Introduction

It is important to assess the performance of the company regularly to ensure success. Hence, there are various methods for analyzing the performance of a company. Financial ratios analysis is one of them which uses information included in the financial statement to appraise performance effectiveness in crucial areas. Ratios measure companies' stability and profitability, operative productivity, liquidity, giving investors more relevant evidence than raw financial data. Investors and analysts can advance profitable gains in the stock market by using the broadly widespread, and possibly essential, the technique of ratio analysis.

Some ratios are available to assess both short and long-term financial and operating performance, making them beneficial at recognizing trends in the business and providing threatening signs when it's time to make a move. There are also precise ratios that can measure significant indicators important to one sector or another. By assessing specific ratios, an investor can compare itself alongside similar companies and comprehend its assets, weaknesses, pressures, and areas of prospect.

The purpose of the following brief is to highlight companies' financial analysis to build robust decision making for investment potential. The analysis and assessments will cover all financial statements and financial ratios and provide an investment recommendation accordingly. The brief focuses on the review for companies' financial ratios and the financial outstanding for the last three years (2017-2019) according to the following topics: liquidity analysis (current ratio, liquid ratio, accounts receivable turnover, inventory turnover, and total assets turnover), profitability (net margin and return on assets), solvency (Debt-Equity Ratio and times interest earned), and market efficiency (Price-Earnings Ratio and Dividend Yield).

The financial analysis will cover some companies from the technology sector. The study will include six companies that specialized in the Computer Software and Services Industry: Microsoft Corporation, Intuit Incorporated, Oracle Corporation, Salesforce Incorporated, Adobe Incorporated, and ServiceNow Incorporated. These companies almost have the same business by providing a varied range of products and services, covering personal computer operating systems and office productivity collections to network security applications to payroll processing services to information technology consulting and outsourcing services (Value Line Research Department, 2020).

The fast increases in data processing speeds have offered the basis on which suites of complex software applications and interfaces could be developed and deployed, bringing the potential for greater efficiency and productivity to nearly every kind of business. Therefore, the demand for this industry (computer software and services) can be characterized as being robust. It is a massive industry containing a few different subfields (Franchisee Resource Center, 2020). As computers continue to dominate our lives, there is more of a need than ever for computer professionals in both business and personal settings. Accordingly, the need and growth are increasing as time goes forward, and the industry will continue to prosper and grow (Paul Sallomi Global Tech, 2020).

Liquidity

Liquidity ratios are important ratios that are used to gauge the company's current abilities to meet current debt obligations without the need for raising external debts (Investopedia, 2020). There are many ratios used in this field and they are effective in determining the company's current liquidity status. For example, analysts used the current ratio, quick ratio, inventory turnover ratio, and total assets turnover ratio. All of these metrics will be useful in determining the company's capabilities of meeting its short-term obligations.

Current Ratio

The current ratio is measuring how much current assets the company has to meet its current liabilities. It is measured by how many dollars of current assets are available to meet each dollar of current liabilities. Also, it depends on the industry to decide the right ratio for the current ratio but it is normally a good sign of having $2 of current assets: $1of current liabilities. However, having too many current assets held up to meet the current obligations is not a healthy sign of the company able to manage its resources efficiently.

In this study, Oracle Corporation had been ranked the highest on average for the last three financial years at $3.18: $1. From this ratio, it is a sign of a solid liquidity stance as the company does have plenty of current assets to meet its current obligations. However, the analysts can make sure of the company's ability by using the quick ratio which eliminates the inventories from the formula which may be a more liquid ratio. Also, Microsoft Corp has a solid current ratio of $2.64: $1. The remaining companies also showed a healthy sign over the last three years except for Salesforce Inc. which has only $0.9: $1. The company liquidity needs to be examined further through other liquidity ratios to test its liquidity position.

Account Receivable Turnover Ratio

The account receivable turnover ratio is an efficiency(liquidity) ratio that measures the company's efficiency in collecting its revenues from credit customers. The higher the ratio, the better the company in managing and collecting its dues from its customers. The companies always try to attract customers by offering competitive payment terms to their loyal customers, however, sometimes customers delay their payments and in some instances, they also default on their payments. So, companies need to make sure that they have a solid account receivable management to collect their due sales. The account receivable turnover ratio is calculated as follows Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable (Corporate Finance Instiute.com, 2019). The ratio is representing how many times the company is collecting its average account receivable in a given period(year).

