If Microsoft forecasted revenue increase by 20 percent’s for the upcoming year, several parts of the annual report will be affected by the 20% increase forecast. First of all, the income statements will alter their revenues from 16,195 million dollars to 19,434 million dollars. Revenue is not the only thing that changes since there are other expenses that need to be changed. For example in the income statement, the operating expenses will not have an adjustment, and that includes; research and development, sales and marketing, and general and administrative these accounts will stay constant because only the revenues increase by 20 percent. However, if revenue increases 20 percent, the cost of revenues also increases by 20 percent due to the fact that cost of revenue is the cost to make the revenue. The cost of revenue is from $3,139 million dollars to $3,767 million dollars. The total operating expenses will increase $628 million dollars, but in the end, the net income will increase also because revenue is higher than what can be covered to the extra cost of revenue.
The working capital indicates the liquidity of the company and how fast it can convert assets into cash in a company. In order to figure out how much working capital a company has, it is current assets over current liabilities. Microsoft’s current assets are $74,918 million dollars, and the current liabilities are $28,774 million dollars. In order to successfully manage working capital, the firm has to set the policies of managing the current assets, short term financing. There are four part of management of working capital these are; cash management, inventory management, debtor management, and short term financing. Cash management is to identify the cash balance which allows reducing cash holding cost but still able to meet day to day expenses. Inventory management is to understanding the level of inventory which allows...