Financial and Management Accounting in Microsoft

Chapter 1: The Accounting Function in Microsoft
Background of the Organization
Microsoft Corporation is an American technology organization whose main center of operations are situated in Redmond, Washington. Founded by Paul Allen and Bill Gates in 1975, the company key operations encompass the discovery and development of manufacturing and licensing goods and services that are associated to computing (Bellis, 2017).In accordance to Statista (2017), the company has 124,000 employees across the world. In the past number of decades since its inception, the company has progressively grown to become a huge global corporation. Its extensive business portfolio encompasses electronics, personal computers, computer software and in the present day cloud computing. Some of these renowned products and services consists of Microsoft Office, Xbox, Internet Explorer, and Microsoft Operating System.
The organizational structure of Microsoft Corporation facilitates its business to grow and develop. The firm’s organizational structure replicates the needs of the computer hardware and software business in reaction to the dynamics of market supply and demand. A receptive organizational structure guarantees the establishment’s long-standing success. In particular, the organizational structure employed by Microsoft is a product-type divisional organizational structure. Basically, this encompasses having company divisions that are founded on particular computer hardware and software products as well as organizational productivities. Three features of the company’s organizational structure take into account product type branches, multinational corporate groups, and geographic segments (Lombardo, 2017).
Stakeholders
Stakeholders of a corporation consist of the parties whose interests ought to be taken into consideration whilst generating and carrying out policies and programs. The key stakeholders of Microsoft Corporation consist of the following with objectives of each with regard to the organization being outlined:
i. Employees
The company offers a wide range of resources to assist then in accomplishing a work-life balance. This includes the provision of resources such as work leave, part-time hours, telecommuting, and referral services.
ii. Suppliers
These include the different contractors and brokers working in tandem with the organization. The objective of this stakeholders is to ensure that dealing with Microsoft benefits and profits all.
iii. Shareholders
To maximize the returns of shareholders. They are the key owners of the company and therefore the organization takes their lead.
iv. Government
Microsoft works in tandem with the government to cultivate a setting where prospects and develop can succeed and thrive by means of invention, research, technology, acquiring international talent, and infrastructure.
v. Consumers
Guaranteeing a high magnitude of satisfaction amongst our consumers and associates is a fundamental element of Microsoft by means of Customer Partner Experience
vi. Civil society
Microsoft is dedicated to assisting Non-Governmental Organizations (NGOs) to release technology to facilitate the progression of social and economic growth. The firm’s approach is centered on accessibility of such organizations to steady and more protected technology, and enhancing the rendering of information technology solutions (Smithson, 2017).
Key Resources of the Organization
Key resources encompass assets that are specific to the organization. Microsoft Corporation has tangible resources, intangible resources and human resources. With respect to tangible resources, the organization has property and equipment, which include computer equipment, hardware and software (Anastacia, 2015). Moreover, there are land and buildings for the organization. All these total more than $18 billion. The company also has tangible resources in the form of cash reserves, which enable Microsoft to have substantial financial flexibility. Cash reserves of the company surpass $6 billion. Moreover, key resources include distribution channels and consumers. In particular, the company has been able to establish channels of distribution encompassing retailers and vendors for its various products. These tangible resources are indicative that Microsoft Corporation has substantial ability to borrow, has good investment capacity as well as reserves (Microsoft, 2016).
Key resources also come in the form of intangible resources, which consist of technology, organizational culture and reputation. To begin with, the key technological resources of Microsoft consist of intellectual property as well as its capacity for research and development. Its distinctive corporate culture is another intangible resource. It is deemed to be team-oriented and forceful with personnel being valued for their influences and making them committed. Taking this into consideration, it can be perceived that Microsoft is strongly positioned with respect to intangible resources owing to its vast technological competencies, brand, and culture (Microsoft, 2016). Lastly, there is human resources. The metrics of this key resources can be assessed in terms of personnel qualification as well as dedication to the organization. Microsoft Organization has the ability to appeal to as well as retain some of the outstanding and remarkable talents within the information technology industry. The company contains a proficient and dedicated workforce that is a major resource (Microsoft, 2016).
