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Acct 540 Final Project Essay

1113 words - 5 pages

Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab and also include your commentary. |   |   |   |   |   |   |   | |
The financial statements used to calculate these ratios are available in Appendix A and Appendix B of your textbook. |   |   |   |   |   |   |   |   |
  |   |   |   |   |   |   |   |   |
  |   | Oracle | Microsoft | Interpretation and Comparison between the two companies' ratios (Reading the Appendix of Chapter 13 will help you prepare the commentary) |
  |   |   |   |   |   |   |   | The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate ...view middle of the document...

0% | $14,065 | = | 27.5% | Microsoft earns over 27 cents for every $1 dollar in
sales whereas Oracle earns over 23 cents so the
advantage goes to Microsoft for this profitabiility
ratio. |
  | Net Sales | $35,622 |   |   | $51,122 |   |   | |
  |   |   |   |   |   |   |   | |
  |   |   |   |   |   |   |   | |
Inventory Turnover | Cost of Goods Sold | $4,191 |   | 13.7 | $10,693 |   | 9.5 | Oracle has a slight edge in this liquidity measure
because they are selling their inventory faster than
Microsoft |
  | Average Inventory | $306 |   | times | $1,127 |   | times | |
  |   |   |   |   |   |   |   | |
  |   |   |   |   |   |   |   | |
Days in Inventory | 365 days | 365 | = | 27 | 365 | = | 38 | This ratio measures the average number of days
inventory is held. Since Oracle has the edge in
inventory turnover, we also see that they take nine
less days than Microsoft to sell their inventory. |
  | Inventory turnover | 13.7 |   | days | 9.5 |   | days | |
  |   |   |   |   |   |   |   | |
  |   |   |   |   |   |   |   | |
Receivable Turnover Ratio | Net credit sales | $17,996 | = | 5.1 | $51,122 | = | 5.0 | All sales are assumed to be credit sales for Oracle
and Microsoft. Oracle turns over their receivables at
a 5.1 clip while Microsoft turns their receivables 5.0 times so Oracle has the advantage for this liquidity ratio which measures how quickly a company converts its receivables to cash. |
  | Average Net Receivables | $3,548 |   |   | $10,327 |   |   | |
  |   |   |   |   |   |   |   | |
Average Collection Period | 365 | 365 | = | 72.0 | 365 | = | 73.7 | This liquidity ratio measures the average number
of days it takes for a company to collect their
receivables. Since Oracle has the edge in
receivables turnover, we also see that they take one
less day than Microsoft to convert their receivables
to cash |
  | Receivable Turnover Ratio | 5.1 |   | days | 5.0 |   |   | |
  |   |   |   |   |   |   |   | |
  |   |   |   |   |   |   |   | |
Assets Turnover Ratio | Net Sales | $17,996 | = | 0.57 | $51,122 | = | 0.39 | Oracle has the advantage for this profitability ratio
which measures how efficiently a company uses its
assets to generate sales. |
  | Average Total Assets | $31,801 |   |   | $132,768 |   |   | |
  |   |   |   |   |   |   |   | |
  |   |   |   |   |   |   |   | |
Return on Assets Ratio | Net Income | $4,274 | = | 13.4% | $14,065 | = | 10.6% | Oracle earns 13.4 cents for every dollar of assets
whereas Microsoft earns 10.6 cents for every dollar
of assets so Oracle has the advantage for this
profitability ratio. |
  | Average Total Assets | $31,801 |   |   | $132,768 |   |   | |
  |   |   |   |   |   |   |   | |
  |   |   |   |   |   |   |   | |
Debt to Total Assets Ratio | Total Liabilities | $17,653 | = | 51.1% | $32,074 | = | 50.8% | Oracle would have to liquidate 51.1% of its assets at their book value to pay off all of...

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