Introduction
Microsoft Corporation is one of the world's largest technology companies with a broad range of products that include operating systems, business solution applications among others. It also designs and sells various devices that include but not limited to personal computers, phones, tablets and other intelligent devices. With this broad portfolio of products, Microsoft Corporation enjoys the large annual revenue of over 69 billion US dollars since the year 2011. It's, therefore, crucial to investigate the trends in the financials of the corporation to have an understanding of its progress. This report will examine the negative as well as the positive trends notable since 2011.
Trends
In 2016, Microsoft had revenue of 85.3 billion US dollars which is very high in comparison with other competing companies such as Red Hat Inc which had revenue of 2.4 billion US dollars the same year. That revenue, however, is a drop from 93.5 billion in 2015. A closer investigation to the financials of the company indicates a steady increase in revenue from 69.9 billion in 2011. The growth in revenue, which is positive for the enterprise, can be attributed to the increase in the research and development expense. From 2011, the company had a research and development expense of 9.04 billion which was increased steadily to 12.04 billion in 2015. The increase is correspondent to the steady growth in revenue from 69.9 billion to 93.5billon. However, the decrease in the research and development expense to 11.9 billion in 2016 had the corresponding drop in revenue to 85.3 billion. Since Microsoft is a technology company, research and development of a new product are critical to the stream of income of the enterp rise (Grant. 2016) .
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As Microsoft is expanding in its assets as well as the income of the company, there is a growing concern on the drop in Return on Assets. In comparison from 2011, the Return on Assets was 23.77% and has significantly decreased to 9.08% in 2016 with minor variations in the drop. The drop indicates that the Assets invested in the company are reducing in value or there are redundancies in the asset base. The negative trend may discourage investment in the company due to the low reducing Return on Assets (Busco, Frigo,Quattrone & Riccaboni, 2014) . Return on Equity also indicates another negative trend since 2011. The indicator shows a significant drop in return on equity to the shareholders of the company from 44.84% return on equity in 2011 and a significant decrease to 22.09% in 2016. Although the return on investment of 2016 is a drop as compared to 2011, it was, however, an increase from 14.36% in the previous year.
Microsoft's efficiency in the deployment of its assets has reduced since 2011 as indicated by the Assets Turnover. The drop from 0.72 to a low of 0.46 shows that the company has either increased its asset bases and they are yet to be configured, or there are increasing inefficiencies in the business operations. Since the asset turnover has been on the decline steadily, managers should be able to revise the property deployment strategy for efficient use of the property at their disposal. Microsoft financials also indicates an increasing financial leverage from 1.90 in 2011 to 2.69 in 2016. The trend may negatively affect the company as it shows high-interest payments and therefore the earnings per share will be adversely affected ( Wahlen, Baginski, & Bradshaw. 2014) . It's a concerning trend that is notable, as the indicator reveals an increased use of debt financing.
References
Busco, C., Frigo, M. L., Quattrone, P., & Riccaboni, A. (2014). Leading practices in integrated reporting: management accountants will guide their companies on the journey to value creation. Strategic Finance , 96 (3), 23-33.
Grant, R. M. (2016). Contemporary strategy analysis: Text and Cases edition . John Wiley & Sons.
Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis, and valuation . Nelson Education.
