Minicase Microsoft, Inc.}
Microsoft is the leading developer of software in the world. To continue to be successful Microsoft must generate new products, and generating new products requires significant amounts of cash. Shown on the facing page is the current assets section of Microsoft's June 30,1995 , balance sheet and excerpts from a footnote describing the first item listed in the balance sheet, "Cash and short-term investments." Following the Microsoft data is the current assets section from Oracle, another major software developer.
\section*{Instructions}

(a) What is the definition of a cash equivalent? Give some examples of cash equivalents. How do cash equivalents differ from other types of short-term investments?

(b) Comment on Microsoft's presentation of cash in its balance sheet.

(c) What problems might this presentation of cash pose for a user of Microsoft's financial statements?

(d) Compare the liquidity of Microsoft and Oracle for 1995 .

(e) Is it possible to have too many liquid assets?

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MICROSOFT, INC. Balance Sheets (partial) As of June 30 (in millions) Microsoft Current assets Cash and short-term investments (see Note 1) Accounts receivable-net of allowances of $92 and $139 1995 1994 $4,750 $3,614 581 475 Inventories 88 102 Other 201 121 Total current assets $5,620 $4,312 Total current liabilities $1,347 $ 913 Note 1: 1995 1994 Cash and equivalents $1,962 $1,477 Short-term investments 2,788 2,137 Cash and short-term investments $4,750 $3,614