E395 Ias Project

Ratios for 2007 formula calculation Oracle calculation Microsoft Comments

1. Earnings per Share Net income/Shares outstanding 4274/5170 $0.83 1.44 $1.44 The earnings per share of Microsoft is higher than oracle due to better net income

2. Current Ratio Current assets less current liabilities 12883/9387 1.37 40168/23754 1.69 times Microsoft has more current assets than Oracle to pay its current debts.

3. Gross Profit Rate Gross profit/Sales 1-(3349/17996) 81.39% 1-(10693/51122) 79.08% The gross profit margin of oracle is slightly higher than Microsoft.

4. Profit Margin Ratio Net income/Sales 4276/17996 23.76% 14065/51122 27.51% The net profit margin of Microsoft is higher than oracle, it may be due to better control over operating expenses.

5. Inventory Turnover Ratio Cost of goods sold/Average inventory NA NA 10693/1302.5 8.21 times The inventory turnover of Microsoft is around times in a year

6. Days in Inventory 365/inventory turnover NA NA 365/E7 44 days Microsoft sells its inventory in 44 days.

7. Receivables Turnover Ratio Sales/Account receivable 17996/3548 5.07 51122/10327 4.95 times No big difference in account receivable of two companies

8. Average Collection Period 365/account receivable turnover 365/C9 72 365/E9 73.73 days Both companies are recovering its account receivable almost in same time.

9. Asset Turnover Ratio Sales/Averages total assets 17996/34572 0.52 51122/63171 0.81 times The ratio shows better and effective utilization of Microsoft of its assets as compared to Oracle.

10. Return on Assets Ratio Net income/Average total assets 4276/31800.5 13.45% 14065/63171 22.26% The better utilization of assets resulted in better return for Microsoft as compared to Oracle.

11. Debt to Total Assets Ratio Total liabilities/total assets 17653/34572 51.06% 32074/63171 50.77% Debt financing for total assets is almost same for both companies.

12. Times Interest Earned Ratio EBIT/Interest expense 5974/343 17.42 NA NA times Oracle has good amount of operating income to support its interest expense.

3. Payout ratio Dividend /Net income NA NA 3837/14065 27.28% No dividend has been paid by Oracle.

14. Return on Common Equity Net income/Average stockholders equity 4276/15965.5 26.78% 14065/35600.5 39.51% ROE of Microsoft is far better than Oracle.

15. Free Cash Flow Operating cash flow-capital expenditure-debt payment 5520-319-2418 $2,783 17796-2264 $15,532 Microsoft has hefty amount of free cash flow as compared to Oracle.

16. Current Cash Debt Coverage Operating cash flow-dividend/average current liabilities 5520/8158.5 67.66% (17796-3837)/23098 60.43% Oracle has more cash available to meet its current liabilities as compared to Microsoft

17. Cash