Microsoft Corporation (MSFT)

Short-term

Turnover ratios

The activity ratios of Microsoft Corporation over the specified periods exhibit notable trends and shifts in operational efficiency and asset management.

Inventory Turnover:
The inventory turnover ratio indicates the number of times inventory is sold and replaced within a period. Between September 2020 and March 2021, the ratio experienced fluctuations, beginning at 17.25 and rising sharply to 25.21. This suggests enhanced inventory management and quicker sales cycles during this timeframe. However, from June 2021 through September 2022, the ratio generally declined, reaching as low as 15.10, which may imply slower inventory movement or increased inventory holdings. Notably, starting December 2022, the ratio surged significantly, reaching 88.10 in December 2024, and even further to 98.47 by March 2025. This dramatic increase could reflect optimized inventory management, shifts in product mix, or accounting adjustments, indicating a very high inventory turnover rate in recent periods.

Receivables Turnover:
The receivables turnover ratio measures how efficiently the company collects its accounts receivable. During the period, the ratio fluctuated within a relatively narrow range, from a low of 4.42 in June 2021 to a high of 6.49 in September 2022. The average suggests a moderate efficiency in receivables collection, with occasional improvements indicative of more effective credit policies or collections practices. Recent data shows a slight decline toward 4.03 in June 2025, possibly indicating a modest slowdown in the collection process or an intentional extension of credit terms.

Payables Turnover:
This ratio reflects how quickly the company pays its suppliers. The figures oscillated between approximately 3.17 and 4.28 throughout the period. A higher turnover indicates faster payments, while a lower value could reflect extended payment terms. The trend demonstrates periods of increased and decreased payment activity, with the most recent ratio at 3.17 in June 2025, suggesting a relatively slower payment pace compared to earlier periods. Such a pattern could be strategic, aiming to optimize cash flows.

Working Capital Turnover:
This ratio assesses how effectively the company utilizes its working capital to generate sales. Initially, the ratio rose from 1.37 in September 2020 to 2.52 by March 2022, indicating improved utilization of working capital. A more pronounced increase occurred after December 2022, reaching as high as 8.63 in December 2023, before gradually declining again. These sharp increases may point to enhanced operational efficiency or changes in working capital levels, while the subsequent decline may reflect adjustments in working capital management or fluctuations in sales volume relative to working capital investments.

In summary, Microsoft’s activity ratios depict a trend of significant improvements in inventory turnover in recent periods, potentially reflecting enhanced inventory management and operational efficiencies. Receivables and payables ratios have remained relatively stable with minor fluctuations, indicating consistent credit and payment practices. The working capital turnover demonstrates periods of increased efficiency, aligned with strategic asset utilization, though some recent declines suggest adjustments in operational strategies or market conditions.

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Average number of days

The analysis of Microsoft Corporation’s activity ratios over the specified periods reveals noteworthy trends in inventory management, receivables collection, and payables payment practices.

Days of Inventory on Hand (DOH):
The DOH metric demonstrates a substantial decline from 21.15 days as of September 30, 2020, to a low of approximately 3.71 days by March 31, 2025. Initial fluctuations, with periods of increase reaching up to around 24.17 days in September 2022, suggest periods of inventory accumulation, possibly due to strategic stockpiling or supply chain adjustments. The subsequent consistent decrease reflects enhanced inventory efficiency, likely attributed to improvements in inventory turnover, just-in-time inventory practices, or shifts in product mix that favor rapid turnover. The dramatic reduction indicates a move towards leaner inventory levels, minimizing holding costs and aligning closely with sales demand.

Days of Sales Outstanding (DSO):
Receivables collection periods initially exhibited a significant increase, from approximately 56.69 days at the end of September 2020 to peaks exceeding 83 days by June 2023. This trend denotes a lengthening of credit collection cycles, which might be a strategic decision to extend credit terms to customers or could signal slower collections. Nevertheless, the DSO shows a downward trend from those peaks toward approximately 69 days in March 2025. This suggests a potential tightening of credit policies or improved accounts receivable management, resulting in more efficient cash collection and shorter cash conversion cycles.

Number of Days of Payables:
The average payable period generally remained high, fluctuating around 86 to 115 days over the period analyzed. The data indicates that Microsoft has maintained relatively prolonged payment cycles, with some increased durations noted, such as 115.21 days in June 2025. Extended payables periods imply efficient management of payables, providing the company with extended working capital funding. These practices could be reflective of negotiated payment terms favorable to Microsoft or strategic timing of disbursements to optimize cash flow.

Overall Synthesis:
Over the period analyzed, Microsoft has transitioned toward leaner inventory levels, reducing DOH markedly, which enhances operational efficiency and reduces inventory holding costs. Concurrently, the firm’s receivables management has improved post-2023, shortening DSO and thereby positively impacting cash flow. The consistently extended payables period further supports a strategic stance on working capital management, balancing payments to suppliers while maximizing liquidity.

Such activities ratios collectively indicate a focus on operating efficiency, liquidity management, and optimized cash flow, aligning with best practices of cash cycle management. The combined trend of decreasing days of inventory and receivables, along with prolonged payables, underscores a disciplined approach to working capital, contributing to the overall financial health and operational agility of Microsoft.

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See also:

Microsoft Corporation Short-term (Operating) Activity Ratios (Quarterly Data)

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Long-term

The analysis of Microsoft's long-term activity ratios reveals trends indicative of the company's evolving operational efficiency and asset utilization over the specified periods.

Starting with the Fixed Asset Turnover ratio, there is a noteworthy decline from 3.07 as of September 30, 2020, gradually decreasing over time to reach 1.23 by June 30, 2025. This downward trend suggests that the company's ability to generate revenue from its fixed assets has diminished over these years. Several factors could contribute to this observation, such as increased investments in fixed assets that have yet to translate into higher revenues, shifts in revenue-generating strategies, or operational inefficiencies related to fixed asset utilization.

In contrast, the Total Asset Turnover ratio exhibits a relatively stable pattern with minor fluctuations, generally hovering around 0.48 to 0.56. Specifically, it started at 0.49 in September 2020, experienced some incremental increases and decreases, reaching a peak of 0.56 in March 2022 and maintaining similar levels through subsequent periods. Toward the latter dates, it slightly declines to 0.46 by June 2025. This stability indicates that, overall, Microsoft has maintained a consistent efficiency in using its total asset base to generate sales, albeit with a modest decreasing trend in recent periods.

Collectively, the divergence between the steep decline in Fixed Asset Turnover and the relatively stable Total Asset Turnover suggests that the deterioration in fixed asset utilization is not entirely impacting the company's consolidated asset efficiency. It may reflect a strategic shift towards more intangible assets, investments in near-term assets, or asset composition changes that affect fixed asset efficiency more significantly than total asset efficiency.

Overall, the long-term activity ratios portray a scenario where Microsoft’s capacity to convert fixed assets into revenue has declined markedly, while its overall asset utilization remains comparatively steady, indicating potential strategic adjustments or changes in asset composition over the analyzed period.

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See also:

Microsoft Corporation Long-term (Investment) Activity Ratios (Quarterly Data)