Financial Accounting 504 Final Project Essay

As noted in Wikipedia prophet is headquartered in Redwood, California. It was founded in 1977 and is the worlds third largest soft wear developer in sales. According to yokel Finance prophesier is a multi-faceted ope dimensionn. vaticinator provides a vast amount of services for the mesh and computer. It provides cloud applications, IT consulting services, licenses middleware software package which includes database and database management. It has 115,000 full time employees and is run by co-founder, CEO Larry Ellison who has been the only CEO of the company since its inception. Also noted in Wikipedia he is the top paid CEO in the world. In 2013 prophet currently has an operating cash flow of 13.72B with revenues of 37.15B which can be found in Yahoo Finance.Microsoft is a leading software company started by Bill Gates and Paul Allen in 1975. The companys headquarters is located in Redmond, working crownwork where like oracle it develops, licenses, manufactures and support a wide range of computing sources, as documented in Wikipedia. Yahoo finance reports that in addition to licensing and manufacturing software over the globe it in any case designs hardware and has recently entered into the hardware industry with its new tablet. It also has a entertainment division which is responsible for the manufacturing of Xbox360 manoeuvre and consoles, Kinect for Xbox and video games among other products. It has a total of 94,000 full time employees and can be credited for creating 3 billionaires and 12 millionaires from the companys ope rations. Microsoft currently has a cash flow of 73.79B with revenues of 76.01B for 2013.Interpretation and Comparison between the cardinal companies ratios (Reading the Appendix of Chapter 13 will help you prepare the commentary) Oracle Corporation Microsoft Corporation stipend per shareAs given in the income statement$1.69Basic Common$2.73Microsoft has shown to have a high(prenominal) EPS than Oracle.Current ratioCurrent ass ets Current liabilities$39,174 $14,192=2.76$74,918 $28,7742.60Oracle is showing more(prenominal) favorable current ratio than Microsoft. This ratio depicts for every dollar of current liabilites it has the respective amount in current assets.Gross make RatioGross profit Net Sales Gross Profit = net sales COGS Oracle 35,622 8,398 = 27,224 Microsoft 69,943 15,577 = 54,366$27,224 $35,622=76.4%$54,366 $69,94377.7%Microsofts Gross Profit Ratio is meagrely let out than Oracle.Profit margin ratioNet Income Net Sales$8,547 $35,622=24.0%$23,150 $69,94333.1%Microsoft has a better Profit Margin Ratio than Oracle.Inventory Turnover toll of Goods Sold Average Inventory Average Inventory 2011 + 2010/2 Oracle 303 + 259/2 = 281 Microsoft 1,372 + 740/2 = 1056$8,398 $28129.9 times$15,577 $1,05614.8 timesOracle shows a significantly higher turnover than Microsoft.Days in Inventory365 days Inventory turnover365 29.9=12 days365 14.825 daysOracle has better result than Microsoftreceivable Turnover RatioNet credit sales Average Net receivables Average Net Receivables 2011 +2010/2 Oracle 6628 + 5585/2 = 6107 Avg NR Microsoft14987 + 13014/2 = 14001 Avg N$35,622 $6,107=5.8$69,943 $14,0015.0Microsofts Receivable Turnover is faster than Oracle.Average Collection Period365 Receivable Turnover Ratio365 5.8=62.6 days365 5.073.1Oracle has a better result on the solicitation period.Assets Turnover RatioNet Sales Average Total Assets Average Total Assets = 2011+2010/2 Oracle 73535 + 61578/2 = 67557 Microsoft 108704 + 86113 = 97409$35,622 $67,557=0.53$69,943 $97,4090.72Microsoft shows a better ratio.Return on Assets RatioNet Income Average Total Assets$8,547 $67,557=12.7%$23,150 $97,40923.8%Microsoft has a better return on their assets.Debt to Total Assets RatioTotal Liabilities Total Assets$33,290 $73,535=45.3%$51,621 $108,70447.5%Microsoft is slightly higher so Oracle has a better ratio.Times Interest Earned RatioNet Income + Int Expense + Tax Expense Interest Expense$12,219 $808=15.12 8,366 29596.2Microsoft has a more than healthier ratio than Oracle.Payout ratioCash dividend declared on common stock Net income$1,061 $8,547=12.4%$5,180 $23,15022.4%Microsoft has a higher rate of dividend pay outsReturn on Common Stockholders EquityNet income Preferred stock dividend Average common