Microsoft Corporation (MSFT)

Microsoft Corporation's liquidity ratios for the past five years indicate its ability to meet short-term obligations.

The current ratio, which measures the company's ability to pay short-term liabilities with short-term assets, has been relatively stable, declining from 2.53 in 2019 to 1.77 in 2023. This indicates that the company may have a slightly lower proportion of current assets available to cover its current liabilities.

The quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, also showed a similar trend, declining from 2.50 in 2019 to 1.75 in 2023. This suggests that Microsoft may have a slightly decreased ability to cover its short-term obligations without relying on inventory.

The cash ratio, which specifically measures the company's ability to cover its current liabilities with its cash and cash equivalents, also decreased over the same period, from 2.07 in 2019 to 1.28 in 2023. This indicates that Microsoft may have a lower capacity to meet its short-term obligations with its readily available cash resources.

Despite the declining trend in all three liquidity ratios, Microsoft Corporation still maintains a healthy level of liquidity, as all the ratios remain well above 1, indicating the company's ability to meet its short-term obligations. However, the decreasing trend may suggest a shift in the composition of the company's current assets or a change in its short-term obligations, which would require further investigation to understand the underlying reasons for the change in liquidity ratios.

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See also:

Microsoft Corporation Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle (CCC) is a critical measure of a company's efficiency in managing its working capital, comprising the time it takes to convert inputs (such as raw materials) into cash from sales. A negative CCC indicates that the company is able to efficiently convert its inventory and receivables into cash, which is generally favorable.

Looking at Microsoft Corporation's CCC over the past five years, we can observe significant fluctuations. In 2019, the CCC was notably high at 23.38 days, signaling a relatively inefficient working capital management system. However, in the subsequent years, there was a significant improvement as the CCC turned negative, indicating a remarkably efficient working capital management.

In 2020, the CCC was -2.55 days, denoting a substantial improvement compared to the previous year. This trend continued in 2021, with a further decrease to -4.93 days, hinting at a more expedited conversion of inventory and receivables into cash. The most recent data for 2022 presents an even more favorable CCC of -7.41 days, signifying an even quicker cash conversion cycle.

Notably, the most recent year, 2023, saw the CCC improve even further to -2.56 days. This negative CCC value suggests Microsoft has continued to enhance its efficiency in managing working capital, further shortening the cash conversion cycle.

Overall, the progressively negative CCC values over the years indicate an improving trend in Microsoft's cash conversion efficiency, as the company has evidently been able to more swiftly convert its investments and sales into cash, reflecting positive working capital management. This can potentially free up capital for other uses and improve the company's overall financial health.