Microsoft Analyses

HOMEWORK 1

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FINANCIAL STATEMENT ANALYSES

EXECUTIVE SUMMARY

The company I have chosen is Microsoft Inc, a software company that has been in market for decades. I have chosen to confront it with the financial performance of its unique competitor as regarding software programs, Apple. As we all know the latter company has achieved a growing demand in today’s market, by providing a different range of products and services to its customers. It was the first company to develop its own successful software program, which has strongly competed with Microsoft Windows.

Based on the Value Line Reports, both companies show a strong financial position being rated as A++.

Firstly I am going to analyze both companies ROE’s , a very important indicator of profitability and potential growth, by using the Dupont Analyses and describing each factor that contributes to it as illustrated in the table below:

| |MICROSOFT |APPLE |

|ROE |35,6% |22% |

|Tax burden |0,75 |0,74 |

|Interest burden |1,04 |1,05 |

|OPM |39% |28,2% |

|Asset Turnover |75,8% |83,3% |

|Equity Multiplier |1,53 |1,20 |

As we can see, Microsoft reports a return on shareholders equity rate of 35,6% (very good) as compared to 22% of Apple, or 62% higher. We can decompose that rate in 5 different factors to show which has had the biggest influence on it (Dupont Analyses).

Asset turnover shows a slightly higher rate for Apple, or a slightly higher asset utilization, but it is not sufficient to make a difference for Apple, it only tightens the gap between ROE’s. Nor...