Bus 508 Google vs Microsoft

1. Calculate or identify from each company’s most recent annual report the six (6) specific financial ratios listed and provide as an appendix to the paper.

* Liquidity measurement ratio:

* Current ratio

Liquidity ratios measure the performance of a firm in availability of cash to pay its debt obligations (Rashid & Abbas, 2011, p. 9). Current ratio is one of the commonly used liquid ratios. The current ratio compares current assets to current liabilities, giving executives information about the firm’s ability to pay its current debts as they mature (Kurtz, 2011, p. 540). The liquidity ratio can be calculated by dividing of current assets to current liabilities. According to this formulation the calculation of the liquidity ratio of Google Inc. in 2010 is below:

41,562 / 9,996 = 4.15

The liquidity ratio of Microsoft Corp. in 2010 is:

49,280 / 27.034 = 1.82

* Profitability indicator ratios:

* Return on assets

* Return on equity

Profitability ratios measure the organization’s overall financial performance by evaluating its ability to generate revenues in excess of operating costs and other expenses (Kurtz, 2011, p. 542). The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage (Investopedia Ulc., 2011).

The ROA of Google Inc. in 2010 is:

8,505 / (57, 851+40,497) / 2 = 17.2%

The ROA of Microsoft Corp. in 2010 is:

18,760 / (86, 113+77,888) / 2 = 21.8%

The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company (Investopedia Ulc., 2011). The ROA ratio is calculated by comparing net income to average equity, and is expressed as a percentage.

The ROE of Google Inc. in 2010 is:

8,505 / (36,004+46,241) / 2 = 20.6%

The ROE of Microsoft Corp. in 2010 is:

18,760 / (46,175+39,558) / 2 = 43.7%

* Debt...