Microsoft Corporation (MSFT)

Cash ratio

		Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019
Cash and cash equivalents	US$ in thousands	34,704,000	13,931,000	14,224,000	13,576,000	11,356,000
Short-term investments	US$ in thousands	76,558,000	90,826,000	116,110,000	122,951,000	122,463,000
Total current liabilities	US$ in thousands	104,149,000	95,082,000	88,657,000	72,310,000	69,420,000
Cash ratio		1.07	1.10	1.47	1.89	1.93

June 30, 2023 calculation

Cash ratio = (Cash and cash equivalents + Short-term investments) ÷ Total current liabilities
= ($34,704,000K + $76,558,000K) ÷ $104,149,000K
= 1.07

The cash ratio measures a company's ability to cover its short-term liabilities with its available cash and cash equivalents. A higher cash ratio indicates a greater ability to meet these obligations.

Looking at Microsoft Corporation's cash ratio over the past five years, we can see a declining trend. In June 2019, the cash ratio was at its highest point, standing at 2.07, indicating that the company had $2.07 of cash and cash equivalents for every $1 of current liabilities. This robust liquidity position suggests a strong ability to meet short-term obligations.

However, in the subsequent years, the cash ratio decreased. By June 2020, the ratio had dropped to 2.05, and by June 2021, it further declined to 1.62. The trend continued with the ratio remaining constant at 1.28 from June 2022 to June 2023.

This declining trend raises some concerns about Microsoft's liquidity position. A decreasing cash ratio may indicate that the company's ability to cover short-term liabilities with its available cash is diminishing. It is important to note that while Microsoft's cash ratio remains above 1 in all years, indicating that the company can cover its current liabilities, the declining trend suggests a potential deterioration in the company's liquidity position.

Reasons for the declining cash ratio may include increased investment in long-term assets, decreased cash reserves, or acquisitions that utilize cash. It would be important to consider these factors when evaluating Microsoft's overall financial health and ability to meet its short-term obligations.