RATIO ANALYSIS OF MICROSOFT COMPANY FOR THE YEAR ENDED 2011

1) Earnings per Share = profit after tax / total no. of shares outstanding
Net income = $ 23, 150
Weighted average shares outstanding:
Basic = 8,490
Diluted = 8,593
Interpretation
Earnings per share:
Basic = $ 2.73
Diluted = $2.69
Interpretation
Earnings per Share are one of the most widely used Profitability ratios. Its value symbolizes the Companys earnings ($) availab
a per outstanding share basis. There are two kinds of EPS Viz. Basic and Diluted EPS and they are stated
Basic EPS = (Net Income available to the common stock holders)/(Basic Weighted average of shares out
Diluted EPS = (Net Income available to the common stock holders)/Diluted weighted average of shares o
The Diluted number of Shares include the securities which when exercised can be converted into a common stock. For examp
converted to shares. Thus, Diluted EPS figure for a company is always lower than the corresponding Basic
While comparing two firms, the higher the EPS the better it is. However, it must also be seen whether there is any increase in
of retained earnings without any change in the number of outstanding shares. For example, consider a company which is re
business instead of issuing bonus shares. The interpretation of EPS without considering the effect of ploughing back of profits
will not be appropriate.
The shareholders of Microsoft earned $ 2.73 (basic) & $ 2.69 (diluted) per outstanding share when market price was $ 26. It m
on an average 10 % on their investment in Microsoft.
 2) Current Ratio = Current asset / current liability
Total current asset = $ 74918
Total current liabilities = $ 28,774
Current Ratio = 2.60
Interpretation
The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and paya
(cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligation
the company would be unable to pay off its obligations if they came due at that point. While this shows the compan
it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is d

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product i
trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because th
obligations. Because business operations differ in each industry, it is always more useful to compare companies

Microsofts current ratio is 2.6 which means the company is highly capable of paying its current obligations if they
health of the company as per industry standard is highly satisfactory.
 3) Gross Profit Rate = (sales or revenue cost of goods sold or cost of revenue) / sales X
Revenue = $ 69,943
Cost of revenue = $ 15,577
Gross Profit Rate = 77.72%
Interpretation
Gross profit ratio evaluates the effectiveness of business. It indicates the efficiency of firm in terms of its productio
profit. Gross profit reflects the profit firm has made on cost of goods sold. If firm has higher gross profit margin the
all operating expenses, interest charges and dividends would have to be taken off from GP. If company increase s
decrease cost of goods sold then this ratio increases. However If company decrease selling price of goods sold and i
this ratio decreases.
The GP ratio of Microsoft indicates that it has utilized its production capacity in an efficient manner. It has earned 77
which indicates it can reduce its selling price to cover broader & competitive market to increase its revenue to su
 4) Profit Margin Ratio = Net Income / Sales or revenue
Revenue = $ 69,943
Net income = $ 23, 150
Profit Margin Ratio = 0.33 or 33%
Interpretation
NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very us
sufficient, the firm shall not be able to achieve a satisfactory return on its investment
This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low dem
ratio the better is the profitability. But while interpreting the ratio it should be kept in mind that the performance o
to investments or capital of the firm and not only in relation to sales.
Net profit margin of Microsoft is appropriately high as compared to market standards. Its a good news for the stoc
have invested their money at right place.
 5) Inventory Turnover Ratio = cost of revenue / average Inventory
Cost of revenue = $ 15,577

Inventories at the year end 2010 - 2011 = $ 1,372

Inventories at the beginning of the 2010 11 or year end 2009 - 2010 = $740
Average inventory = $ 1056
Inventory Turnover Ratio = 14.75
Interpretation
Inventory Turnover Ratio measures company's efficiency in turning its inventory into sales. Its purpose is to measur
A low inventory turnover ratio is a signal of inefficiency, since inventory usually has a rate of return of zero. It also im
inventory. A low turnover rate can indicate poor liquidity, possible overstocking, and obsolescence, but it may als
buildup in the case of material shortages or in anticipation of rapidly rising prices.
A high inventory turnover ratio implies either strong sales or ineffective buying (the company buys too often in sm
buying price is higher).A high inventory turnover ratio can indicate better liquidity, but it can also indicate a shortage
which may lead to a loss in business.
Inventory turnover ratio is quite High which implies that Microsoft has efficient inventory control, sound sales pol
reputation in the market, better competitive capacity and so on.