In this study, Intuit Inc. has been able to collect almost 41 times during the year on average over the last three years. This appears to be a very high number of times which shows the company's aggressiveness toward the collection of its receivables. This can be a good sign of the company's attention toward the collection process however, this also can be a signal of the company not giving favorable payment terms toward its customers. Also, Oracle and Salesforce are showing solid receivable turnover at 7.39 and 5.06 times respectively. Certainly, they can improve the receivable turnover by paying attention to improving their current collection practices. The last three companies Adobe, ServiceNow, and Microsoft are showing the least receivable turnover ratios which means the companies are offering more favorable payment terms toward their customers. This means the companies are involved in a very competitive market and it's mainly driven by customers.

Inventory Turnover Ratio

It is a ratio that shows how many times a company has sold and replaced an inventory for a specific time period. The company can calculate the days it takes to sell on hand inventory by dividing the days in the period by the inventory turnover. Inventory turnover helps companies to take optimistic decisions on manufacturing, pricing, marketing, and inventory purchases (Fuhrmann, R., 2020). Considering the inventory turnover of the three companies Microsoft, Salesforce and Oracle the value varies for each company. Oracle shows the highest ratio of 24.8 turns, Microsoft comes next with a value of 16.4 turns and finally Salesforce has turns of 9. To explain, Microsoft inventory turnover seems higher than other companies which means they are able to sell their products more quickly. On the other hand, Salesforce has the lowest value which indicates weaker sales.

Day's sales Uncollected is a ratio that helps investors and creditors of the company to measure the days which the company will receive the cash of its sales (Day's Sales Uncollected, 2020). Considering the above mentioned three companies. Salesforce has the longest period to collect the receivables which is approximately 136 days while Microsoft has days' sales uncollected of 84 days which is lower than Salesforce but it's still considerably high, finally Oracle requires 49 days to collect the revivable which is the lowest period yet not the optimistic.

Total Assets Turnover Ratio

Is a ratio that measures the value of either company's sales or revenues relative to its assets value. It is used to indicate the efficiency of the company to use its assets to generate revenue (Hayes., 2020). Among the six companies, Salesforce has the highest asset turnover ratio of 3.2 which means the company is efficiently applying its assets to generate revenue. On the other hand Oracle has the lowest ratio of 0.306 which indicates they are not efficiently using their assets to generate revenue.

Profitability

Profitability ratios measure the company's profit-generating ability relative to sales, assets, and equity using data from a specific point in time; in other words, those ratios outline an overview of the company performance (Kenton, 2020). Some of the most common profitability ratios are gross profit margin, net profit margin, return on assets, return on investment. Each profitability ratio gives an insight into the financial health and performance of the company from different perspectives. The following two sub-sections will discuss the Net Profit Margin and Return on Assets.

Net Profit Margin (NPM)

This ratio represents the percentage of net income generated from the revenue; in other words, how much of each dollar in revenue collected by a company translates into profit (Murphy, 2020). As appendix A shows, Adobe got the highest percentage of NPM by 26%, while Oracle, Microsoft, and Intuit got almost the same rate ( 21%, 21%, 23%, respectively ). However, both ServiceNow and Salesforce have got the lowest percentage of NPM of 3% only. This can indicate that a company can have increasing revenue, yet its operating expenses are growing faster than revenue, resulting in a shrinking net profit margin.

Return on Assets (ROA)

ROA is a measure of how profitable a company is related to its assets or the resources it owns or controls. This ratio helps investors judge how efficient management is in using the company assets to generate earnings (Hargrave, 2020). A higher ROA means the company is earning more money on less investment. The six selected companies' analysis demonstrates that Oracle recorded a higher ROA compared to other companies by achieving ROA of 31%. Intuit got in second place by attaining 26% of ROA. On the other hand, both ServiceNow and Salesforce were having issues in their operation, which reflected in achieving a low ROA of 2% only. Microsoft and Adobe have a moderate ROA of 10% and 14%, respectively.

Solvency

Solvency Ratios, known also as leverage ratios, are amongst many financial ratios that can aid to make an assessment for the healthiness of business from a business perspective (Carlson, 2018). These ratios determine a firm's capacity to convene its long-term obligations from a financial point of view. This is done by linking the level of debt of a firm versus equity, assets, and earnings (Carlson, 2018).