Corporate Governance
Corporate governance in Microsoft is purposed to institute and maintain accountability of the management team by suitably apportioning roles and responsibilities. It is also intended to buttress and protect organizational culture of business integrity and accountable business practices. It is also purposed to embolden the efficacious utilization of resources, and to necessity responsibility for their management of those resources. The corporate governance structures are in fact in line with what you would expect because the composition of the board takes into account independent directors who are not liable for everyday management. In addition, the business aspects include the use of independent advisors and also undertaking and performance evaluations. The company also has incessant communication with stakeholders to inform them of the operations and position of Microsoft (Smithson, 2017).
The Role of Accounting within the Organization
Accounting plays a key role in the organization in the sense that it is a fundamental way of assisting managers, suppliers, consumers, as well as other stakeholders to undertake decisions. Accounting offers information to the managers of the organization for external reporting, normal internal reporting, and unconventional internal reporting. This makes it possible to obtain information to both internal and external users and also in key decision making (Needles et al., 2013).
Accounting Software Used
The accounting software used by the company is Microsoft Dynamics 365. This is a software developed by the organization itself that helps in the analysis of the silos between Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) that is driven by data and intelligence, and helps seize new business prospects (Microsoft, 2017).
Chapter 2: Financial Accounting Analysis of Microsoft
Business Outlook and Performance
Microsoft’s business looks healthy and it appears to be growing. In the past financial year 2016, the company attained strong financial results and it is constructing a robust and substantial basis for an even positive future. Despite the fact that the organization was making investments in innovation as well as undertaking business expansion globally, Microsoft was still able to sustain it dedication to shareholder return and also had a 12 percent increase in its total return in cash amounts. Similarly, the firm generated $85.3 billion in revenue amounts and $20.2 billion in the operating income for the 2016 financial year. These financial results mirror sensational new product innovations in addition to increase in consumer usage as well as engagement across its businesses (Microsoft, 2016).
Financial Leverage
Financial leverage takes into account the utilization of debt in order to increase the volume of production, and therefore increase the revenues and earnings generated. Financial leverage is calculated as the ratio of the total debt against the total assets. Therefore, if the debt amount is higher, then the company has high financial leverage. The financial leverage for the past three years can be calculated as follows:
2016 = 121,697 / 193,694 = 0.6283 = 62.83%
2015 = 94,389 / 174,472 = 0.5410 = 54.10%
The inference of this is that Microsoft Corporation is highly geared and its more than 60 percent of its operations are financed using debt whilst the remaining 30 percent or so are financed by equity (Brigham and Houston, 2016).
Working Capital Management
Working capital management takes into account the issues that come about in the endeavor of managing the firm’s current assets, the current liabilities, and the inter-association that prevails between them. The objective of working capital management is to make certain that a company has the ability to continue its operations and that it has adequate capacity to address and fulfill both growing short-term debt and forthcoming operational outlays (Brigham and Houston, 2016). One of the key ratios of working capital management is working capital ratio, which is computed by current assets compared to current liabilities. Microsoft’s working capital ratio is calculated as follows:
2016 = 139,660 / 59,357 = 2.35
2015 = 122,797 / 49,647 = 2.47
This indicates that the company is well managed and is very well capable of meeting its short-term obligations and has sufficient workflow (Brigham and Houston, 2016).
Another element of working capital management is inventory management. For an organization to be in operation with extreme productivity and sustain a contentedly high level of working capital, it is essential to prudently have a sense of balance of adequate inventory on hand to satisfy consumers’ requirements while evading needless inventory that prolong cash conversion. This is assessed using the inventory turnover ratio, which is computed by cost of goods sold against average inventory.