6) Days in Inventory = 365 / Inventory Turnover Ratio

 6) Days in Inventory = 365 / Inventory Turnover Ratio
Days in Inventory = 24.75 days
Interpretation
Inventory conversion period reports about the average time to convert total inventory into sales. It measures th
between the acquisition and sale of merchandise. The inventory has been disposed off or sold on an ave
Microsofts inventory conversion period is better because it is quite less and hence there will be less chance of obs
stocking cost.

7) Receivables Turnover Ratio = Revenue / average receivables

Revenue = $ 69,943
Accounts receivable, net of allowance for doubtful accounts of $333, at the year end 2010 201
Accounts receivable, net of allowance for doubtful accounts of $375, at the beginning of the 2010 11 or at the ye
Average Accounts receivable = $ 1931
Receivables Turnover Ratio = 36.22
Interpretation
Receivables Turnover Ratio is one of the efficiency ratios and measures the number of times receivables are collecte
year. Receivables turnover ratio measures company's efficiency in collecting its sales on credit and collection po
represents the indirect interest free loans that the company is providing to its clients.Therefore, it is very importan
loans are for the company.
Microsofts receivables turnover ratio is very high which implies either that the company operates on a cash basis o
collection of accounts receivable are efficient. Also, it reflects a short lapse of time between sales and the collectio
means collection takes longer. Since this ratio is going up as compared to previous year, either collection efforts m
raising or receivables are being reduced.
 Average Accounts receivable = $ 1931
Receivables Turnover Ratio = 36.22
Interpretation
Receivables Turnover Ratio is one of the efficiency ratios and measures the number of times receivables are collecte
year. Receivables turnover ratio measures company's efficiency in collecting its sales on credit and collection po
represents the indirect interest free loans that the company is providing to its clients.Therefore, it is very importan
loans are for the company.
Microsofts receivables turnover ratio is very high which implies either that the company operates on a cash basis o
collection of accounts receivable are efficient. Also, it reflects a short lapse of time between sales and the collectio
means collection takes longer. Since this ratio is going up as compared to previous year, either collection efforts m
raising or receivables are being reduced.

8) Average Collection Period = 365 / Receivables Turnover Ratio

Average Collection Period = 10 days
Interpretation
Average collection period measures the average number of days that accounts receivable are outstanding. This acti
lower than the company's credit terms. As a rule, outstanding receivables should not exceed credit terms by m
Microsofts average collection period is only 10 days which is very much less, it means liquidity position of the firm
sales.
 8) Average Collection Period = 365 / Receivables Turnover Ratio
Average Collection Period = 10 days
Interpretation
Average collection period measures the average number of days that accounts receivable are outstanding. This acti
lower than the company's credit terms. As a rule, outstanding receivables should not exceed credit terms by m
Microsofts average collection period is only 10 days which is very much less, it means liquidity position of the firm
sales.

9) Asset Turnover Ratio = Revenue / total assets

Revenue = $ 69,943
Total assets = $ 108,704
Asset Turnover Ratio = 0.64
Interpretation
Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the numb
pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit m

the company is generating $ .64 revenue for each dollar of asset of the company which indicates pricing strateg
competitive.
 10) Return on Assets Ratio = Net income / Total assets
Total assets = $ 108,704
Net income = $ 23, 150
Return on Assets Ratio = 0.213
Interpretation
Return on Assets (ROA) is an indicator of how profitable company's assets are in generating profit. It shows how m
from each dollar of assets the company controls .Microsofts Return on Assets is very low which gives an idea of in
using its assets to generate profit.
 11) Debt to Total Assets Ratio = Total debt or liabilities / total asset
Total assets = $ 108,704
Total liabilities = $ 51,621
Debt to Total Assets Ratio = 0.475
Interpretation
The Long Term Debt to total asset ratio is an indication of what portion of a company's total assets is financed fro
D.T.A.R. IS 0.475 which indicates long-term solvency of the company. Higher level of long term debt is more impo
positive revenue and steady cash flow. Microsoft is now not in a position to finance its projects through issue of deb
should be maintained for solvency & liquidity of the company.
 12) Times Interest Earned Ratio = Operating Income / Total interest expense
Operating income = $ 27,161
Interest expense = $ 295
Times Interest Earned Ratio = 92.1
Interpretation
Time interest earned ratio measures a companys ability to continue to service its debt. It is an indicator to tell if a c
trouble. Microsofts T.I.E.R. is very high which means that the company is able to meet its interest obligations beca
greater than annual interest obligations. However, a high ratio can also mean that a company has an undesirably low
too much debt with earnings that could be used for other investment opportunities to get higher rate of return.
Microsoft.
 13) Payout ratio = DPS / EPS
Earnings per share:
Basic = $ 2.73
Diluted = $2.69
Cash dividends declared per common share = $ 0.64
Payout ratio (Basic) =0.2344
Payout ratio (Diluted) = 0.237
Interpretation
The dividend payout ratio measures the percentage of a companys earnings that are paid to sharehol
The payout ratio is very less in case of Microsoft which implies they are likely to invest much of their earnings in th
growth. However, . A low payout ratio can also demonstrate that a companys dividend is small compared to its
dividend is likely to be secure and reliable.