These Solvency ratios are normally and widely utilized by investors or lenders to ascertain the capability of a firm to pay back the debts it has. Always, the better the firm's solvency ratios are the company will be more worthy of credit and stronger financially (Denis, 2018).

The main difference between solvency and liquidity ratios is the length of the period considered. Solvency ratios emphasis on a firm's capacity to meet its long-term obligations where liquidity ratios aim to cover short-term financial obligations meeting of a firm (Denis, 2018).

There are many ratios that cover the solvency side of the business side which are used in today's business. The two ratios which will be covered in this brief are the Debt-Equity ratio and the Times interest earned. The Debt-Equity ratio demonstrates the debt's ratio which results from financing as countered to investors (wallstreetmojo.com, 2020).

The Debt-Equity ratio is calculated by dividing the total liabilities over the total equity. The bigger the ratio the extra debt is dependent upon to finance the firm's business. The higher the ratio the more debt is being relied on to fund the business (wallstreetmojo.com, 2020).

The times interest earned (TIE)ratio, which is also known as the interest coverage ratio. It determines the comparable income that can be utilized to cover the interest and expenses of debt service. It is widely helpful in verifying if a potential debtor is able to increase his debt to an extra amount (Carlson, 2018).

TIE can quantify how effortlessly the firm can provide cash to cover the interest on the aforesaid debt. The TIE ratio is computed by dividing the income before interest and taxes by the interest expense. The number demonstrates how many times the firm could pay-off the interest by its income before tax. The bigger the ratio the more favorable the firm is. Generally, if TIE is smaller than 1.0, the firm will not be able to cover its total interest expenses. On the other hand, if the ratio is very high, it may be linked to a risky fact. This fact is that the firm has inadequate amounts of debt or is paying extra debt besides the earnings which may benefit the other projects of the business (Carlson, 2018).

Analyzing the financial statements of the six companies in this brief and computing the above-mentioned ratios, the following data can be seen in (Table_1)

Table 1 Solvency Ratios

Solvency Ratio	Microsoft	Salesforce	Intuit	Oracle	Adobe	ServiceNow
Debt-Equity Ratio	2.09	1.18	1.29	2.44	0.90	3.05
Times Interest Earned	12.96	2.30	81.15	6.77	27.25	1.32

It can be demonstrated from the table above that the Debt-Equity ratio of ServiceNow is the highest with 3.05 which means that ServiceNow is funded with more than three-quarters of its equity by debts while only one quarter is funded by shareholders equity (Investopedia, 2020). In the industry of software, any ratio above 2.0 is risky(Investopedia, 2020). It can be seen that Microsoft Corp and Oracle Corp along with ServiceNow are not in good solvency range. However, Adobe Inc has the lowest Debt-Equity ratio with 0.90 which means that less than half of its equity is funded by debts.

Furthermore, the times interest earned ratios (TIE) of the six companies show three of them in a high range of TIE. Generally, any TIE ratio above 1.0 is healthy (Chen, 2020) and all of the six firms have a TIE ratio above 1.0 although ServiceNow and Salesforce Inc TIE ratios are very close to 1.0. On the positive side, Intuit Inc has a TIE ratio of 81.15 which means that the firm's income before tax can cover the interest expenses more than 81 times. Combining the two ratios mentioned, the best company from a solvency perspective is Adobe Inc with the lowest Debt to Equity ratio and one of the highest TIE ratios amongst the six companies.

Conclusion

After extensive analysis and figures issued by companies during the period, 2017-2019 for the six companies were compared on the same financial criteria; it was evident that profits and losses varied between the six companies. As for liquidity, Oracle topped the highest rate among the six companies, followed by Microsoft, as for Salesforce was the least liquidity ratio $0.9: $1. For Account Receivable Turnover Ratio, Intuit was the most stringent company toward the collection of its receivables. It is a fairly reasonable rate, it may be a good indicator for the company, but it may also give a sharp impression to the users, which adversely affects the company. Quite the opposite with their counterparts, Oracle and Salesforce, have been able to find the perfect balance to satisfy their companies and customers.

As for Microsoft's inventory turnover appears to be higher among other companies, and this indicates the company's ability to sell its hardware faster. On the other hand, Salesforce was the least valuable indicate that they were unable to sell their products. For the Total Assets Turnover Ratio, Salesforce has the highest asset turnover ratio of 3.2. Meanwhile, Oracle has the lowest rate of 0.306, which indicates that it does not use its assets competently to generate more income. Adobe got the highest percentage of NPM by 26%, while ServiceNow and Salesforce received only a 3% lower NPM percentage. Oracle recorded a higher return on investment compared to ServiceNow and Salesforce, who had problems in running it. The last indicator, which is solvency, shows the highest rate in Debt-Equity ratio 3.05 recorder by ServiceNow. However, Adobe Inc has the lowest Debt-Equity ratio with 0.90.

