 Growth in Equity from Plowback: 8.67% 2.88%
4. FINANCIAL LEVERAGE RATIOS:
9 Capitalization Ratio: 11% 15%
9 Debt to Equity Ration: 12% 18%
9 Total Debt Ratio: 32% 42%
5. INTEREST COVERAGE RATIOS:
9 Time Interest Earned: 7.044% 9.20%
9 Cash Coverage Ratio: 7.44% 9.20%
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Comments:
From the above ratios analysis of Microsoft that the current
ratio of the company is quit satisfactory in the Year: 2006,
but not in 2005, because the ratio should lies within the
standard limit of 2.11, but in the year: 2006 it just above
standard limit which can be ignored but in 2005, the ratio
largely exceed the standard limit, which means the company
is inefficient in proper utilization of funds.
Acid test ration or the Quick Ratios on the other hand is quit
more the normal standard of 1.1, in the year: 2005 the
company holds more than the standard limit which means
the firms has not utilized the funds, in 2006, the firms has
maintained the standard limit by keeping the Ratio by:
1.937.1 which is just good enough than the previous year:
2005.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Summary and Finding:
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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OBSERVATION:
⇒ From the ratios calculation / analysis; I have observed
that the company is passing through many up and downs
in the middle of the previous year, but some how the
company mange to control the total return at the end of
the period. But in the year: 2006 the company total
operating expenses had a tremendous increased of $
2,583 million with a 10.23 % of change, the revenue
increased from $ 29,788 million with 11.29% of change.
Where as the net income from all sources is just
increased to $ 345 million.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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Major Suggestion:
⇒ Microsoft’s has tremendously increased the per capita
income of the company in year: 2006 upto $ 12,599 million
with a net increase of $ 345 million and with 2.81% of
increase, but in 2006 the company’s investment income is
greatly reduce $ 277 million with a net fall of 13.4% from
the pervious year; i.e. 2005. The company should try to
maintain a positive figure towards investment income by safe
guarding the invested amount in proper way. Microsoft’s
should give more attention towards short term investments
including securities.
Project on Financial Ratios Analysis of Microsoft_ {@Aarif Shah_MBA (Finance), Semester: 5th_CU}
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CONCLUSION:
⇒ Microsoft is one of the most leading Software firm and remains
on top among other software industries, creating a new
dimension for the next generations’ technology.
⇒ For this project report, I found that the Microsoft’s will increases
its amount of investment in a speed way. Microsoft’s also
generates new system eve in the firm’s production. Here; the
long-term investment also increases to a high by the end of
2006.
o http://finance.yahoo.com/news/category-economy-govt-and-policy
o http://in.finance.yahoo.com/
o http://www.microsoft.com/msft/reports/ar09/index.html
o http://www.microsoft.com/msft/reports/ar09/10k_fh_fin.html
o http://www.microsoft.com/msft/reports/ar09/10k_fr_mar.html
o http://www.microsoft.com/msft/reports/ar09/10k_fr_not.html
o http://www.microsoft.com/msft/reports/ar09/10k_fr_not_06.html
o http://www.microsoft.com/msft/reports/ar09/10k_fr_dis.html
o http://www.microsoft.com/msft/reports/ar09/10k_fr_aud.html
o http://www.microsoft.com/msft/stock/default.mspx
o http://www.thocp.net/companices/micrsoft/microsoft_company.htm
o www.morningstar.com
o http://wps.pearsoned.co.uk/wps/media/objects/1669/1709846/02
3685988_ch06.pdf
o http:// www.wikpedia.org.micrsoft.
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