14) Return on Common Stockholders Equity Ratio = Net Income / Net worth ( Equity
Net income = $ 23, 150
 14) Return on Common Stockholders Equity Ratio = Net Income / Net worth ( Equity
Net income = $ 23, 150
Total stockholders equity = $ 57,083
Return on Common Stockholders Equity Ratio = 0.4055 or 40.55%
Interpretation
Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit the company genera
common stock owners It shows how many dollars of earnings result from each dollar of e
Microsofts efficiency at generating profits from every unit of shareholders' equity is very high as compared to mark
equity the company is generating $ .4055. The company uses very efficiently the investment funds to gene

15) Free Cash Flow = Net cash flow from operating activities Net Investment
Net cash from operations = $ 26,994
Net cash used in investing = $14,616
Free Cash Flow = $ 12378
Interpretation
Free cash flow (FCF) is cash flow available for distribution among all the securities holders of an organization. The
holders, preferred stock holders, convertible security holders, and so on. The company has enough cash available in
the ease grow and pay dividends to shareholders. Some investors prefer using free cash flow instead of net inco
financial performance, because free cash flow is more difficult to manipulate than net income. Considering this, M
investors point of view is reliable.
 16) Current Cash Debt Coverage Ratio = Net cash flow from operating activities / Average curre
Net cash from operations = $ 26,994
Total current liabilities at the year end 2010 - 2011 = $ 28,774
Total current liabilities at the beginning of the 2010 11 or year end 2009 - 2010 = $ 26
Average current liability = $ 27460.5
Current Cash Debt Coverage Ratio = 0.98
Interpretation
Calculating the current cash debt coverage ratio is a simple way to check on the stability of cash flow versus produ
currently stand. When there appears to be a drop in the ratio in comparison to previous periods, this can serve as a
It is then possible to examine all relevant factors since the beginning of the period under consideration and determi
the change happens to be, and take steps to correct the situation if that action is advisable. The ratio of Microsoft p
flow while making allowances for the shift in liabilities from one portion of the period to the next is better as compa
no potential problems in the flow of operating capital. The current status of liquidity within the comp
 17) Cash Debt Coverage Ratio = Net cash flow from operating activities / Total debt or lia
Net cash from operations = $ 26,994
Total liabilities = $ 51,621
Cash Debt Coverage Ratio = 0.523
Interpretation
The cash debt coverage ratio, is a cash-basis measure of solvency. Microsofts ability to repay its liabilities from ca
activities without having to liquidate the assets used in operations is 52.3%.
f shares outstanding

ng:

e Companys earnings ($) available to the equity shareholder on

Diluted EPS and they are stated as below:
Weighted average of shares outstanding)
ed weighted average of shares outstanding
into a common stock. For example Stock options that can be
er than the corresponding Basic EPS figure.
whether there is any increase in Equity holders funds as a result
, consider a company which is reinvesting the profits into the
ffect of ploughing back of profits (into the business) on earnings

when market price was $ 26. It means shareholders are earning

n Microsoft.
ry Turnover Ratio
 / average receivables

$333, at the year end 2010 2011 = $14,987

ning of the 2010 11 or at the year end 2009 - 2010 = $ 13,014
= $ 1931
= 36.22

of times receivables are collected, on average, during the fiscal

sales on credit and collection policies. Accounts receivable
nts.Therefore, it is very important to know how "costly" these
any.
pany operates on a cash basis or that its extension of credit and
between sales and the collection of cash, while a low number
year, either collection efforts may be improving, sales may be
g reduced.
ivables Turnover Ratio
10 days

ivable are outstanding. This activity ratio should be the same or

uld not exceed credit terms by more than 10-15 days. Since
eans liquidity position of the firm will not be affected by credit
e / total assets

04
0.64

or revenue - the higher the number the better. It also indicates

r, while those with high profit margins have low asset turnover.

