Microsoft Corporation’s Fiscal Quarter Ending 30th June 2022 Financial Analysis and Evaluation
FIN 320 Project Two Financial Analysis Report
[Note: To complete this template, replace the bracketed text with your own content. Remove this note before you submit your report.]
Financial Analysis and Financial Evaluation
1. Financial Analysis
A. Financial CalculationsCalculate accurate financial formulas to figure out the business’s current financial health. Specifically, calculate the ratios listed below using the Ratios Most Recent Fiscal Quarter (Qtr) and Ratios Same Fiscal Quarter 1 Year Ago worksheets in the Project Two Financial Formulas workbook (linked in the What to Submit section of the Project Two Guidelines and Rubric).
i. Working capital[Write the result of the calculation and what it says about the company’s health.]
ii. Current ratio[Write the result of the calculation and what it says about the company’s health.]
iii. Debt ratio[Write the result of the calculation and what it says about the company’s health.]
iv. Earnings per share[Write the result of the calculation and what it says about the company’s health.]
v. Price/earnings ratio[Write the result of the calculation and what it says about the company’s health.]
vi. Total asset turnover ratio[Write the result of the calculation and what it says about the company’s health.]
vii. Financial leverage[Write the result of the calculation and what it says about the company’s health.]
viii. Net profit margin[Write the result of the calculation and what it says about the company’s health.]
ix. Return on assets[Write the result of the calculation and what it says about the company’s health.]
x. Return on equity[Write the result of the calculation and what it says about the company’s health.]
B. Working Capital Management[In one paragraph, explain the impact of working capital management on the business’s operations. Provide examples to support your claims.]
C. Financing[In one paragraph, explain how a business finances its operations and expansion.]
D. Short-Term Financing[In one paragraph, explain how potential short-term financing sources could help the business raise funds for improving its financial health. Base your response on the business’s current financial information.]
E. Bond Investment[In one paragraph, discuss the risks and benefits of the business investing in a corporate bond. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis.]
F. Capital Equipment[In one paragraph, discuss the risks and benefits of the business investing in capital equipment. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis.]
G. Building[In one paragraph, discuss the risks and benefits of a business investing in a building. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis.]
2. Financial Evaluation
A. Bond Investment[In one paragraph, determine if the bond investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to your support claims.]
B. Capital Equipment[In one paragraph, determine if the capital equipment investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to support your claims.]
C. Building[In one paragraph, determine if the building investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to support your claims.]
D. Future Financial Considerations[In one paragraph, describe the business’s likely future financial performance. Base your description on the business’s current financial well-being and risk levels. Use financial information to support your claims.]
Microsoft Corporation’s Fiscal Quarter Ending 30th June 2022 Financial Analysis and Evaluation
Student Name
University
Course
Professor Name
Date
Microsoft Corporation’s Fiscal Quarter Ending 30th June 2022 Financial Analysis and Evaluation
Financial Analysis
Financial Calculations
* Working Capital
Working capital = current assets - current liabilities
= $169,684,000,000- $95,082,000,000 = $74,602,000,000
* Current Ratio
Current ratio = current assets / current liabilities
= $169,684,000,000/ $95,082,000,000 = 1.7846
* Debt Ratio
Debt ratio = total liabilities / total assets
= $198,298,000,000/ $364,840,000,000 = 0.5435
* Earnings per Share
Earnings per share = net income / weighted average common shares outstanding
= $72,738,000,000/ 7,496,000,000 shares = $9.7036 per share
* Price/Earnings Ratio
Price earnings ratio = share price (end of quarter) / EPS
share price = common stock & paid-in capital/ year end shares outstanding
= $86,939,000,000/ 7,464,000,000 shares = $11.6478 per share
EPS = $9.7036 per share (calculated above)
Price earnings ratio = $11.6478 per share/ $9.7036 per share = 1.200
* Total Asset Turnover Ratio
Total asset turnover ratio = total revenue / total assets
= $198,270,000,000/ $364,840,000,000 = 0.5434
* Financial Leverage
Financial leverage = total assets / shareholder's equity
= $364,840,000,000/ $166,542,000,000 = 2.1907
* Net Profit Margin
Net profit margin = net income / total revenue
= $72,738,000,000/ $198,270,000,000 = 0.3669
* Return on Assets
Return on assets = net income / total assets
= $72,738,000,000/ $364,840,000,000 = 0.1994
* Return on Equity
Return on equity = net income - preferred dividends / shareholder's equity
Net income - preferred dividends = $72,738,000,000- 0 = $72,738,000,000
Return on equity = $72,738,000,000/ 166542000000 = 0.4368
Working Capital Management
Firms that manage their working capital efficiently usually maintain smooth operations, hence improving their profits and earnings. Firms will have sufficient funds to invest in other profitable businesses if they manage their working capital properly (Boisjoly et al., 2020). A company can manage its working capital effectively by avoiding stockpiling and decreasing slow-moving inventories. For instance, if company A stocks slow-moving inventories in year 1, its current assets might be $160,000,000,000 and current liabilities $95,000,000,000. On the other hand, if the same company stocks fast-moving inventories in year 2, it would sell many times, making more cash, increasing its current assets to about $170,000,000,000, but current liabilities remain at $95,000,000,000. Therefore, working capital would be higher in the latter scenario than in the former as follows.
Working capital = current assets - current liabilities
Working capital (in year 1) = $160,000,000,000 - $95,000,000,000
= $65,000,000,000
Working capital (in year 2) = $170,000,000,000 - $95,000,000,000
= $75,000,000,000
Financing
Businesses can use many methods, such as government grants or loans, to finance their operations and expansion. However, debt financing and equity financing are the common ways. According to Zhang et al. (2019), debt financing has a lower risk tolerance than equity financing. Firms use debt financing, promising they will repay the loan and interest in the future. The firms’ owners do not relinquish any of their operations’ control. On the other hand, companies use equity financing in issuing shares to get cash in return. As managers vend shares, they split control over their firms, but the owners do not repay the money.
Short-Term Financing
Short-term financing sources are essential to firms when they do not want to interrupt their operations while waiting for long-term loans. Therefore, in the short run, these sources assist corporations in raising money to improve their financial health. However, Microsoft Corporation reduced its short-term financing by decreasing its working capital from $95,749,000,000 in 2021 to $74,602,000,000 in 2022. According to Srivastav and V...