Chapter 4, Problem 4.4ADM

Google and Microsoft: Current ratio

Google, Inc. and Microsoft Corporation design and distribute consumer and enterprise software, including overlaps in search, business productivity, and mobile operating systems. Google’s primary source of revenue is from advertising, while Microsoft’s is from software subscription and support fees. The following year-end data (in millions) were taken from recent balance sheets for both companies:

	Microsoft		Google
	Year 2	Year 1	Year 2	Year 1
Current assets	$114,246	$101,466	$72,886	$80,685
Current liabilities	45,625	37,417	15,908	16,805

A. Compute the working capital for each company for both years.

B. Which company has the larger working capital at the end of Year 2?

C. Is working capital a good measure of relative liquidity in comparing the two companies? Explain.

D. Compute the current ratio for both companies. (Round to one decimal place.)

E. Which company has the larger relative liquidity based on the current ratio?

F. Based on your analysis, comment on the short-term debt-paying ability of these two companies.