Financial Accounting 504 Final Project Essay

As noted in Wikipedia prophesier is headquartered in Redwood, California. It was founded in 1977 and is the worlds third largest soft wear developer in gross gross sales. harmonise to hayseed Finance illusionist is a multi-faceted ope dimensionn. oracle provides a commodious amount of services for the internet and computer. It provides cloud applications, IT consulting services, licenses middleware software which includes database and database management. It has 115,000 full beat employees and is run by co-founder, chief operating officer Larry Ellison who has been the only CEO of the company since its inception. Also noted in Wikipedia he is the top paid CEO in the world. In 2013 illusionist legitimately has an operating funds lam of 13.72B with revenues of 37.15B which can be found in Yahoo Finance.Microsoft is a steer software company started by Bill Gates and Paul Allen in 1975. The companys headquarters is located in Redmond, Washington where handle seer it dev elops, licenses, manufactures and support a wide range of computing sources, as documented in Wikipedia. Yahoo finance reports that in addition to licensing and manufacturing software over the globe it also designs hardware and has recently entered into the hardware manufacture with its new tablet. It also has a entertainment division which is amenable for the manufacturing of Xbox360 gaming and consoles, Kinect for Xbox and video games among some other products. It has a total of 94,000 full quantify employees and can be credited for creating 3 billionaires and 12 millionaires from the companys ope balancens. Microsoft currently has a cash flow of 73.79B with revenues of 76.01B for 2013.Interpretation and Comparison between the two companies ratios (Reading the Appendix of Chapter 13 will help you prepare the commentary) visionary Corporation Microsoft CorporationEarnings per shareAs given in the income statement$1.69Basic Common$2.73Microsoft has shown to adjudge a higher EP S than illusionist. real ratioCurrent assets Current liabilities$39,174 $14,192=2.76$74,918 $28,7742.60prophet is demonstrate more(prenominal) tender current ratio than Microsoft. This ratio depicts for every sawbuck of current liabilites it has the single amount in current assets. thoroughgoing(a) Profit Ratio glaring profit network Sales Gross Profit = net sales COGS illusionist 35,622 8,398 = 27,224 Microsoft 69,943 15,577 = 54,366$27,224 $35,622=76.4%$54,366 $69,94377.7%Microsofts Gross Profit Ratio is slightly develop than prophesier.Profit margin ratio bread Income gelt Sales$8,547 $35,622=24.0%$23,150 $69,94333.1%Microsoft has a get out Profit Margin Ratio than prophesier. catalogue Turnover live of Goods Sold intermediate Inventory second-rate Inventory 2011 + 2010/2 visionary 303 + 259/2 = 281 Microsoft 1,372 + 740/2 = 1056$8,398 $28129.9 times$15,577 $1,05614.8 timesOracle shows a significantly higher turnover than Microsoft.Days in Inventory365 days Inv entory turnover365 29.9=12 days365 14.825 daysOracle has better result than MicrosoftReceivable Turnover RatioNet credit sales Average Net Receivables Average Net Receivables 2011 +2010/2 Oracle 6628 + 5585/2 = 6107 Avg NR Microsoft14987 + 13014/2 = 14001 Avg N$35,622 $6,107=5.8$69,943 $14,0015.0Microsofts Receivable Turnover is faster than Oracle.Average aggregation Period365 Receivable Turnover Ratio365 5.8=62.6 days365 5.073.1Oracle has a better result on the collection period.Assets Turnover RatioNet Sales Average original Assets Average Total Assets = 2011+2010/2 Oracle 73535 + 61578/2 = 67557 Microsoft 108704 + 86113 = 97409$35,622 $67,557=0.53$69,943 $97,4090.72Microsoft shows a better ratio. pass away on Assets RatioNet Income Average Total Assets$8,547 $67,557=12.7%$23,150 $97,40923.8%Microsoft has a better return on their assets.Debt to Total Assets RatioTotal Liabilities Total Assets$33,290 $73,535=45.3%$51,621 $108,70447.5%Microsoft is slightly higher so Oracle has a b etter ratio.Times Interest Earned RatioNet Income + Int Expense + Tax Expense Interest Expense$12,219 $808=15.128,366 29596.2Microsoft has a a lot healthier ratio than Oracle.Payout ratioCash dividend declared on putting surface stock Net income$1,061 $8,547=12.4%$5,180 $23,15022.4%Microsoft has a higher rate of dividend pay outsReturn on Common Stockholders EquityNet income Preferred