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Microsoft Corporation is one of the largest technology companies in the world. The company was established in 1975, under the leadership of Bill Gates and Paul Allen. Although the company is immersed in various types of technology, its main focus is software, particularly its operating system known as Microsoft Windows. Microsoft’s innovative and cutting-edge technology may have contributed to its success, with outstanding annual performance and growth throughout the years (History, 2020). Furthermore, Microsoft’s sustainability initiatives such as corporate social responsibility and reduced carbon emission strategies, have also aided the firm to enhance its financial performance (Microsoft, n.d.). This idea is supported by various studies, research findings indicate that sustainable practices may positively impact financial growth and mitigate risks (Al Nuaimi and Nobanee, 2019; Almarar and Nobanee, 2020). Highlights from fiscal year 2019 compared with fiscal year 2018 included: Commercial cloud revenue, which includes Microsoft Office 365 Commercial, Microsoft Azure, the commercial portion of LinkedIn, Microsoft Dynamics 365, and other commercial cloud properties, increased 43% to $38.1 billion. Office Commercial revenue increased 13%, driven by Office 365 Commercial growth of 33%. Office Consumer revenue increased 7%, and Office 365 Consumer subscribers increased to 34.8 million. LinkedIn revenue increased 28%, with record levels of engagement highlighted by LinkedIn sessions growth of 27%. Dynamics revenue increased 15%, driven by Dynamics 365 growth of 47%. Server products and cloud services revenue, including GitHub, increased 25%, driven by Azure growth of 72%. Enterprise Services revenue increased 5%.
Windows original equipment manufacturer licensing (“Windows OEM”) revenue increased 4%. Windows Commercial revenue increased 14%. Microsoft Surface revenue increased 23%. Gaming revenue increased 10%, driven by Xbox software and services growth of 19%. Search advertising revenue, excluding traffic acquisition costs, increased 13% Revenue increased $15.5 billion or 14%, driven by growth across each of our segments. Intelligent Cloud revenue increased, driven by server products and cloud services. Productivity and Business Processes revenue increased, driven by Office and LinkedIn. More Personal Computing revenue increased, driven by Surface, Gaming, and Windows. Gross margin increased $10.9 billion or 15%, driven by growth across each of our segments. Gross margin percentage increased slightly, due to gross margin percentage improvement across each of our segments and favorable segment sales mix. Gross margin included a 5 percentage point improvement in commercial cloud, primarily from Azure. Operating income increased $7.9 billion or 23%, driven by growth across each of our segments Current Ratio Current Ratio : compares the company's current assets to its current liabilities and is usually used to measure the short term financial states and it severs as an indicator whether the firm can pay its dues on time (Bint-Tariq et al, 2020). Microsoft’s current ratio decreased by 2.53 times from 2018 to 2019.. The decline in the current ratio from 2018 to 2019 is most likely due to a substantial increase in current liabilities by 5,890,000,000. Throughout 2016 to 2019, Microsoft's current ratios are over 2.0, meaning that each current liability is covered by two current assets, and their ratios are overall adequate given that they operate in the volatile technology industry.
Inventory turnover is used as a financial metric to measure the firm’s capability to sell its inventory or the speed of inventory sold within a particular time frame. This ratio is a marker of the quantity of inventory the company has sold at various time periods annually (Hasanaj & Kuqi, 2019). Microsoft’s inventory turnover it surged in 2019 to 20.80 times than in 2018 (14.41). Thus, 2019 were more efficient years than in 2018, as there was an increase of 16.39 times Higher efficiency in 2019 might be a result of the increase in the costs of goods sold. Where the year’s cost of goods sold increased by $4,577,000,000 respectively. Furthermore, in 2019, the inventory decreased by 599,000,000 USD.
Total Asset Turnover
This ratio is a measure of the company's ability to utilize all of its assets to generate sales. Income achieved from assets is often computed yearly (Bint-Tariq et al, 2020). Higher total assets turnover implies that the firm has higher financial efficiency when using its assets for its operations (Zutter & Smart, 2019). Microsoft's total asset turnover was 0.44 times higher than it was in 2019. Microsoft’s assets management seems to improve over the years and total assets are most likely utilized efficiently with respect to generating revenues. Return on equity
This ratio can be utilized to establish whether it would be beneficial to invest in the firm, it is one of the most important markers for the investors to decide if the company is a good investment. A higher return on equity suggests that the firm adequately manages its equity financing (Bint-Tariq et al, 2020). in the year 2019, there was a steep incline from 2018, as the ratio almost doubled, from 20% in 2018 to 38% in 2019. The previous results show that Microsoft produces returns that satisfy its investors. Profit Margin This ratio represents the remainder of the earnings from sales after deducting all costs and expenses, which include but are not limited to dividends, interest, and taxes. A high-profit margin is in favor of the company (Zutter & Smart, 2019). Microsoft’s profit margin ratio increased by 16% in 2019, where the ratio reached its highest value of 31%.. Factors contributing to the changes in profit margin during this period is the changes in net income, as it increased 2019 Debt Ratio This ratio represents the capability of the firm to fulfill its long term obligations, it provides valuable insight for the creditors on the security of whether their funds would be returned. A high debt ratio indicates that the company is borrowing more funds to operate (Zutter & Smart, 2019). The Debt Ratio of Microsoft was 0.7 in 2017, inclining from 0.63 in 2016. In 2018, the ratio decreased slightly from 2017 to 0.68, then it declined
default. But for those looking to sell their securities sooner, an understanding of what drives secondary market performance is essential. The price of a bond relative to yield is key to understanding how a bond is valued. Essentially, the price of a bond goes up and down depending on the value of the income provided by its coupon payments relative to broader interest rates. If prevailing interest rates increase above the bond’s coupon rate, the bond becomes less attractive. In this situation, the bond price drops to compensate for the less attractive yield. Conversely, if the prevailing interest rate drops below the bond’s coupon rate, the price of the bond goes up as it becomes more attractive. For example, if a bond has a 4% coupon and the prevailing interest rate rises to 5%, the bond becomes less attractive and so its price will fall. On the other hand, if a bond has a 4% coupon and the prevailing interest rate falls to 3%, that bond becomes more attractive which pushes up its price on the secondary market.
