3 BONDS 11











This report is aimed at evaluating the financial annual reports of Microsoft Corporation in comparison to its previous year ratios as a benchmark to ascertain the company’s performance for the year 2019, as well as analysing the firm’s stock and bond value, including risk and returns.

This report would make use of trend analysis to evaluate the firm’s annual financial data that was retrieved from the company’s web page which would be attached to the appendix.

    • Profitability ratios

These are budgetary metrics of profitability that are used to determine the ability of a company to generate profit as opposed to its sales, labour costs, monetary financial capital and the interest of creditors after some period, using details from the years 2019 and 2018.

  1. Gross margin ratio

This ratio shows the productivity level in proportion of how the firm sells its stocks


Formula 2019 2018

Gross margin = 82933

Sales                  125843



Gross margin = 72007

Sales                  110360


0.66 0.65

There is no significant change in the gross margin ratio, although there is a slight increase of 0.01

  1. Operating profit margin

That percentage demonstrates the degree to which the company profits from covering variable costs of production, comparable to raw products, and pay rates, prior to the appraisal issuance.

Formula 2019 2018
Operating income / net sales 42,959 / 125843 35058 / 110360
Ratio 0.34 0.32

The company has a slow but steady increase in its margin when compared to 2018, which is still very sustainable for the firm


  • Net profit margin

It measures the amount of compensation remaining after the maximum sum of the costs had been removed from the bargain. The calculation indicates the proportion of the benefit that a company will extract from its full-scale bargaining.

Formula 2019 2018
Net income / net sales 39240 / 125843 16571 / 110360
Ratio 0.31 0.15

The profit margin has risen considerably, showing that the company has high prices for its products and controls it economically.

  1. Return on asset

This assesses how much benefit the firm can actualize from utilizing cash admirably, it gauges how proficiently the company can deal with its resources to maximise gains within a time period

Formula 2019 2018
Net income  / total asset 39240 / 286,556 16571 / 258,848
Ratio 0.14 0.06

The increase in 2019 shows a high level of asset management by the firm, its ability to convert its assets to profit is at double rate and shows investment worthiness compared to 2018


  1. Return on equity

It calculates and forecasts a company’s ability to benefit from investors ‘ interest in the company.

Formula 2019 2018
Net income /

Stockholder equity

39240 / 102330 16571 / 82718
Ratio 0.38 0.20

The firm has a positive earnings stream as investor’s funds are adequately utilised to grow the firm and maximize profit


  • Liquidity ratios

Liquidity is a term characterized as an organisation’s ability to meet its monetary debt. The liquidity proportion is then calculated to measure the capacity of an organization to pay its transitory bonds.

  1. Current ratio

It is a typical proportion of a company’s temporary cash flow. The percentage is used by experts to determine whether they are required to put money into a company or to lend money. The association’s capability to manage its tabs is thus calculated.

Formula 2019 2018
Current assets / current liabilities 175,552 /69,420  169,662 / 58,488
Ratio 2.52 2.90

The 2019 current share amounts to 2.52; it shows that the company has available 2.52 of current assets for every $1 of current liabilities. In 2018 it was a slightly higher current-account value of 2.90 per dollar of current liabilities. Throughout the year, the proportion showed slight decay.

  1. Quick ratio

The acid ratio is also referred to as this proportion. This proportion is driven to quantify how well an organization with its most fluid resources is able to meet its temporary commitments. Bear in mind that dynamic capital can be turned into money immediately. The overwhelming majority is incredibly elastic, with the exception of stocks, which often bring a greater commitment to money handling.

Formula 2019 2018
cash  & equivalents + short-term investments + Accounts receivable / current liabilities 163343 /69,420 160249 / 58,488
Ratio 2.4 2.7

In 2018 it was 2.7; it went down throughout the year. Since this proportion dispenses with Inventory (the least fluid Current Asset), it gauges how well an association can meet its present commitments without falling back on the closeout of its Inventory. 163343 /69,420

  • Cash ratio

This ratio shows an organization’s most fluid advantages for its present liabilities. The proportion is utilized to decide if a business can meet its momentary commitments – basically, regardless of whether it has adequate liquidity to remain in business. It is the most moderate of all the liquidity estimations.

Cash ratio 2019 2018
Cash and its equivalents / current liabilities 11356/69420 11946 / 58488
ratio 0.16 0.20

The company is not very liquid in cash, because it has only 0.16 to cover for every dollar of liability, and compared to the previous year, there is a decline in cash liquidity, which could be as a result of the firm investing more cash into the business for more growth.