ny which indicates pricing strategy of the company is highly

ome / Total assets
04
50
0.213

generating profit. It shows how many dollars of earnings result

very low which gives an idea of inefficiency of management at
e profit.
 Net Income / Net worth ( Equity)
50
ng activities Net Investment
$ 26,994
$14,616
378

s holders of an organization. They include equity holders, debt

any has enough cash available in this regard. Microsoft can with
ree cash flow instead of net income to measure a company's
net income. Considering this, Microsoft financial position from
eliable.
 RATIO ANALYSIS OF ORACLE COMPANY FOR THE YEAR ENDED 201

1. Earnings per Share = profit after tax / total no. of shares outstanding
Net income = $ 8547
Weighted average common shares outstanding:
Basic = 5,048
Diluted = 5,128
Earnings per share:
Basic = $ 1.69
Diluted = $ 1.67
Interpretation
The shareholders of Oracle earned $ 1.69 (basic) & $ 1.67 (diluted) per outstanding share when market price was $ 26. It mean
an average 5.2% on their investment in Oracle.
 2. Current Ratio = Current asset / current liability
Total current assets = $39,174
Total current liabilities = $ 14,192
Current Ratio = 2.76
Interpretation
Oracles current ratio is 2.76 which means the company is highly capable of paying its current obligations if they cam
of the company as per industry standard is highly satisfactory.

3. Gross Profit Rate = (sales or revenue cost of goods sold or cost of revenue) / sales X
Revenue = $ 35622
Cost of revenue (calculated by deducting sales & marketing, R & D & general & administrative expense from op
Gross Profit Rate = 67.65 %
Interpretation
The GP ratio of Oracle indicates that it has utilized its production capacity in an efficient manner. It has earned 67.
which indicates it can reduce its selling price to cover broader & competitive market to increase its revenue to su
 4. Profit Margin Ratio = Net Income / Sales or revenue
Net income = $ 8547
Revenue = $ 35622
Profit Margin Ratio = 0.24 or 24%
Interpretation
Net profit margin of Oracle is relatively high as compared to market standards. Its good news for the stockholde
invested their money at right place.

5. Inventory Turnover Ratio = cost of revenue / average Inventory

Cost of revenue (calculated by deducting sales & marketing, R & D & general & administrative expense from op
Inventories at the year end 2010 - 2011 = $ 303
Inventories at the beginning of the 2010 11 or year end 2009 - 2010 = $259
Average inventory = $ 281
Inventory Turnover Ratio = 41
Interpretation
Inventory turnover ratio is quite High which implies that Oracle has efficient inventory control, sound sales polic
reputation in the market, better competitive capacity and so on.

6. Days in Inventory = 365 / Inventory Turnover Ratio

Days in Inventory = 9 days
Inventory conversion period reports about the average time to convert total inventory into sales. It measures th
between the acquisition and sale of merchandise. The inventory has been disposed off or sold on an average in
conversion period is one of the best appear Oracle follows lean system because it is quite less and hence there will
and paying of over-stocking cost.
 6. Days in Inventory = 365 / Inventory Turnover Ratio
Days in Inventory = 9 days
Inventory conversion period reports about the average time to convert total inventory into sales. It measures th
between the acquisition and sale of merchandise. The inventory has been disposed off or sold on an average in
conversion period is one of the best appear Oracle follows lean system because it is quite less and hence there will
and paying of over-stocking cost.

7. Receivables Turnover Ratio = Revenue / average receivables

Accounts receivable, net of allowance for doubtful accounts of $372, at the year end 2010 20
Accounts receivable, net of allowance for doubtful accounts of $305, at the beginning of the 2010 11 or at the y
Average Accounts receivable = $5768
Revenue = $ 35622
Receivables Turnover Ratio = 6.18
Interpretation
Oracles receivables turnover ratio is very less which implies either that the company operates mostly on credit bas
and collection of accounts receivable are inefficient. Also, it reflects a short lapse of time between sales and the c
number means collection takes longer. Since this ratio is going up as compared to previous year, either collection e
may be raising or receivables are being reduced.

8. Average Collection Period = 365 / Receivables Turnover Ratio

Average Collection Period = 59 days
Interpretation
Since Oracles average collection period is 59 days which is very significantly much higher than market standards, it
firm may be affected by credit sales.
 9. Asset Turnover Ratio = Revenue / total assets
Revenue = $ 35622
Total assets = $73,535
Asset Turnover Ratio = 0.49
Interpretation
Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the numb
pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit m
the company is generating $ .49 revenue for each dollar of asset of the company which indicates pricing strategy of
is generating higher profit margin.

10. Return on Assets Ratio = Net income / Total assets

Net income = $ 8547
Total assets = $73,535
Return on Assets Ratio = 0.12
Interpretation
Return on Assets (ROA) is an indicator of how profitable company's assets are in generating profit. It shows how m
from each dollar of assets the company controls. Oracles Return on Assets is very low which gives an idea of ineffic
its assets to generate profit.