When looking at all the indicators, we find that the company that was able to find the right balance between the six companies is Microsoft Corporation, which crosses one of the most important and most significant companies on the world level, and often we find it at the top of the lists in global companies operating in various sectors not only the technical sector.

References

Accounts Receivable Turnover Ratio - Formula, Examples. (2019, November 12). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounts-receivable-turnover-ratio/

Chen, J. (2020, February 05). Understanding the Times Interest Earned (TIE) Ratio. Retrieved fromhttps://www.investopedia.com/terms/t/tie.asp

Carlson, R. (2018). What Are Solvency Ratios? Retrieved from https://www.thebalancesmb.com/what-are-solvency-ratios-and-what-do-they-measure-393211

Day's Sales Uncollected (Formula): Step by Step Calculation Examples. (2020, July 16). Retrieved fromhttps://www.wallstreetmojo.com/days-sales-uncollected/

Denis. (2018, May 12). Solvency Ratio Formula - Finance Training from EPM. Retrieved from https://expertprogrammanagement.com/2018/05/solvency-ratio-formula/

Franchisee Resource Center. (2020). Computer Services Industry Analysis 2020 - Cost & Trends. Retrieved fromhttps://www.franchisehelp.com/industry-reports/computer-services-industry-analysis-2020-cost-trends/

Fuhrmann, R. (2020, July 21). How to Calculate the Inventory Turnover Ratio. Retrieved fromhttps://www.investopedia.com/ask/answers/070914/how-do-i-calculate-inventory-turnover-ratio.asp

Get in touch Paul Sallomi Global Tech. (2020, June 10). 2020 Technology Industry Trends. Retrieved fromhttps://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/articles/technology-industry-outlook.html

Hayes, A. (2020, July 26). Asset Turnover Ratio. Retrieved fromhttps://www.investopedia.com/terms/a/assetturnover.asp

Hayes, A. (2020, February 05). What Everyone Needs to Know About Liquidity Ratios. Retrieved fromhttps://www.investopedia.com/terms/l/liquidityratios.asp

Hargrave, M. (2020, April 12). Return on Assets. Retrieved from investopedia:https://www.investopedia.com/terms/r/returnonassets.asp#the-significance-of-return-on-assetsroa

Henry-Nickie, M., Frimpong, K., & Sun, H. (2019, March 29). Trends in the Information Technology sector. Retrieved fromhttps://www.brookings.edu/research/trends-in-the-information-technology-sector/

Investopedia. (2020, July 29). What Is Considered a Good Net Debt-to-Equity Ratio? Retrieved from https://www.investopedia.com/ask/answers/040915/what-considered-good-net-debttoequity-ratio.asp

Kenton, W. (2020, July 28). Profitability Ratios. Retrieved from investopedia: https://www.investopedia.com/terms/p/profitabilityratios.asp

Murphy, C. B. (2020, February 18). Net Profit Margin. Retrieved from investopedia: https://www.investopedia.com/terms/n/net_margin.asp

Solvency Ratios (Formula, Example, List): Calculate Solvency Ratio. (2020, July 21). Retrieved from https://www.wallstreetmojo.com/solvency-ratios/

Value Line Research Department. (2020). Industry Overview: Computer Software and Services. Retrieved fromhttps://valueline.com/Stocks/Industries/Industry_Overview__Computer_Software_and_Services.aspx#.XyhYBigzZPZ

Appendix- A

Ratio analysis of the six companies

Ratio Analysis
	Microsoft	Salesforce	Intuit	Oracle	Adobe	ServiceNow
Liquidity	Average of 2017, 2018 & 2019
Current ratio	2.24	0.90	1.23	3.18	1.33	1.39
Account Receivables Turnover	3	5	40	7	4	3
Days Sales uncollected	85	137	6	50	55	83
Inventory Turnover	16.5	9	N/A	24.87	N/A	NA
Days Sales in inventory	22	65	N/A	15	N/A	NA
Total Asset Turnover	0.44	3.27	1.24	0.31	0.55	1.39
Profitability	Average of 2017, 2018 & 2019
Return on Asset	10%	2%	26%	31%	14%	2%
Net profit margin	23%	3%	21%	21%	26%	3%
Solvency	Average of 2017, 2018 & 2019
Times Interest Earned	12.9	2.3	81.1	6.77	27.25	1.32
Debt to Equity	2.09	1.18	1.29	2.44	0.90	3.05

Appendix- B

Ratios of Microsoft Corp.

