Title: Page To Doc Sharing For The Detailed Course Project

Title Pagego To Doc Sharing For The Detailed Course Project Instructio

Go To Doc Sharing For The Detailed Course Project Instructions and grading rubric. Sharon K. Garland Course Project A Comparative Analysis of Oracle Corporation & Microsoft Corporation Accounting 504 - Managerial and Finance Professor: S. Wright Date: February 07, 2014 (Revised - February 16,2014) Profiles ORACLE CORPORATION Oracle Corporation is a company that manages data management for companies. They have been in business for over 30 years and is currently known as the leader in database software. Under the leadership of Larry Ellison, Oracle has expanded into their technology footprint, from servers, and storage, to databases and middleware, through applications and into the "Cloud". Since the conception of Oracle in 1977, as a software development laboratory, it has been switched to relational software Inc. in 1979. Larry Ellison has been at the helm of Oracle Corporation since its early days. The CIA was one of the first companies that was hired to develop software, creating a relational database for espionage purposes, which was named Oracle. Larry Ellison focused on solving the significant business need for relational database models. Today, Oracle is recognized for its innovative technology that has driven its business focus. The headquarters of Oracle is located in Redwood City, California, and has grown into a global corporation. MICROSOFT CORPORATION Microsoft Corporation was founded by Bill Gates and Paul Allen in 1975. Originally based out of Albuquerque, New Mexico, the company moved to Bellevue, Washington, in early 1979. Microsoft’s portfolio includes computer software such as MS-DOS and Windows OS, along with hardware products like the Xbox gaming console, Zune MP3 player, and Windows phones. The company employs approximately 92,000 staff members globally. In 2011, Microsoft’s credit rating was AAA from Standard & Poor’s and Moody’s, reflecting its financial stability. Over the years, Microsoft has introduced numerous operating systems and applications, including the Microsoft Office Suite. The company’s research division celebrated its 20th anniversary in 2011, highlighting its ongoing innovation efforts. RATIOS EXPLANATION Oracle Corporation and Microsoft Corporation are compared using various financial ratios:

Comparison of Financial Ratios and Performance

Earnings per Share (EPS): Microsoft’s EPS ($2.73) exceeds Oracle’s ($1.69), indicating higher profitability per share (Kimmel, Weygandt, & Kieso, 2013).

Current Ratio: Oracle’s current ratio (2.76) is slightly higher than Microsoft’s (2.60), implying Oracle has more liquid assets relative to its liabilities (Morgan, 2014).

Gross Profit Ratio: Microsoft’s gross margin (77.7%) surpasses Oracle’s (67.7%), reflecting better efficiency in production and sales (Gibson, 2013).

Profit Margin: Microsoft also demonstrates higher profitability with a net income margin of 33.1%, compared to Oracle’s 24% (Schroeder, Clark, & Cathey, 2014).

Inventory Turnover and Days in Inventory: Oracle’s inventory turnover (41.0 days) indicates shorter inventory holding period than Microsoft (14.8 days), showcasing inventory management efficiency (Wild, Subramanyam, & Halsey, 2014).

Receivable Turnover: Oracle’s faster receivable collection cycle (89 days) compared to Microsoft (104.4 days) suggests more effective credit management (Penman, 2013).

Asset Utilization: Microsoft’s asset turnover ratio (0.72) indicates more efficient usage of assets to generate sales than Oracle (0.53) (Higgins, 2014).

Return on Assets: Microsoft’s higher ROA (23.8%) demonstrates superior profitability relative to its total assets compared to Oracle (12.7%) (Brigham & Houston, 2014).

Debt Ratios: Oracle’s higher debt capacity is indicated by its debt to total assets ratio (45.3%) versus Microsoft’s (47.5%), reflecting differences in financial leverage (Gitman & Zutter, 2015).

Interest Coverage: Microsoft’s times interest earned ratio (96.2) shows strong capacity to meet interest obligations, while Oracle’s (15.1) indicates lower but still adequate coverage (Ross, Westerfield, & Jaffe, 2013).

Dividends: Microsoft’s higher payout ratio (22.4%) reflects a greater dividend distribution compared to Oracle (12.4%) (Moyer, McAnally, & Wise, 2015).

Stock Price and P/E Ratio: Oracle’s P/E ratio (20) and stock price ($34.22) suggest it is relatively underpriced compared to Microsoft’s (P/E of 10, stock price $26), potentially presenting different investment opportunities (Brown & Reilly, 2012).

Summary and Investment Implications

Overall, the analysis indicates that Oracle exhibits better liquidity with higher current assets relative to liabilities, demonstrating it is more capable of covering short-term obligations. Conversely, Microsoft excels in profitability and operational efficiency, evidenced by higher margins, return on assets, and asset utilization ratios. Microsoft’s ability to generate substantial free cash flow and maintain a high interest coverage ratio suggests a sound solvency position, ideal for risk-averse or growth-oriented investors. Furthermore, Microsoft’s superior return on equity and profitability metrics make it attractive for investors seeking higher returns. On the other hand, Oracle’s better liquidity ratios and lower P/E ratio could signal undervaluation, appealing to value investors looking for potential capital appreciation. In conclusion, considering both the solvency and profitability ratios, Microsoft appears to be the safer and more profitable investment, especially due to its higher earnings, cash flow, and efficiency metrics. However, Oracle’s strong liquidity position and undervalued stock price may offer appealing opportunities for investors with a longer-term horizon or value investing strategies (Damodaran, 2012). Therefore, the decision between Oracle and Microsoft as an investment should align with the investor’s risk profile, investment goals, and time horizon, with Microsoft being preferable for risk-averse, growth-oriented investors and Oracle offering potential value opportunities.

References

  • Brigham, E. F., & Houston, J. F. (2014). Fundamentals of Financial Management. Cengage Learning.
  • Brown, P., & Reilly, F. K. (2012). Analysis of Investments and Management of Portfolios. Cengage Learning.
  • Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
  • Gibson, C. H. (2013). Financial Reporting and Analysis. Cengage Learning.
  • Gitman, L. J., & Zutter, C. J. (2015). Principles of Managerial Finance. Pearson.
  • Higgins, R. C. (2014). Analysis for Financial Management. McGraw-Hill Education.
  • Moyer, R. C., McAnally, M. L., & Wise, S. (2015). Contemporary Financial Management. Cengage Learning.
  • Penman, S. H. (2013). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate Finance. McGraw-Hill Education.
  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis. McGraw-Hill Education.

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