FACTORS THAT INFLUENCE THE PERFORMANCE OF
BONDS
Apart from interest rate movements, there are three other key factors that can affect the performance of a bond: market conditions, the age of a bond and its rating. Let’s look at each in turn. Market conditions Broader market conditions can have an impact on bonds. For example, if the stock market is rising, investors typically move out of bonds and into equities. By contrast, when the stock market is going through a correction, investors may seek the perceived safety of bonds. Ratings Bonds are assigned credit ratings by ratings agencies, such as Moody’s and Standard & Poor’s. The ratings signal to investors the agency’s view of the issuer’s ability to pay the interest and principal when due. If a bond’s credit rating is downgraded, the bond becomes less attractive to
investors and its price will likely fall. Bond issuing companies are given a
credit rating by credit rating agencies considering several financial factors,
including the company’s P&L reports, past performance and repayment
history. CRISIL, SEBI, CARE are some such rating agencies. If a company’s
rating is downgraded, this affects the market value of that company’s bond
prices.
The age of a bond The age of a bond relative to its maturity date can affect pricing. This is because the bondholder is paid the full face value of the bond when the bond reaches maturity. As the maturity date gets closer, the bond's price
will move towards par. Market fluctuations in bond prices stabilise closer to
the face value as the maturity date nears. This is because the investors gets
the face value of the bond on maturity, irrespective of market factors. It is very
important that an investor considers the date of maturity while investing in the
secondary market
Prevailing Interest Rate
The market price of a bond varies depending on the value of the coupon rate in
comparison to the broader interest rates. For example, if the coupon rate of a
bond is 6% and the prevailing market interest rates rise to 7%, then the price
of the bond falls and vice versa.
Supply and Demand There's an old adage in the stock market that stocks go up when "there are more buyers than sellers." It's a tongue-in-cheek comment, but the principle behind it is true. The single most important factor in moving a stock price is the supply and demand for the shares. Stocks are bought and sold on an open market using a bid-ask system. The bid price is the highest price that buyers are willing to pay for a stock, and the ask price is the lowest price at which sellers will give up their shares. If there are a lot more buyers than sellers for a stock, those ask prices will be taken out, driving the share price higher. Let's say Stock A has 100 shares available for sale at $50.25 per share. Another 100 shares are available at $50.26, and another 100 shares are available at $50.27. If someone comes in with a market order to buy 300 shares, that one trade would be executed at those three different prices. In one trade, the stock will rise from $50.25 per share to $50.27. In this simple example, that's not a huge jump, but it demonstrates how stock prices move up. If the buy order was for 10,000 shares instead, the stock would trade up until all 10,000 of those shares were filled, possibly pushing the stock up by 10 cents or more per share. Company Financial Performance
to generate sales. In addition, its debt ratios imply that its debt management is adequate, as its debt ratio is over 60%. The debt ratio indicates that they would likely be able to cover all debt acquired when due and its times interest earned ratio is incredibly high verifying that it is able to provide interest payments when required. Regarding the firm's profitability ratio, the profit margin and return on equity ratio and assets have improved over the year reaching its peaks in 2019 from previous years. Microsoft appears to manage its finances effectively and shows promising potential for substantial growth in the future.
References
Alfalahi, L., & Nobanee, H. (2019). Conceptual Building of Sustainable Economic Growth and Corporate Bankruptcy. Retrieved from http://dx.doi.org/10.2139/ssrn. Alkaabi, H., &Nobanee, H. (2019). A Study on Financial Management in Promoting Sustainable Business Practices & Development. Retrieved from http://dx.doi.org/10.2139/ssrn. Almarar, F., & Nobanee, H. (2020). Sustainability and Risk: A Mini-Review. Retrieved from http://dx.doi.org/10.2139/ssrn. Corporate Finance Institute. ( n.d.). Quick Ratio. Retrieved May 25, 2020, from https://corporatefinanceinstitute.com/resources/knowledge/finance/quick- ratio-definition/ Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of Accounting. Rice University_._ Retrieved from https://openstax.org/books/principles-financial- accounting/pages/financial-statement-analysis
Al Nuaimi, Aysha and Nobanee, Haitham, Corporate Sustainability Reporting and Corporate Financial Growth (2019). Available at SSRN: https://ssrn.com/abstract=3472418 or http://dx.doi.org/10.2139/ssrn. Zutter, J.Z., & Smart, B.S. (2019). Principles of Managerial Finance, Global Edition. [VitalSource Bookshelf]. Retrieved from https://online.vitalsource.com/#/books/
