FINANCIAL REPORTING & MANAGEMENT ACCOUNTING Case Study

FINANCIAL REPORTING & MANAGEMENT ACCOUNTING - Case Study Example From there, they gained a contract from IBM and in 1985, they both partnered in the development of the OS/2 operating system. That same year, her first retail version of Microsoft Windows came out and in 1986 they went public with an initial price of $21 per share, closing the day in $28. Today, Microsoft Corporation stands as the worldwide leader in software, services and varied ideas and solutions that helps not only businesses but broadens and makes knowledge easier. They have as their registered trademarks today, MS-DOS, .NET, office XP, 2007 office system, windows server, and windows versions like, 3.0, 95, 98, 2000, XP and Vista. As of August 2007, the corporation had a total real estate portfolio of 24,166,129square feet (in 565 sites) of which 13,918,070 were leased (in 482 sites) and 10,248,059 were owned (in 83 sites). Microsoft had a higher profit margin in 2003 which witnessed a sharp drop in 2004. This went up again in 2005 but after that period, it has been dropping yearly. However her return on assets which also dropped in 2004 is increasing from 2005 on a yearly basis. But, the increase on Microsoft's return on equity after her drop from 2003/2004 is very great. Her basic earning power too has improved greatly. The receivable turnover of Microsoft has been somewhat reducing which denotes the fact that she gives out more free ride to its customers. This turnover should increase and thus an increase in physical cash. This poor receivable turnover is also realized when we take a proper look into the day's sales outstanding. It's on the increase which is not good for the corporation. Inventory turnover too is dropping which is bad whereas both fixed asset turnover and total asset turnover are slightly increasing. In all, Microsoft is not managing her assets properly and greater care must be placed on this issue. Exhibit A-2: Asset Utilization Ratios Asset Management 2003 2004 2005 2006 2007 Receivable Turnover 6.19 6.25 5.54 4.75 4.51 DSO 58.92 58.36 65.87 76.79 80.95 Inventory Turnover 50.29 87.49 81.03 29.96 45.36 FA Turnover 1.56 1.69 1.80 2.15 2.22 TFA Turnover 0.40 0.40 0.56 0.64 0.81 Liquidity Any company's liquidity position is determined by comparing assets to liabilities; current liquidity considers current assets and current liabilities only. The Quick Ratio is similar to Current except that it carves out inventories. Microsoft has a very bad liquidity situation when we look on the two tests and this denotes the fact that, they have a weaker position to handle short-term obligations. Exhibit A-3: Liquidity Ratios Liquidity 2003 2004 2005 2006 2007 Current Ratio 4.22 4.71 2.89 2.18 1.69 Acid Test/ Quick ratio 4.17 4.69 2.86 2.12 1.64 Debt Utilization Having her debt ratio together with her times interest earned going up denotes the fact that this corporation is very risky as the years go by. But, as they carry more debt, they have a better coverage of debt as their EBITDA coverage reduces, thus their interest payments are well