11. Debt to Total Assets Ratio = Total debt or liabilities / total asset
Total debt or liabilities = $ 33290
Total assets = $73,535
Debt to Total Assets Ratio = 0.45
 11. Debt to Total Assets Ratio = Total debt or liabilities / total asset
Total debt or liabilities = $ 33290
Total assets = $73,535
Debt to Total Assets Ratio = 0.45
Interpretation
The Long Term Debt to total asset ratio is an indication of what portion of a company's total assets is financed from
IS 0.45 which indicates long-term solvency of the company. Higher level of long term debt is more important for
revenue and steady cash flow. Oracle is now not in a position to finance its projects through issue of debt. A prope
maintained for solvency & liquidity of the company.

12. Times Interest Earned Ratio = Operating Income / Total interest expense
Operating income = $12,033
Interest expense = $808
Times Interest Earned Ratio = 14.9
Interpretation
Time interest earned ratio measures a companys ability to continue to service its debt. It is an indicator to tell if a c
trouble. Oracles T.I.E.R. is 14.9 which means that the company is able to meet its interest obligations because earn
times greater than annual interest obligations. However, a high ratio can also mean that a company has an undesira
down too much debt with earnings that could be used for other investment opportunities to get higher rate of retu
Oracle.

13. Payout ratio = DPS / EPS

Dividends declared per common share = $0.21
Earnings per share:
Basic = $ 1.69
Diluted = $ 1.67
 13. Payout ratio = DPS / EPS
Dividends declared per common share = $0.21
Earnings per share:
Basic = $ 1.69
Diluted = $ 1.67
Payout ratio (basic) = .124
Payout ratio (diluted) = 0.126
Interpretation
The dividend payout ratio measures the percentage of a companys earnings that are paid to sharehol
The payout ratio is very less in case of Oracle which implies they are likely to invest much of their earnings in the
growth. However, a low payout ratio can also demonstrate that a companys dividend is small compared to its earnin
is likely to be secure and reliable.

14. Return on Common Stockholders Equity Ratio = Net Income / Net worth ( Equity
Net income = $ 8547
Total equity = $ 40,245
Return on Common Stockholders Equity Ratio = 0.21
Interpretation
Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit the company genera
common stock owners It shows how many dollars of earnings result from each dollar of e
Oracles efficiency at generating profits from every unit of shareholders' equity is similar to market standards. For ea
is generating $ .21. The company needs to use more efficiently the investment funds to generate ea

15. Free Cash Flow = Net cash flow from operating activities Net Investment
Net cash provided by operating activities = $11,214
Net cash used for investing activities = $6,081
Free Cash Flow = $ 5133
Interpretation
Free cash flow (FCF) is cash flow available for distribution among all the securities holders of an organization. The
holders, preferred stock holders, convertible security holders, and so on. The company has cash available in this reg
influence potential investors . However Oracle can with the ease grow and pay dividends to shareholders. Some in
flow instead of net income to measure a company's financial performance, because free cash flow is more difficult
Considering this, Oracle financial position from investors point of view is reliable.
 15. Free Cash Flow = Net cash flow from operating activities Net Investment
Net cash provided by operating activities = $11,214
Net cash used for investing activities = $6,081
Free Cash Flow = $ 5133
Interpretation
Free cash flow (FCF) is cash flow available for distribution among all the securities holders of an organization. The
holders, preferred stock holders, convertible security holders, and so on. The company has cash available in this reg
influence potential investors . However Oracle can with the ease grow and pay dividends to shareholders. Some in
flow instead of net income to measure a company's financial performance, because free cash flow is more difficult
Considering this, Oracle financial position from investors point of view is reliable.

16. Current Cash Debt Coverage Ratio = Net cash flow from operating activities / Average curre
Net cash provided by operating activities = $11,214
Total current liabilities at the year end 2010 - 2011 = $14192
Total current liabilities at the beginning of the 2010 11 or year end 2009 - 2010 = $ 14
Average current liability = $ 14441.5
Current Cash Debt Coverage Ratio = 0.78
Interpretation
The current cash debt coverage ratio is one example of a cash-basis ratio. Calculating the current cash debt coverag
on the stability of cash flow versus production and other costs as they currently stand. When there appears to be a
to previous periods, this can serve as a signal that something is amiss. It is then possible to examine all relevant fac
period under consideration and determine what is changed, how severe the change happens to be, and take steps
action is advisable. The ratio of Oracle provides the current rate of cash flow while making allowances for the shift
the period to the next is better as compared to previous year. There are no potential problems in the flow of operati
liquidity within the company is good.

