Acct504 Oracle vs Microsoft

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						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 Ellis, 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, since has been switched to relational software Inc. in 1979. Larry Ellison is the only CEO that has been at the helm of the Oracle Corporation. The CIA was one of the first companies that was hired software development for Oracle; which created a relational database for the spy organization. The CIA project was name Oracle. Larry Ellison was able to focus on the fact that there was a huge business need for relational database models. Oracle is now known for their innovated commercializing technology that now become or driving focus of the organization. The headquarters of Oracle is located in Redwood City, California; which has grown to a global corporation.
				MICROSOFT CORPORATION
				Microsoft Corporation was founded by Bill Gates and Paul Allen in 1975 . Originally the company was based out of Albuquerque, New Mexico, but moved to Bellevue, Washington in the first quarter of 1979. The footprint of Microsoft consist of computer software, such as MS DOS operating system; which we are now much familiar or known as the Microsoft Window Operating System. Microsoft is now headed by Steve Ballmer chairman Bill Gages with the assistance of former chairman Bill Gates. Globally, the company roughly employees 92,000 staff members. The financial rating for Microsoft, is AAA; which was given to them by Standard and Poor's and Moody's for the fiscal year of 2011. Over the years, microsoft has introduced the following operating systems and applications...Microsoft Office Suite, the Xbox video gaming console, and peripherals and consumer electronics such as the Zune MP3 player and Windows OS phone and Skype. In 2011, Microsoft Research celebrates it's 20 year anniversary.

Ratios

RATIOS									Explanation
		Oracle Corporation			Microsoft Corporation
Earnings per share (basic - common)	As given in the income statement			$ 1.69			$ 2.73		Microsoft has a higher earning share than Oracle does.
Current ratio	Current assets	$39,174	=	2.76	$74,918	=	2.60		Oracle has more liquide asset than Microsoft against each unit of current liability.
	Current liabilities	$14,192			$28,774
Gross profit ratio	Gross profit	$24,101	=	67.7%	$54,366	=	77.7%		Microsoft has a higher gross margin than Oracle Corporation of 77.7 % opposed to Oracle 67.7%
	Net Sales	$35,622			$69,943
Profit margin ratio	Net Income	$8,547	=	24.0%	$23,150	=	33.1%		Microsoft has shown to be more profitable than Oracle Corporation.
	Net Sales	$35,622			$69,943
Inventory turnover	Cost of Goods Sold	$11,521		41.0	$15,577		14.8		Oracle is more efficient in Inventory management.
	Average Inventory	$281		times	$1,056		times
Days in inventory	365 days	365	=	9	365	=	25		Oracle holds inventory for a shorter period than Microsoft does.
	Inventory turnover	41.0		days	14.8		days
Receivable turnover ratio	Net credit sales	$24,935	=	4.1	$48,960	=	3.5	Assumption: Credit sales is 70% of the net sales.	Oracle is more efficient in receivable management.
	Average Net Receivables	$6,107			$14,001
Average collection period	365	365	=	89.4	365	=	104.4		Oracle collects its receivables faster than Microsoft does.
	Receivable Turnover Ratio	4.1		days	3.5		days
Assets turnover ratio	Net Sales	$35,622	=	0.53	$69,943	=	0.72		Microsoft uses its total assets more efficiently to generate revenues
	Average Total Assets	$67,557			$97,409
Return on assets ratio	Net Income	$8,547	=	12.7%	$23,150	=	23.8%		Microsoft generates more profit agaist total assets than Oracle does.
	Average Total Assets	$67,557			$97,409
Debt to total assets ratio	Total Liabilities	$33,290	=	45.3%	$51,621	=	47.5%		Oracle has more borrowing capacity than Microsoft.
	Total Assets	$73,535			$108,704
Times interest earned ratio	Net Income + Int Expense + Tax Expense	$12,219	=	15.1	28,366	=	96.2		Microsoft is in a more favorable position to cover its fixed obligations.
	Interest Expense	$808			295
Payout ratio	Cash dividend declared on common stock	$1,061	=	12.4%	$5,180	=	22.4%		Microsoft pays more than Oracle does out of its net income.
	Net income	$8,547			$23,150
Return on common stockholders' equity	Net income - Preferred stock dividend	$8,547	=	24.2%	$23,150	=	44.8%		Microsoft generates more porfit for their common stockholders.
	Average common stockholders' equity	35,287.00			$51,629
Free cash flow	Cash provided by operations minus capital expenditures minus cash dividends paid	$9,703	=	$9,703	$19,459		$19,459		Microsoft generates more free cash which can be used for acquisition or stock repurchase.
						=
Current cash debt coverage ratio	Cash provided by operations	$11,214	=	0.78	$26,994	=	0.98		Microsoft maintains higher liquidity to cover its current obligation.
	Average current liabilities	$14,442			$27,461
Cash debt coverage ratio	Cash provided by operations	$11,214	=	0.35	$26,994	=	0.59		Microsoft maintains higher liquidity to cover its outside obligation.
	Average total liabilities	$31,835			$45,780
Price/earnings ratio	Stock Price	$34.22 Nafiz Ahamed: Nafiz Ahamed: Price of Oracle Corporation on May 31, 2011	=	20	$26.00	=	10		Microsoft is relatively underpriced and would attract new investors with its lower P/E ratio.
	EPS	$1.69			$ 2.73

Summary

Liquidity: Oracle Corporation has the better current ratio; with an inventory turnover ratio (41 to 14.8) and accounts receivable turnover ratio (4.1 to 3.5) than that of the Microsoft Corporation. Oracle Corporation has $2.76 in current assets for every dollar in current liabilities while Microsoft Corporation has $2.60 in current assets for every dollar in current liabilities. Microsoft Corporation has the advantage for current cash debt coverage ratio (0.98 to 0.78).

Solvency: Microsoft Corporation is in a better financial situation for times interest earned ratio and free cash flow. Microsoft is able to cover their interest expense 96.2 times with income before interest and taxes. However, Oracle can only cover their interest expense 15.1 times with their income before interest and taxes. Microsoft has positive free cash flow of $19,459 million while Oracle has positive free cash flow of $9,703 million.

Profitability: Microsoft Corporation definitely has the advantage here since for each of the profitability ratios. Microsoft Corporation has a higher return on common stockholders’ equity (44.8% to 24.2%), a higher gross profit rate (77.7% to 67.7%), a higher profit margin ratio (33.1% to 24.0%) and a lower Price-Earnings ratio (10 to 20).

Conclusion: Considering the solvency and profitability ratios Microsoft Corporation is the safer investment. Yet, Oracle Corporation has the better liquidity ratios with exception of the current cash debt coverage ratio. Microsoft has current ratio which shows to be the better of the 2. Therefore, for both the conservative and growth-oriented investors Microsoft Corporation would be the best option based of the reportings.

Bibliography

Kimmel, P., Weygandt, J., Kieso, D. (2013). Tools for business decisions making. (7th ed).

Microsoft Corporation (July 2011), http://www.microsoft.com/investor/SEC/default.aspx?year=2011&filing=annua, retreived Feb, 2014

Oracle Corporation (June 2011) http://www.oracle.com/us/corporate/investor-relations/sec/index.html, retreived Feb, 2014