  • Activity ratios

These ratios assess how well a firm successfully employs its working resources and transfers them into deals or money; by dissecting fixed resources, inventories, and receivables, they help to evaluate the workability of a company. This reflects the financial well-being of the company as well as the use of the reports.

  1. Inventory turnover ratio

This ratio equates how often the company sells its stock totally in a particular period.

Formula 2019 2018
Cost of goods sold / inventory 42910 / 2063 38353 / 2662
Ratio 20.7 14.4

The company has an impressive turnover rate, which has increased significantly from the previous year, and shows that the company is not hoarding a lot of cash in its inventories.


  1. Total asset turnover ratio

This is a ratio that depicts an estimate of how proficient an organization’s asset is properly utilized to generate more income and revenue from sales to the firm.

Formula 2019 2018
Total sales / total average asset 125843 / 272702 110360 / 254580
Ratio 0.46 0.43

The company’s efficiency to use its assets in creating revenue has improved over the year


  • Accounts receivables turnover ratio

It is utilized to quantify the compelling position of an organization at expanding credits and gathering obligations. By and large, the increase in receivables turnover is recorded; the business becomes more effective at gathering sales credit from its clients.

Formula 2019 2018
Net sales / average accounts receivables 125843 / 28002.5 110360 / 24456
Ratio 4.49 4.51

In 2018, the Receivable Ratio was 4.51. The slight decline in this proportion shows a significant issue in an assortment of clients. The issue might be because of free charging and assortment rehearses. Along these lines, the organization needs to make amends to its credit arrangement and fix the issue. To see the entire picture, the organization ought to likewise inspect the normal time allotment that it takes to gather its Receivables and amending the Collection Period time


  1. Fixed asset turnover ratio

The Ratio gauges the effectiveness of the firm in using its fixed resources. It reflects how income is generated from the business fixed resources. Dissimilar to the all-out Assets turnover proportion that spotlights on the absolute resources, fixed resources turnover proportion concentrates just on fixed resources of the business that are used

Formula 2019 2018
Sales / average fixed assets 125843 / 32968.5 110360 /26597
Ratio 3.81 4,14

Over the year the ratio has declined, perhaps due to the fact that the company has over-invested on fixed assets within the year, the company needs to maximize the use of its fixed assets to improve revenue.


  • Leverage ratios

            This shows how the activity of the business of an organization comes not from various financing types, such as stock or investment funds, but from obligation. It’s an important measure of the risk and the probability of failure of a given organization.

  1. Debt ratio

The obligation to resources proportion gives you the amount of your benefit base is financed with the obligation or borrowed money.

Formula  2019 2018
Total liabilities / total assets 184226 / 286556 176130 / 258848
Ratio 0.64 0.68

The company does not have a favourable debt ratio, as 68% of the company assets is  financed with debt, even though there is a slight improvement from the previous year, it is still under 0.50


  1. Debt to equity ratio

Businesses are financed by either obligation or cash contributed by proprietors or a mix of both. This ratio shows the extent to which both are used to finance the company. Utilizing more debt in financing is more hazardous for the organization than utilizing value financing. As the extent of obligation financing goes up, the danger of the firm likewise goes up. That is the reason for figuring this proportion is significant.

Formula 2019 2018
Total liabilities / shareholders equity 184226 / 102330 176130 / 82718
Ratio 1.8 2.1

The corporation has improved on its ratio as there is a decline, but the firm has to work on managing its debts to put the firm in a more favourable position.


  • Interest coverage ratio

This ratio gives estimates the proportionate measure of revenue that could be utilized to cover premium costs later on.

Formula 2019 2018
Income before income taxes / income taxes 43,688/ 4,448 36,474/19,903
Ratio 9.8 1.8

There is a drastic increase with the firm’s coverage ratio, as the corporation can pay its income taxes 9.8 times, unlike the previous year which was extremely low due to the 2018 income taxes reaching more than half of its income before tax.


  •            Market value and dividend ratios

This helps to assess the financial status of organizations that trades in the open market and can assume a job in recognizing stocks that might be exaggerated, underestimated, or valued reasonably.


  1. Earnings per share ratio

It measures the income per each remarkable portion of an organization’s stock. The computation of Earnings per share discloses the amount investors would get if the organization chose to disseminate the profits for a particular accounting period.

Formula 2019 2018
Net Income / the number of common shares outstanding 39240 / 7,673 16571 / 7700
Ratio 5.1 2.1

The more than double increase in the EPS ratio is a positive sign for investors as the company profits have improved


  1. Book value per share

This ratio contrasts a company’s regular investor’s value with the number of offers extraordinary. For the situation that the firm breaks up, it will amount to what each investor are entitled to.