17. Cash Debt Coverage Ratio = Net cash flow from operating activities / Total debt or lia
Net cash provided by operating activities = $11,214
 17. Cash Debt Coverage Ratio = Net cash flow from operating activities / Total debt or lia
Net cash provided by operating activities = $11,214
Total debt or liabilities = $ 33290
Cash Debt Coverage Ratio = 0.34
Interpretation
CASH DEBT COVERAGE RATIO is the ratio of net cash provided by operating activities to average total liabilities, calle
is a cash-basis measure of solvency. Oracles ability to repay its liabilities from cash generated from operating activi
the assets used in operations is 34%.

18. Price/Earnings Ratio = Market price per share / Earning per share
Market price per share = $ 33.70
Earnings per share:
Basic = $ 1.69
Diluted = $ 1.67
Price/Earnings Ratio (Basic) = $ 19.94
Price/Earnings Ratio (Diluted) = $ 20.17
Interpretation
The P/E ratio is a measure of the price paid for a share relative to the annual net income or profit earned by the firm
indicate that to earn $ 1 on M.P.S. of $ 26, the investor needs to invest $ 19.94 (basic) & $ 20.17 (diluted).The price
ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so
compared to one with a lower P/E ratio. The P/E ratio also shows current investor demand for a co
OR THE YEAR ENDED 2011

n market price was $ 26. It means shareholders are earning on

 old or cost of revenue) / sales X 100

administrative expense from operating expense) = $ 11521

65 %

fficient manner. It has earned 67.65% return on cost of revenue

rket to increase its revenue to sustain in the market in future.
nue / average Inventory
administrative expense from operating expense) = $ 11521
2011 = $ 303
year end 2009 - 2010 = $259
281
o = 41

entory control, sound sales policies, trading in quality goods,

ve capacity and so on.

ry Turnover Ratio
ays
entory into sales. It measures the length of time on average
osed off or sold on an average in 9 days. Oracles inventory
s quite less and hence there will be less chance of obsolescence
g cost.
 / average receivables
$372, at the year end 2010 2011 = $ 6628
ning of the 2010 11 or at the year end 2009 - 2010 = $ 5585
e = $5768

o = 6.18

ny operates mostly on credit basis or that its extension of credit

of time between sales and the collection of cash, while a low
previous year, either collection efforts may be improving, sales
being reduced.

ivables Turnover Ratio

59 days

higher than market standards, it means liquidity position of the

dit sales.
e / total assets
5
0.49

or revenue - the higher the number the better. It also indicates

r, while those with high profit margins have low asset turnover.
hich indicates pricing strategy of the company is competitive &
margin.

ome / Total assets

7
5
0.12

generating profit. It shows how many dollars of earnings result

low which gives an idea of inefficiency of management at using
ofit.

or liabilities / total asset

33290
5
= 0.45
ome / Total interest expense
033
08
o = 14.9

ebt. It is an indicator to tell if a company is running into financial

interest obligations because earnings are approximately fifteen
that a company has an undesirably low level of leverage or pays
unities to get higher rate of return. But this is not the case with

/ EPS
hare = $0.21
 Net Income / Net worth ( Equity)
7
45
uity Ratio = 0.21

much profit the company generates with the money invested by

nings result from each dollar of equity.
milar to market standards. For each dollar of equity the company
investment funds to generate earnings growth.

ng activities Net Investment

vities = $11,214
ities = $6,081
33

s holders of an organization. They include equity holders, debt

any has cash available in this regard but not as much that it can
vidends to shareholders. Some investors prefer using free cash
e free cash flow is more difficult to manipulate than net income.
estors point of view is reliable.
 erating activities / Average current liability
vities = $11,214
10 - 2011 = $14192
or year end 2009 - 2010 = $ 14691
14441.5
atio = 0.78

ng the current cash debt coverage ratio is a simple way to check

nd. When there appears to be a drop in the ratio in comparison
ssible to examine all relevant factors since the beginning of the
ge happens to be, and take steps to correct the situation if that
making allowances for the shift in liabilities from one portion of
al problems in the flow of operating capital. The current status of
is good.

ating activities / Total debt or liability

vities = $11,214
share / Earning per share
$ 33.70

= $ 19.94
= $ 20.17

come or profit earned by the firm per share. P/E ratio of Oracles
sic) & $ 20.17 (diluted).The price-to-earnings ratio is a financial
e for each unit of net income, so the stock is more expensive
current investor demand for a company share.
 Microsoft Corporation (NASDAQ: MSFT) is an American multinational corporation headquartered in
Redmond, Washington, United States that develops, manufactures, licenses, and supports a wide range of
products and services predominantly related to computing through its various product divisions.
Established on April 4, 1975 to develop and sell BASIC interpreters for the Altair 8800, Microsoft rose to
dominate the home computer operating system market with MS-DOS in the mid-1980s, followed by the
Microsoft Windows line of operating systems.

