The following table contains current assets and current liability balances for Microsoft Corporation (MSFT): 2016 2015 2014
Question:
The following table contains current assets and current liability balances for Microsoft Corporation (MSFT):
2016 | 2015 | 2014 | |
Cash and cash equivalents | 10,339,000 | 6,111,000 | 6,714,000 |
Short term investments | 13,323,000 | 17,300,000 | 27,447,000 |
Net receivables | 15,606,000 | 13,237,000 | 11,256,000 |
Inventory | 985,000 | 1,127,000 | 1,478,000 |
Other current assets | 2,989,000 | 2,393,000 | 2,115,000 |
Total current assets | 43,242,000 | 40,168,000 | 49,010,000 |
Accounts payable | 12,830,000 | 6,612,000 | 9,521,000 |
Short/current long-term debt | 0 | 2,741,000 | 0 |
Other current liabilities | 17,056,000 | 14,401,000 | 12,921,000 |
Total current liabilities | 29,886,000 | 23,754,000 | 22,442,000 |
a. Assume that you are the lead banker for the syndicate of banks that manage Microsoft Corporation’s line of credit. Your boss has asked that you report to him on the current state of Microsoft’s liquidity. Calculate the working capital, current ratio, and the Debt Ratio for the three years How would you describe the liquidity of Microsoft in 2016? Be sure to talk about the firm’s current liabilities and current assets and in your description.
b. Have there been changes in Microsoft’s liquidity over the past 3 years shown? If so, have the changes been to improve the firm’s liquidity? Explain your observations.
c. Calculate the firm’s working capital for the 3 years. What is the tradeoff in managing the firm’s working capital? Is it possible for a firm to have a negative working capital measurement? Under what conditions can this happen? Is this always a cause for concern? If so, when is it dangerous?