Formula 2019 2018
Total shareholder equity – preferred equity / average outstanding shares 102330 / 7673 82718 / 7700
Ratio 13.33 10.74

The book value for 2018 and 2019 is extensively lower in price compared to the $159.03 in the current market. This implies that Microsoft Corporation’s stock is well respected by financial specialists since its market cost surpasses the value of the book.


  • Price-earnings ratio

What the market is willing to pay for an inventory depends on its current revenue. Financial experts often use this ratio to evaluate what an honest assessment should be by anticipating future revenues per share.

Formula 2019 2018
Market price per share / earnings per share 159.03 / 5.1 101.57 / 2.1
Ratio 31.18 48.36



With its lower percentage, it is usually a sign of poor performance both now and in the future. This might prove to be a bad investment plan compared with the prior year

  1. Dividend yield ratio

This is a budgetary ratio that estimates the money profit distribution per share for regular investors.

Formula 2019 2018
Cash dividend per share / market share price 1.84 / 159.03 1.68 / 101.57
Ratio 0.011 0.016

The company has had a decline over the year, which is not a good look for the company from investors but considering the industry where others don’t pay dividends still makes the firm’s stocks competitive.


  1. BONDS

People see bonds as a moderately steady venture giving out standard pay and comprehend that it is a type of obligation utilized by organizations and the government. Nonetheless, with regards to the intricate details of bond evaluating and execution, numerous financial specialists may discover a hole in their insight.


3.1       Bonds pricing


With regards to bonds, It is valued in two ways, firstly is the underlying cost of the security – or it’s assumed worth – which is given at first in the market. This is additionally the measure of capital that would be given back to the speculator at development notwithstanding a default. Secondly identifies with the cost of the security as it exchanges the optional market. These costs are cited as a level of the bond’s presumptive worth. For instance, if the assumed worth is $1000 and the provided market cost estimate is $990, at that point the security cost is cited as 99. Also, if the market cost is $1010, the security is exchanging at a cost of 101. At the point when the bond cost is higher than it’s assumed worth, it’s depicted as exchanging including some built-in costs to standard. Then again, when the bond cost is lower than it’s assumed worth, it is said to exchange at a rebate to standard.

3.2       Factors that affect bonds valuation and performance in the secondary market

the Speculators that plans to hold their security until its development regularly don’t have to stress over the development of security costs on the auxiliary market as reimbursement of principle would be made in full when the bond is matured, except in default. However, for investors hoping to sell theirs sooner, a comprehension of the factors that influences the auxiliary market execution is vital

  1. FICO assessment

A FICO score can give data on the capacity of the guarantor to make intrigue instalments and reimburse a head-on an obligation, and bonds are granted FICO evaluations by evaluation officer. In the estimate of the rating company, the greater the FICO ranking, the greater the guarantor will be required to fulfil his instalment duties. Without a doubt, the cost of their bonds is rising if a bond’s FICO evaluation is minimized, it will be less attractive to financial experts and the cost will probably fall. If the bond value is reduced, it is less interesting to financial specialists.

  1. Economic situations

More extensive economic situations can affect bonds. For instance, if the securities exchange is rising, financial specialists ordinarily divert from bonds and into stocks. Paradoxically, when the securities exchange is experiencing an adjustment, financial specialists may look for the apparent wellbeing through bonds.

  1. Inflation

Bond costs generally fall when the extension is on the rise. When growth slows, there is an increase in the cost of debt. This is because the growth of your organization reduces the value you benefit from your sector. The time you start developing the bond, so to speak, is worthless in the current dollars for the amount you earned on your business.

  1. Interest rate

For a fact, bond prices decline as credit costs rise. When loan costs decline, security costs rise. The risk of inflation often drives domestic banks to raise their goal cost of financing. When the risk-free rate of return increases, corporate security returns also have to go up to remedy. The lower gains lead to higher expenses and make financial staggers much more vulnerable.


Developments in the securities exchange can be very unpredictable and in some cases, developments in share costs can appear to be separated from monetary variables. Be that as it may, there are sure hidden variables which impact the development of offer costs and the securities exchange.

By and large, offers will be in more prominent interest when financial specialists have the possibility of procuring more profits. Along these lines factors which make firms progressively beneficial will in general reason an ascent in financial exchanges.

4.1       Factors that affect stock valuation and performance in the secondary market

  1. Industry performance

For similar industries, distribution prices for the companies must periodically switch pairs. This is because economic circumstances have a similar influence on companies in a similar industry. Nevertheless, the production expenses of a company, because companies are aiming for a comparable sector, would benefit from a bit of horrific news to its competitor.

