Microsoft Corporation (MSFT)

Short-term

Turnover ratios

The activity ratios provide valuable insights into how efficiently Microsoft Corporation is managing its resources. Let's analyze each of the activity ratios:

1. Inventory Turnover:
The inventory turnover ratio indicates how many times the company's inventory is sold and replaced over a specific period. Microsoft's inventory turnover has shown a consistent improvement over the past five years, reaching 26.35 times in 2023 from 20.80 times in 2019. This indicates that Microsoft is managing its inventory more efficiently, selling and replacing inventory at a faster rate.

2. Receivables Turnover:
The receivables turnover ratio measures the efficiency of the company's credit policy. Microsoft's receivables turnover has remained relatively stable over the past five years, fluctuating between 4.26 times in 2019 and 4.48 times in 2022. This indicates that Microsoft has been effective in collecting receivables from its customers, maintaining a consistent level of efficiency in credit management.

3. Payables Turnover:
The payables turnover ratio reflects how efficiently a company is managing its payments to suppliers. Microsoft's payables turnover has shown a slight fluctuation over the past five years, decreasing from 4.57 times in 2019 to 3.64 times in 2023. This suggests that Microsoft is taking longer to pay its suppliers, which may indicate either improved negotiation terms or strained relationships with suppliers.

4. Working Capital Turnover:
The working capital turnover ratio measures the efficiency of a company in utilizing its working capital to generate sales revenue. Microsoft's working capital turnover has demonstrated a positive trend over the past five years, increasing from 1.19 times in 2019 to 2.65 times in 2023. This suggests that Microsoft has been able to generate more sales with each dollar of working capital, indicating improved efficiency in its capital utilization.

In summary, Microsoft Corporation has demonstrated improvements in inventory turnover and working capital turnover, indicating more efficient management of inventory and working capital. While receivables turnover has remained relatively stable, payables turnover has shown a moderate decrease, potentially signaling changes in the company's payment practices. Overall, these activity ratios reflect an overall positive trend in efficiency and resource management for Microsoft Corporation.

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Average number of days

Let's start by analyzing the activity ratios for Microsoft Corporation based on the provided data.

Days of Inventory on Hand (DOH):
The Days of Inventory on Hand measures the average number of days a company takes to sell its inventory. A lower number indicates that the company is able to sell its inventory more quickly. Over the past five years, Microsoft's DOH has fluctuated, reaching its peak of 21.80 days in 2022 and then improving to 13.85 days in 2023. This suggests that the company has been able to manage its inventory more efficiently in the most recent year, resulting in a quicker turnover of goods.

Days of Sales Outstanding (DSO):
The Days of Sales Outstanding ratio reflects how many days it takes for a company to collect its accounts receivable. A lower DSO indicates that the company is collecting payments more quickly. Microsoft's DSO has remained relatively consistent over the years, with a slight increase from 81.48 days in 2022 to 83.86 days in 2023. This may indicate a minor delay in collecting sales, which could impact the company's cash flow.

Number of Days of Payables:
This ratio measures how long it takes for a company to pay its suppliers. A higher number of days suggests that the company takes longer to pay its bills. Microsoft's number of days of payables has generally increased over the past five years, from 79.80 days in 2019 to 100.28 days in 2023. This trend indicates that the company has been extending the time it takes to pay its suppliers, potentially benefiting from improved cash flow and working capital management.

Overall, Microsoft's activity ratios show improvements in inventory management and the extension of payment terms to suppliers. However, the increase in Days of Sales Outstanding may warrant further attention to ensure efficient collection of receivables.

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See also:

Microsoft Corporation Short-term (Operating) Activity Ratios

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Long-term

The long-term activity ratios of Microsoft Corporation, as indicated by the fixed asset turnover and total asset turnover, provide insight into the efficiency with which the company utilizes its long-term assets to generate sales.

The fixed asset turnover ratio has exhibited a declining trend over the past five years, falling from 3.45 in 2019 to 2.22 in 2023. This indicates that Microsoft's ability to generate sales from its fixed assets has decreased over this period. It is important to note that a lower fixed asset turnover ratio may suggest underutilization or impairment of fixed assets, which could impact the company's profitability.

Conversely, the total asset turnover ratio has shown a fluctuating pattern over the same period, with a peak of 0.54 in 2022 and a low of 0.44 in 2019, before settling at 0.51 in 2023. This ratio reflects the company's ability to generate revenue from its total assets, including both short-term and long-term assets. While Microsoft's total asset turnover has been relatively stable, an increasing trend would be favorable as it would signal that the company is effectively utilizing its assets to generate sales.

In summary, the declining trend in fixed asset turnover may warrant further investigation into the efficient use of Microsoft's long-term assets, while the fluctuating but relatively stable total asset turnover ratio suggests consistent performance in generating revenue from all assets. It is important for investors and stakeholders to closely monitor these trends to understand the potential impact on the company's financial performance and sustainability.

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See also:

Microsoft Corporation Long-term (Investment) Activity Ratios