Week 2 Team Assignment

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Financial ratios provide us with a useful method of standardizing the financial information we find in final statements. Studying these ratios can help us to quickly answer important questions about various aspects of the firm, such as its liquidity, profitability, and structure (Titman, Keown, & Martin, 2011). In analyzing the Microsoft Corporation, three interesting ratios that can be found by looking at their 2012 Annual Report include the current ratio, debt ratio, and return on equity ratio. The current ratio is the company’s current assets divided by their current liabilities. In 2012, Microsoft had $85,054 million in current assets and $32,688 million in current liabilities which gives them a current ratio of 2.60. In 2011, the firm had $74,918 million in current assets and $28,774 million in current liabilities which gives them a current ratio of 2.60 as well. The debt ratio is the company’s total liabilities divided by their total assets. In 2012, Microsoft had $54,908 million in total liabilities and $121,271 million in total assets giving them a debt ratio of 45.2%. In 2011, the firm had $51,621 million in total liabilities and $108,704 million in total assets giving them a debt ratio of 47.4%. The return on equity ratio is the company’s net income divided by their total stockholders’ equity. In 2012, Microsoft had a net income of $16,978 million and a total stockholders’ equity of $66,363 million giving them a return on equity of 25.5%. In 2011, the firm had a net income of $23,150 million and a total stockholders’ equity of $57,083 million (Microsoft Corporation, 2013). Comparing these ratios can tell us a lot about how the company has changed from 2011 to 2012.
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