  1. Effect of World Events

The expense of production and the financial transaction between organisations, after all, is said and finished can be affected by international events such as conflict and global chaos and cataclysmic incidents, and cultural injustice.

  1. Financing costs.

Lower financing expenses could make shares logically engaging for 2 reasons.  Reduced advance costs assist in bolstering money related improvement making firms progressively beneficial. Moreover, reduced credit costs make shares commonly more appealing than putting aside money in a bank or holding securities. In the event there is a decline in security yield, it might urge financial specialists to invest in shares which give a reasonably better benefit.



Risk is profoundly linked to return. Generally speaking, expanded quantifiable potential profits go hand in hand with the increased danger. Task explicit risk, industry-explicit hazard, aggressive hazard, global hazards, and market chance incorporate various types of hazards. Return refers both to profits or unfortunates arising from the exchange of security.

Speculation arrival is expressed as a cost and assumed to be a random attribute that requires some opportunity within a certain area. Many factors impair the kind of income that financial professionals may receive from stock exchanges.


Microsoft Corporation’s profitability ratios are positive; the firm made general increase within one year and improved its ratios, but the gross margin ratio and operating profit margin increase are minimal and for general productivity, all ratios should be improved, the company liquidity ratio has all declined over the year as it may be as a result of investing more in the company’s other assets, the activity ratio for the corporation is at a 50:50 stand, as two of the ratios has improved over the year and the other two receded, it was noted from the ratios that the company needs to improve in its debt management even though there has been slight increase compared to the previous year, the company’s stocks are overvalued and has doubled its EPS over the year.

Overall, the company is in a stable position but still needs more improvement for growth.



Will, K. (2019) Probability Ratios Definition, Corporate Finance And Accounting. Retrieved from https://www.investopedia.com/terms/p/profitabilityratios.asp

Wolski, C. (2019). Five Factors Or Events That Affect The Stock Market. Small Business – Chron.com. Retrieved from http://smallbusiness.chron.com/five-factors-events-affect-stock-market-3384.html


8.1       Income statement of Microsoft Corporation for the year 2019

(In millions, except per share amounts)
Year Ended June 30, 2019 2018 2017
Product $66,069 $64,497 $63,811
Service and other 59,774 45,863 32,760
Total revenue 125,843 110,360 96,571
Cost of revenue:
Product 16,273 15,420 15,175
Service and other 26,637 22,933 19,086
The total cost of revenue 42,910 38,353 34,261
Gross margin 82,933 72,007 62,310
Research and development 16,876 14,726 13,037
Sales and marketing 18,213 17,469 15,461
General and administrative 4,885 4,754 4,481
Restructuring 0 0 306
Operating income 42,959 35,058 29,025
Other income, net 729 1,416 876
Income before income taxes 43,688 36,474 29,901
Provision for income taxes 4,448 19,903 4,412
Net income $39,240 $16,571 $25,489
Earnings per share:
Basic $5.11 $2.15 $3.29
Diluted $5.06 $2.13 $3.25
Weighted average shares outstanding:
Basic 7,673 7,700 7,746
Diluted 7,753 7,794 7,832


8.2       Microsoft Corporation balance sheet for the year 2019

(In millions)
June 30, 2019 2018
Current assets:
Cash and cash equivalents $11,356 $11,946
Short-term investments 122,463 121,822
Total cash, cash equivalents, and short-term investments 133,819 133,768
Accounts receivable, net of allowance for doubtful accounts of $411 and $377 29,524 26,481
Inventories 2,063 2,662
Other 10,146 6,751
Total current assets 175,552 169,662
Property and equipment, net of accumulated depreciation of $35,330 and $29,223 36,477 29,460
Operating lease right-of-use assets 7,379 6,686
Equity investments 2,649 1,862
Goodwill 42,026 35,683
Intangible assets, net 7,750 8,053
Other long-term assets 14,723 7,442
Total assets $286,556 $258,848
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $9,382 $8,617
Current portion of long-term debt 5,516 3,998
Accrued compensation 6,830 6,103
Short-term income taxes 5,665 2,121
Short-term unearned revenue 32,676 28,905
Other 9,351 8,744
Total current liabilities 69,420 58,488
Long-term debt 66,662 72,242
Long-term income taxes 29,612 30,265
Long-term unearned revenue 4,530 3,815
Deferred income taxes 233 541
Operating lease liabilities 6,188 5,568
Other long-term liabilities 7,581 5,211
Total liabilities 184,226 176,130
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,643 and 7,677 78,520 71,223
Retained earnings 24,150 13,682
Accumulated other comprehensive loss (340) (2,187)
Total stockholders’ equity 102,330 82,718
Total liabilities and stockholders’ equity $286,556 $258,848