Question

2.3 The Balance Sheet & Income Statement that follows summarizes the financial conditions for Microsoft Corporation. Microsoft has reported a profit for several years running. Compute the various financial ratios and interpret the firm's financial health during fiscal-year 2018 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INCOME STATEMENTS In miions,except per share amount) Year Ended June 30 4,497 $63,811 67.336 23,818 Service and other 45,863 Total revenue 110 380 96,571 91,154 Cost of revenue 15,420 22,933 19.086 38.353 72,007 14,726 Service and other Total cost of revenue 34,261 Research and development General and adminisa 110 Operating income 35.058 1416 25 639 5.100 Provision for income taxes 5 16,571 $ 25489 $ 20.539 Diauted 2.13 Basic 7,794 832 Cash dividends declared per 1.68 S 158 S1.44 BALANCE SHEETS 1

Answer 1

Please note the following:

1. Interest expenses is required to calculate Times interest earned ratio. Interest expense is not given separately in Income statement. I have taken the interest figure from FY2018 financial statement of Microsoft Corporation.
2. For Price to Earning ratio:
   1. Current share price (from Yahoo Finance) as the same is not given in the question
   2. I have used fully diluted EPS in the denominator
3. For Book Value per share, i have used Weighted nos. of fully diluted shares outstanding in the denominator.

Please see the table below: The second column explains what the formula is. The third column is the intermediate calculation.

Ratio	Formula	Intermediate Calculation	Value	Interpretation
Debt Ratio	Total Liabilities / Total Assets	=176130/258848	68.04%	Moderately levered
Times interest earned	EBIT / Interest	=35058/2733	12.83	Very good interest coverage ratio
Current Ratio	Current assets / Current liabilities	=169662/58488	2.90	Good, very liquid company
Quick Ratio	Quick assets / Current liabilities	=(133768+26481)/58488	2.74	Good, very liquid company
Inventory turnover	Sales / average inventory	=110360/2662	41.46	Expected to be high for a services company, decent
Days sales outstanding	Average Receivables / Sales X 365	=26481/110360*365	87.58	High in comparison to industry standard of 30 days; bad for company
Total assets turnover	Sales / total assets	=110360/258848	0.43	Poor utilisation of asset; the ratio should be at least 1
Profit margin	Net income / Sales	=16571/110360	15.02%	Decent margin
Return on total assets	Net income / total assets	=16571/258848	6.40%	Poor return on asset
Return on common equity	Net income / common equity	=16571/82718	20.03%	Good return to shareholders
Price to Earning ratio	Price per share / EPS (fully diluted)	=105.45/2.13	49.51	Have used today's price from yahoo finance; not available in your question; ratio is very good; have used diluted EPS in denominator
Book value per share	Shareholders' equity / Nos. of shares outstanding	=82718/7794	10.61	Good ratio; have used weighted shares outstanding on fully diluted basis in the denominator