Microsoft would also come to dominate the office suite market with Microsoft Office. The company has
diversified in recent years into the video game industry with the Xbox and its successor, the Xbox 360 as
well as into the consumer electronics and digital services market with Zune, MSN and the Windows Phone
OS. The ensuing rise of stock in the company's 1986 initial public offering (IPO) made an estimated three
billionaires and 12,000 millionaires from Microsoft employees (Forbes 400 list revealed that in March 2011
both Jon Shipley and Nathan Myhrvold lost their billionaire status). In May 2011, Microsoft Corporation
acquired Skype Communications for $8.5 billion.

Primarily in the 1990s, critics contend Microsoft used monopolistic business practices and anti-competitive
strategies including refusal to deal and tying, put unreasonable restrictions in the use of its software, and
used misrepresentative marketing tactics; both the U.S. Department of Justice and European Commission
found the company in violation of antitrust laws.[citation needed] Known for its interviewing process with
obscure questions, various studies and ratings were generally favorable to Microsoft's diversity within the
company as well as its overall environmental impact with the exception of the electronics portion of the
business.

Microsoft Oracle
Earnings per share: Earnings per share:
Basic = $ 2.73 Basic = $ 1.69
Diluted = $2.69 Diluted = $ 1.67
Current Ratio = 2.60 Current Ratio = 2.76

Gross Profit Rate = 77.72% Gross Profit Rate = 67.65 %

Profit Margin Ratio = 0.33 or 33% Profit Margin Ratio = 0.24 or 24%
Inventory Turnover Ratio = 14.75 Inventory Turnover Ratio = 41

Days in Inventory = 24.75 days Days in Inventory = 9 days

Receivables Turnover Ratio = 36.22 Receivables Turnover Ratio = 6.18

Average Collection Period = 10 days Average Collection Period = 59 days

Asset Turnover Ratio = 0.64 Asset Turnover Ratio = 0.49

Return on Assets Ratio = 0.213 Return on Assets Ratio = 0.12

Debt to Total Assets Ratio = 0.475 Debt to Total Assets Ratio = 0.45

Times Interest Earned Ratio = 92.1 Times Interest Earned Ratio = 14.9

Payout ratio (Basic) =0.2344 Payout ratio (basic) = .124

Payout ratio (Diluted) = 0.237 Payout ratio (diluted) = 0.126

Return on Common Stockholders Equity Return on Common Stockholders Equity Ratio =

Ratio = 0.4055 or 40.55% 0.21
Free Cash Flow = $ 12378 Free Cash Flow = $ 5133

Current Cash Debt Coverage Ratio = 0.98 Current Cash Debt Coverage Ratio = 0.78

Cash Debt Coverage Ratio = 0.523 Cash Debt Coverage Ratio = 0.34

Price/Earnings Ratio (Basic) = $ 9.524 Price/Earnings Ratio (Basic) = $ 19.94

Price/Earnings Ratio (Diluted) = $ 9.67 Price/Earnings Ratio (Diluted) = $ 20.17
Oracle Corporation (NASDAQ: ORCL) is an American multinational
computer technology corporation that specializes in developing
and marketing computer hardware systems and enterprise
software products particularly database management systems.
Headquartered at 500 Oracle Parkway, Redwood Shores,
Redwood City, California, United States and employing
approximately 108,000 people worldwide as of 31 May 2011, it
has enlarged its share of the software market through organic
growth and through a number of high-profile acquisitions. By
2007 Oracle had the third-largest software revenue, after
Microsoft and IBM
The company also builds tools for database development and
systems of middle-tier software, enterprise resource planning
software (ERP), customer relationship management software
(CRM) and supply chain management (SCM) software.

Larry Ellison, a co-founder of Oracle Corporation, has served as

Oracle's CEO throughout its history. He also served as the
Chairman of the Board until his replacement by Jeffrey O. Henley
in 2004. On August 22, 2008 the Associated Press ranked Ellison
as the top-paid chief executive in the world.

Summary & Conclusion

Since E.P.S. of Microsoft is much higher than that of Oracle.
It shows the profitability of Microsoft is higher than Oracle.