stockholders equity Oracle Avg SE 40245 + 31199/2 Microsoft Avg SE 57083 + 46175/28,547 35,722.00=23.9%$23,150 $51,62944.8%Microsoft earned more on the dollar of their net income for each dollar of the stockholders equity. dissolve cash flowCash provided by operations minus capital expenditures minus cash dividends paid$9,703=$9,703$19,459$Microsoft has a considerable amount more Free cash 19,459 flow than OracleCurrent cash debt coverage ratioCash provided by operations Average current liabilities$11,214 $14,442=0.78$26,994 $27,4610.98Microsoft has a better ratio of paying debt within the year.Cash debt coverage ratioCash provided by operations Average total liabilities$11,214 $31,835 =0.35$26,994 $45,7800.59Microsoft has a better ratio.Price/Earnings ratioMarket price as of 06/30/2011 EPS as of 06/30/2011$34.22 $1.69=20$26.87 $2.7310Oracle fairs better than Microsoft with the investors projection of the strength of future earningsLiquidity Overall Oracle has shown to a better liquidity ratio than Microsoft. Some areas the two companies are relatively close in liquidity performance as depicted in the current ratio. In other areas Oracle proves to have much better performance than Microsoft as depicted in the inventory and days in inventory ratios however and current ratio. Oracle also has a faster collection period than Microsoft as reflected in the average collection period ratio. I would declare Oracle as having a better liquidity standing than Microsoft.Solvency Microsoft is superior to Oracle in this ratio category. Although Microsoft has a little more risk than Oracle in the debt to current assest ratio which way of life that if necessary Oracle has a bette r opportunity to convert assets in to cash with a 45.3% while Microsoft is at 47.5% however this is the only ratio that Oracle is more favorable than Microsoft. With Microsofts free cash flow of $19,459 billion versus Oracles $9,703, Microsoft is least likely to have the need to liquidate their assets.Free cash flow ratio gives insight to a companys acquisition power, ability to eliminate or minimize debt and allows for a higher dividend payout. Microsoft has a better current cash debt to current liability ratio as well. For evey $1 in liability Microsoft as .98 cash from operating activities while Oracle has .78 from operating activities for every $1 of current liability. Given these analysis Microsoft has a better overall solvency status than Oracle.Profitability This category of ratios is the more focused wizard by investorsbecause it gives the most accurate prognosis of a companys most gain out of investmens from investors. Beginning with Gross Profit ratio the two companies ar e very close with Microsoft showing a 77.7% and Oracle showing a 76.4% they both fair pretty well in gross profits. Microsoft has an wages over Oracle in all ratios in this category except for Price earning sharing ratio. The payout ratio and the return on common stockholders equity ratio are significantly higher than Oracles but Oracle has a higer price earnings per share ratio as stated earlier which signifies that investors believe that Oracles stock is going to increase over a period of time.Conclusion Although based on the ratios Oracle seems to be a safer investment and deemed by investors for the fiscal year of 2011 to have higher potential in the market and as noted by Eddie drink in an online article on Five Capital website Oracle has shown consistency over the past decade than Microsoft with trending increases. However given that Microsoft has a substantially higher payout and higher return on stockholders equity I would take the risk and go with Microsoft.Beverage, E. ( 2011, Oct 21). Microsoft V Oracle You know you want one. Retrieved from quest Alpha. Oracle Corporation. (n.d.). Retrieved from Wikipedia http//en.wikipedia.org/wiki/Oracle_Corporation Weygandt, J., Kimmel, & Kleso, D. (2011). Financial Accounting. Hoboken John Wiley & Sons, Inc. Yahoo Finance. (n.d.). Retrieved June 22, 2013, from Yahoo http//finance.yahoo.com/q?s=ORCL Yahoo Finance. (n.d.). Retrieved June 22, 2013, from Yahoo http//finance.yahoo.com/q?s=MSFT Wikipedia. (n.d.). Retrieved June 22, 2013, from Microsoft http//en.wikipedia.org/wiki/Microsoft Wikipedia Oracle Corporation. (n.d.). Retrieved June 22, 2013, from Wikipedia