Microsoft has low efficiency ratios in comparison to the industry standards. What does this tell us...

Microsoft has low efficiency ratios in comparison to the industry standards. What does this tell us about the company? What are some reasons their numbers may be low?

Expert Solution

Efficiency ratios is used to analyze how well a company uses it's assets and liabilities internally.It measures performance of a company. It measures a company's ability to use its assets to generate income. Through Efficiency ratios of a company it can be compared with peers in the same industry.Improved Efficiency ratios usually translates to improved profitability.

In the case given to us it is seen that Microsoft has low efficiency ratios in comparison to the industry standards.It means that the company is not running efficiently and has failed to use it's asset to generate income.It means either it's sales are declining or Company is overly invested in various assets that are not generating additional revenue.

Reasons for low number are :

1) Sales are dwindling

2)Overly invested in various assets that are not generating additional revenue.

3) It takes extra time to collect cash from customers.

4) It takes extra time to convert inventory to cash.

jeff jeffy answered 1 year ago

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