Both companies current ratio is greater than 2 . it entails

short term solvency position of both the firms are strong &
they can easily fulfill their current liability obligations.
However, Oracle has a hedge over Microsoft in this case.

Gross profit of both the companies is quite higher as

compared to company standards. It implies both are able to
produce at low cost. However, Microsoft can produce at
relatively lesser cost than Oracle.

Managements efficiency in manufacturing, administering,

selling and turning each rupee sales into net profit of
Microsoft is higher than Oracle. However if we compare
both gross profit & profit margin ratio, Microsoft needs to
control its operating expenses as compared to Oracle.
It appears Oracle follows lean management system in
inventory control. Oracles tie up of funds in inventory is
much lesser all about three times than that of Microsoft.

Maximum time of inventory hold by Oracle is almost three

times lesser than that of Microsoft which implies Oracle is
turning its inventory into receivables through sales three
times faster than that of Microsoft.

It appears Microsoft operates mostly on cash basis or as

compared to Oracle . the ability of Microsoft to collect
account receivables from debtors is almost six times greater
than that of Oracle which reflect inefficiency of Oracle in
collections of account receivable.

This ratio indicates that a huge amount of Oracles fund in

terms of account receivables are tied up which is almost six
times of fund of Microsoft tied up in account receivables (on
an average basis).

Microsoft is more efficient than Oracle in generating sales by

utilizing its assets as compared to Oracle.
Microsoft is more efficient than Oracle in generating returns
by utilizing its assets as compared to Oracle.
Both the companies have almost financed 50% of their
assets through debts. However Oracles financing of its by
debt issue is less than that of Microsoft
Microsofts availability of funds to cover its debt obligation is
higher than Oracle which implies its liquidity position is
stronger than Oracle. However, It does not mean that
Payout ratio of both the companies is very less which
implies they are likely to invest much of their earnings in the
business for expansion and growth. This ratio suggests Both
the companies have better scope for growth & expansion.
R.O.C.S.E. of Microsoft is almost double of Oracle which
implies residual income for stockholders of Microsoft is
grater than Oracle. So it is beneficial to purchase stocks of
Free cash flow available to Microsoft is almost two and a
half time that of Oracle. Microsoft can with more ease
distribute cash flow available among all the securities
The ratio of Microsoft provides that current rate of cash flow
while making allowances for the shift in liabilities from one
portion of the period to the next is better as compared to
Microsofts ability to repay its liabilities from cash generated
from operating activities without having to liquidate the
assets used in operations is 52.3%. and 34% that of Oracle
To earn $ 1, an investor needs to invest almost $ 9.7 in
Microsoft & and $ 20 in Oracle. It implies the stocks of
Oracle keeping in view the earnings is almost two times
costlier than that of Microsoft.
Liquidity: Oracle has the advantage for each of the liquidity ratios with the exception of the
inventory turnover and days in inventory for which Microsoft has a slight advantage. Oracle has also
an advantage in liquidity as evidenced by the $ 2.76in current assets they have for every in $1 in
current liabilities while Oracle has only $2.6 in current assets for every dollar in current liabilities.
Tootsie Roll also has a better current cash debt coverage ratio and the advantage for the receivables
turnover and average collection period.

Solvency: Microsft has the advantage for each of the solvency ratios with the exception of free cash
flow. Microsoft can cover their interest expense 96.2 times with income before interest and taxes
while Oracle can only cover their interest expense 15.1times with their income before interest and
taxes. Microsoft has $6944 million in free cash flow while Tootsie Roll has approximately $
4073million in free cash flow. Free cash flow can be used to undertake acquisitions, pay additional
dividends, pay down debt, or by back stock.

Profitability: Microsoft has the advantage for each of the profitability ratios with the exception of the
Price-Earnings and profit margin ratios. Microsft has a significant edge in asset turnover and return
on common stockholders' equity. Hershey has $0.72 in sales for every dollar in assets while Oracle
has $ 0.53 in sales for every dollar in assets. Microsoft has a return on common stockholders' equity
ratio of 44.8% compared to 23.7% for Oracle. pay out ratio of Microsoft is 23.5 % while that of Oracle
is 12.5%.

Conclusion:Microsoft is the safer investment when you examine the Profitability and solvency ratios;
however, Oracle has the edge for one significant liquidity ratios. This ratios is Inventory Turnover
ratio. That said, since I believe in the importance of fiscal strength, I would invest in Oracle; however,
if I was looking for more growth potential, I would invest in Microsoft because of their stronger
profitability ratios.