stock dividend Average common stockholders equity Oracle Avg SE 40245 + 31199/2 Microsoft Avg SE 57083 + 46175/28,547 35,722.00=23.9%$23,150 $51,62944.8%Microsoft earned more on the dollar of their net income for each dollar of the stockholders equity.Free cash flowCash provided by operations minus capital expenditures minus cash dividends paid$9,703=$9,703$19,459$Microsoft has a considerable amount more Free cash 19,459 flow than OracleCurrent cash debt coverage ratioCash provided by operations Average current liabilities$11,214 $14,442=0.78$26,994 $27,4610.98Microsoft has a better ratio of paying debt at heart the year.Cash debt coverage ratioCash provided by operations Average total liabilities$11,214 $31,835=0.35$26,994 $45,7800.59Microsoft has a better ratio.Price/Earnings ratio food market price as of 06/30/2011 EPS as of 06/30/2011$34.22 $1.69=20$26.87 $2.7310Oracle fairs better than Microsoft with the investors projection of the strength of future requitalLiquidity Overall Oracle has shown to a better liquidity ratio than Microsoft. Some areas the two companies are relatively close in liquidity performance as portrayed in the current ratio. In other areas Oracle proves to have much better performance than Microsoft as depicted in the inventory and days in inventory ratios however and current ratio. Oracle also has a faster collection period than Microsoft as reflected in the average collection period ratio. I would declare Oracle as having a better liquidity standing than Microsoft.Solvency Microsoft is superior to Oracle in this ratio category. Although Microsoft has a little more risk than Oracle in the debt to current assest ratio which means that if necessary Oracle has a better opportunity to convert assets in to cash with a 45.3% composition Microsoft is at 47.5% however this is the only ratio that Oracle is more well-disposed than Microsoft. With Microsofts free cash flow of $19,459 billion versus Oracles $9,703, Microsoft is least likely to have the need to liquidate their assets.Free cash flow ratio gives insight to a companys accomplishment power, ability to eliminate or minimize debt and allows for a higher dividend payout. Microsoft has a better current cash debt to current liability ratio as well. For evey $1 in liability Microsoft as .98 cash from operating activities magic spell Oracle has .78 from operating activities for every $1 of current liability. Given these depth psychology Microsoft has a better overall solvency status than Oracle.Profitability This category of ratios is the more focused one by investorsbecause it gives the most accurate prognosis of a companys most gain out of investmens from investors. Beginning with Gross Profit ratio the two companies are very close with Microsoft showing a 77.7% and Oracle showing a 76.4% they both fair bewitching well in gross profits. Microsoft has an advantage over Oracle in all ratios in this category except for Price earning sharing ratio. The payout ratio and the return on common stockholders equity ratio are significantly higher than Oracles but Oracle has a higer price earnings per share ratio as utter earlier which signifies that investors believe that Oracles stock is going to growing over a period of time.Conclusion Although based on the ratios Oracle seems to be a safer investment and deemed by investors for the fiscal year of 2011 to have higher potential in the market and as noted by Eddie Beverage in an online article on Five Capital website Oracle has shown consistency over the past decade than Microsoft with trending increases. Howeve r given that Microsoft has a substantially higher payout and higher return on stockholders equity I would take the risk and go with Microsoft.Beverage, E. (2011, Oct 21). Microsoft V Oracle You know you want one. Retrieved from Seeking Alpha. Oracle Corporation. (n.d.). Retrieved from Wikipedia http//en.wikipedia.org/wiki/Oracle_Corporation Weygandt, J., Kimmel, & Kleso, D. (2011). Financial Accounting. Hoboken John Wiley & Sons, Inc. Yahoo Finance. (n.d.). Retrieved June 22, 2013, from Yahoo http//finance.yahoo.com/q?s=ORCL Yahoo Finance. (n.d.). Retrieved June 22, 2013, from Yahoo http//finance.yahoo.com/q?s=MSFT Wikipedia. (n.d.). Retrieved June 22, 2013, from Microsoft http//en.wikipedia.org/wiki/Microsoft Wikipedia Oracle Corporation. (n.d.). Retrieved June 22, 2013, from Wikipedia