Ratio	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Current ratio	2.53	2.90	2.48
Account Receivables Turnover	2.94	3.03	3.11
Days Sales uncollected	85.63	87.58	80.31
Inventory Turnover	18.16	15.84	15.46
Days Sales in inventory	17.55	25.33	23.24
Total Asset Turnover	0.46	0.44	0.41
Debt to Equity	1.80	2.13	2.33
Net profit margin	31%	15%	24%
Times Interest Earned	15.99	12.83	10.05
Return on Asset	14%	7%	10%

Appendix- C

Ratios of Salesforce inc.

Ratio	Jan 31, 2019	Jan 31, 2018	Jan 31, 2017
Current Ratio	0.95	0.92	0.83
Account Receivables Turnover	6.59	7.28	1.31
Days Sales Uncollected	135.32	136.42	139.05
Inventory Turnover	5.53	7.18	14.32
Days Sales in Inventory	83.34	60.66	50.98
Total Asset Turnover	2.73	6.12	0.95
Debt to Equity	0.97	1.24	1.34
Net Profit Margin	8%	1%	2%
Times Interest Earned	3.47	2.71	0.72
Return on Asset	4%	0%	2%

Appendix- D

Ratios of Intuit Inc.

Ratio	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Current Ratio	1.83	1.14	0.73
Account Receivables Turnover	49.88	39.89	32.97
Days Sales Uncollected	4.68	6.00	7.26
Inventory Turnover	NA	NA	NA
Days Sales in Inventory	NA	NA	NA
Total Asset Turnover	1.18	1.29	1.24
Debt to Equity	0.68	1.20	2
Net Profit Margin	23%	20%	19%
Times Interest Earned	123.60	74.85	45
Return on Asset	27%	26%	23%

Appendix- E

Ratios of Oracle Corp.

Ratio	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Current Ratio	2.49	3.96	3.08
Account Receivables Turnover	7.59	7.53	7.06
Days Sales Uncollected	47.43	48.38	51.27
Inventory Turnover	22.27	23.15	29.18
Days Sales in inventory	14.61	17.98	14.66
Total Asset Turnover	0.32	0.29	0.31
Debt to Equity	3.86	1.97	1.49
Net Profit Margin	28%	10%	25%
Times Interest Earned	6.50	6.76	7.07
Return on Asset	32%	29%	31%

Appendix- F

Ratios of Adobe Inc.

Ratio	Jan 31, 2019	Jan 31, 2018	Jan 31, 2017
Current Ratio	0.79	1.13	2.05
Account Receivables Turnover	5.10	4.69	4.47
Days Sales Uncollected	50.15	53.18	60.89
Inventory Turnover	NA	NA	NA
Days Sales in Inventory	NA	NA	NA
Total Asset Turnover	0.57	0.54	0.54
Debt to Equity	0.97	1.00	0.72
Net Profit Margin	26%	29%	23%
Times Interest Earned	20.79	31.83	29.14
Return on Asset	15%	16%	12%

Appendix- G

Ratios of ServiceNow Inc.

Ratio	Jan 31, 2019	Jan 31, 2018	Jan 31, 2017
Current Ratio	1.55	1.40	1.21
Account Receivables Turnover	3.08	3.29	3.60
Days Sales Uncollected	88.10	80.42	82.12
Inventory Turnover	NA	NA	NA
Days Sales in Inventory	NA	NA	NA
Total Asset Turnover	0.70	0.72	0.74
Debt to Equity	1.83	2.49	4.82
Net Profit Margin	18%	-1%	-8%
Times Interest Earned	1.27	0.80	1.90
Return on Asset	13%	-1%	-6%

above is a sample,,,

the requirement is to go to https://www.msx.om/financial-reports.aspx

find any 4 or 5 companies you want to invest in,

You have to act as a potential investor

List out the companies. Select one or 2 companies. Show ur criteria of selection.

U want to invest in share or bond. It can be either. Or one or the other from different companies.

1 year expected return should be recorded.