ANALYSIS AND CRITICAL EVALUATION OF A COMPANY’S CONSOLIDATED
FINANCIAL HEALTH, COMPARED TO ITS COMPETITOR AND THE INDUSTRY
This module is Cost and Financial Management. You have to choose two companies competitors that is
two different companies but operating in the same industry. For examples in oil and gas industry(BP VS
Shell etc) or from Engineering industry and so on.
I need brilliant writer.
This Report seeks to depict the financial health of Microsoft Corporation (Company A) in
comparison to the financial health of Oracle Corporation (Company B) which is a competitive
company within the Software industry, as well as the Industry at large. It Uses various financial
ratios for instance, Liquidity, efficiency, profitability among others. The data on financial
statements of the two companies is obtained from their websites respectively and proper analysis
of the various ratios conducted. The results show that Microsoft Corporation has substantial
financial health, however in comparison to that of oracle, Oracle has a greater consolidated
financial health within the industry.
Basic company information
Company’s financial health: 2
Both Oracle and Microsoft corporations fall under the software industry. Oracle is an American
based company, that deals with manufacturing of both hardware and software systems for
various businesses for example, database management systems, it has its headquarters in
California and traces his foundation to 1977, by Ellison Lary (Jacobs 2015). Oracle has had a
consistent financial growth over the recent past. This has been made possible by the fact that t,
the company has been buying other companies, and for example in 2010 it bought Sun
Microsystems. Its growth has also been brought about by natural causes within its operations
.Oracle has brought a lot of competitiveness within the software industry. Microsoft Corporation
was founded around 1975 by Bill Gates and Paul Allen (Johnson & Beehler, 2008). It is
considered the first corporation to manufacture a personal computer (PC.)
Evaluation of Financial statements/ comparative analysis
Graphical presentation of Microsoft corporation’s revenue over time
Company A (Microsoft corporation)
Company’s financial health: 3
microsoft corporatio income over time
The graph shows that Microsoft Corporation has enjoyed an increasing trend in net income
Based on Liquidity
Liquidity is measured using both the current ratio and the quick ratio
Microsoft total current assets as at 6/30/2017 = 117,537,500,000 GBP
Current liabilities =47,446,323,230 GBP
Company’s financial health: 4
Current assets as at May 2017 = GBP
Current liabilities=17777941180 GBP
Oracle Corporation has a larger Current ratio as compared to Microsoft Corporation. Therefore
Oracle is considered to be in a greater position to take care of its debts in the short run compared
to Microsoft Corporation. Both the companies, however, are in a position to take care of their
debts in the short run, since they both have a current ratio greater than 1 (Greenaway et al., 2007).
Both the companies have current assets greater than current liabilities and are therefore
considered capable of paying their debts. It is prudent to mention that current assets Ratio poise
various limitations: it fails to consider the fact that one industry may take debts through leverage
while the other industry may be striving hard to minimize its debts as much as possible.
Company A (000)
Company B (000000)
Company’s financial health: 5
Company B (Oracle Corporation) has a higher acid test ratio of 1.1326 which shows that it has a
greater ability to pay for its debts, compared to Microsoft Corporation which has an Aid test ratio
of 0.4593. The acid test of company A (Microsoft Corporation) is much lower than its current
ratio which shows that Microsoft Corporation is likely to have its current assets depending highly
on inventory (Edmister, 1972). It is sufficient to note that some businesses may depend on
inventory without necessarily being in danger. The acid test that would be considered healthy is
either 1 or above it. A very high ratio is equally dangerous
Based on profitability
The bottom line for measuring a company’s financial health is its net profitability, and this can
usually be measured using the net margin of the company
Company As the net profit margin
Company’s financial health: 6
Both company A and B, have a net profit margin of above 1, this indicates safety when there is a
rise or fluctuations in operation costs or when there is a rise in competition within the market.
When the net margin is large, it indicates a greater financial safety and that the company would
effectively commit some of its finances to expansion as well as the growth of the business.
Company B, in this case, has a larger net profit margin compared to company A. it is therefore in
order to state that company B has a larger safety with regards to its finances as compared to
company B. Noting with substance is that net profit is one of the most fundamental of the
financial health of a business. It depicts more certain outcome on the profitability of a business.
Again a low-profit-margin is never equal to a low profit (Platt, 2002, 190) Based on net profit
margin. Therefore, company B has greater financial health compared to company A. Both the
companies, however, have safe financial health, since they have a net profit margin of above 1.
