Financial Reporting, Financial Statement Analysis, and Valuation: A STRATEGIC PERSPECTIVE 9e

LO 4-4 4.16 Calculating and Interpreting Accounts Receivable Turnover Ratios. Microsoft Corporation (Microsoft) and Oracle Corporation (Oracle) engage in the design, manufacture, and sale of computer software. Microsoft sells and licenses a wide range of systems and application software to businesses, computer hardware manufacturers, and consumer retailers. Oracle sells software for information management almost exclusively to businesses. Exhibit 4.23 presents selected data for the two firms for three recent years. Exhibit 4.23 Selected Data for Microsoft and Oracle amounts in millions) (Problem 4.16) Year 3 Year 2 Year 1 Microsoft Sales Average accounts receivable Change in sales from previous year Oracle Sales Average accounts receivable Change in sales from previous year $58,437 12,391 S60,420 $51,122 12,464 +1 8.2% 10,327 +1 5.5% (3.3)% $23,252 $22,430 $17,996 4430 +3.7% 5,799 +24.6% 4,589 +25.2% REQUIRED a. Calculate the accounts receivable turnover ratio for Microsoft and Oracle for Year 1, Year b. Suggest possible reasons for the differences in the accounts receivable turnovers of c. Suggest possible reasons for the trends in the accounts receivable turnover for the two 2, and Year 3 Microsoft and Oracle during the three-year period firms over the three-year period