Based on solvency
The financial health of a company depends on its ability to take care of its debts on ongoing,
procedural terms, not necessarily on the short-term basis as depicted by the liquidity principle.
Solvency ratios show the relationship between long-term debts and assets or equity.
The Debt to Equity Ratio is useful here since it shows the company’s sustainability in the long
run; this is because this ratio measures debts against the equity of various stakeholders.
Company’s financial health: 7
Company A (Microsoft Corporation) has a higher debt/equity ratio of 2.33 compared to the 1.49
of company B (Oracle Corporation). A high debt/ equity ratio, in this case, means or would mean
that company A might have been involved in high borrowing to finance its growth, this, in turn,
means high risks, this is because very high leveraging practices tend to bring about risks like
additional expenditures on interests. In most cases, high debt financing would put a lot of weight
on the returns of the company and subsequently reduce the number of earnings by the various
shareholders and this triples down to the profitability of the company. Very high costs of debts
may then be difficult to handle and bring about various challenges that may even grow into
bankruptcy (Rafiei et al., 2011). Bankruptcy would lead to a great loss on the part of the
shareholders as the creditors mostly would get paid during liquidation (Rochet, 2009).
Based on operating Efficiency
Operating efficiency of a company is best measured using the operating margin
Company’s financial health: 8
Company A is prone to more risks since it has a higher operating margin of 25% compared to
that of company B which is about 17%. An operation margin which is highly variable is an
indication that the company is prone to more risks. The risks may occur as a result of debts,
expansions, operations, as well as another daily running of the business. Businesses, which tend
to be prone to risks, have tended to have lower risks to the health of their finances (Porter, 1998,
80). This implies that company B would be considered to have a healthier financial system
compared to company A. The converse does apply.
Company A (Microsoft Corporation) has strong financial health, the various ratios, and
parameters including, liquidity, solvency, and proficiency have shown a negative trend in
company As financial health in comparison to company B, these, however, do not necessarily
mean that the company does not have good financial health. Taking liquidity, for example, we
realize that both the current assets ratio and the acid test ratio tend to have various limitations.
Company’s financial health: 9
The current assets ratio of Microsoft Corporation is 2.477, and the Acid test ratio is 0.4593,
which might mean that the company could be depending upon inventory. This might not bring
any dangers to the company. Analysis based on profitability also shows that Oracle Corporation
is more secure regarding financial health compared to Microsoft Corporation. The net profit
margin of above 1 for both the companies, on the other hand, depicts that they are both secure
and having financial health. Both the companies are in a position to secure and also facilitate
their various debts. Ratios, however have various limitations for example; the use of ratios to
compare the performance of firms of different sizes may not give an accurate analysis. Ratios
may also be difficult to interpret and do not consider the declining value of money , due to
Company’s financial health: 10
Edmister, R.O., 1972. An empirical test of financial ratio analysis for small business failure
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Greenaway, D., Guariglia, A. and Kneller, R., 2007. Financial factors and exporting
decisions. Journal of international economics, 73(2), pp.377-395.
Jacobs, F.R., 2015. Enterprise resource planning (ERP)—A brief history. Journal of Operations
Management, 25(2), pp.357-363.
Johnson, E. and Beehler, E., 2008. MCITP MICROSOFT WINDOWS VISTA DESKTOP
SUPPORT CONSUMER STUDY GUIDE, EXAM 70-623 (With CD). John Wiley & Sons.
Platt, H.D. and Platt, M.B., 2002. Predicting corporate financial distress: reflections on choice
based sample bias. Journal of Economics and Finance, 26(2), pp.184-199.
Company’s financial health: 11
Pohle, G. and Chapman, M., 2006. IBM’s global CEO report 2006: business model innovation
matters. Strategy & Leadership, 34(5), pp.34-40.
Porter, M.E., 1998. Clusters and the new economics of competition (Vol. 76, No. 6, pp. 77-90).
Boston: Harvard Business Review.
Rafiei, F.M., Manzari, S.M. and Bostanian, S., 2011. Financial health prediction models using
artificial neural networks, genetic algorithm and multivariate discriminant analysis:
Iranian evidence. Expert Systems with Applications, 38(8), pp.10210-10217.
Rochet, J.C., 2009. Why are there so many banking crises?: the politics and policy of bank
regulation. Princeton University Press.