2016 = 32,780 / ((2,251 + 2,902) / 2) = 12.71
Considering that the inventory turnover ratio of Microsoft is relatively high implies that the company level of efficiency in ordering can be augmented and enhanced (Brigham and Houston, 2016).
Profitability Trends
The profitability trends of the organization can be examined using profitability ratios, which assess its business operations capability to generate earnings in comparison to its costs and other pertinent outlays in a certain time period. The following financial ratios will examine the firm’s profitability trend:
i. Net Profit Margin
2016 = 16,798 / 85,320 = 0.1969 = 19.69%
2015 = 12,193 / 93,580 = 0.1303 = 13.03%
ii. Return on Assets
2016 = 16,798 / 139,660 = 0.1203 = 12.03%
2015 = 12,193 / 122,797 = 0.09929 = 9.93%
iii. Return on Equity
2016 = 16,798 / 71,997 = 0.2333 = 23.33%
2015 = 12,193 / 80,083 = 0.1523 = 15.23%
The profitability trends of the company indicate that Microsoft Corporation has been able to generate revenues and earnings in comparison to the costs incurred. For instance, with respect to the net profit margin, it is indicative that for every 1 dollar of revenue, the company generated an increase in returns from 13 cents to 19 cents. Similarly, for every dollar invested in the company assets, Microsoft generated an increase in returns from 9.93 cents to 12.03 cents. Similarly, for every dollar invested in equity, the company experienced an increase in returns from 15.23 cents to 23.33 cents.
Other Key Financial Ratios
i. Acid test ratio = (Total Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
= (139,660 – 2,251) / 59,357
= 2.31
ii. Accounts Receivable Turnover = Sales / Accounts Receivable
= 85,320 / 18,277
= 4.67
iii. Book value per share of common stock = (Stockholder’s Equity – Preferred stock) / Average Shares Outstanding (Weygandt et al., 2015)
= 71,997 / 24,000
= 2.99
Comparison with Competitors
Microsoft Corporation faces intense competition, especially in the software sector, from Apple and Google. All three companies are reliant on distinctive product offerings to attain the majority of their revenues, and each of the three companies has attempted to get into their competitor’s markets with alternative services and variable magnitudes of success. With respect to market capitalization, Apple has a market cap of $640 billion and is considered to be the biggest company in the world. Google is second with a market cap of $450 billion and lastly Microsoft has a market cap of $376 billion. Apple easily surpasses its rivals in terms of sales in hardware as well as those of high-end devices. This is largely due to the organization’s early 2000 standing in refusing to conform to Microsoft’s preceding dominance and this led to numerous millennials growing up whilst using the Mac products and this implies that Apple has more reliance on a loyal consumer base than its rivals (Ross, 2015).
Users of Financial Statements
The users of the financial statements encompass different stakeholders to enable them in assessing an organization’s capacity to carry out its responsibilities, and to help them make decisions involving the organization. These groups include internal users and external users. Internal users consist of management and employees. External users can have either profitmaking or non-profitable interests from the accounting system information. They comprise of consumers, suppliers, investors, government and creditors (Cunningham et al., 2011).
Qualitative Factors
Qualitative factors take into account non-numerical aspects that may have an impact on the outcome of a decision. For that reason, qualitative aspects are reliant on information that is not simply measurable whereas quantitative aspects contend with data. This consists of different aspects such as political, social and technological factors (Al-Tarawneh, 2012). Some of the factors include the intelligent cloud, which is rapidly advancing, personal computing, and product and service development, and intellectual property.
Chapter 3: Management Accounting Analysis of Microsoft
There is a structured management accounting system that has been put in place. The organization uses Microsoft Dynamics 365. This is a system that enables Microsoft in empowering their personnel, engaging consumers, and optimizing operations. Moreover, the system consists of financial management and accounting, inventory management and operations, and sales and service, business intelligence and reporting, and human resources and payroll. More importantly, the system enables Microsoft to attain greater control over its inventory, financials, as well as operations. The system is basic and easy to execute and makes it possible to informed decisions that give rise to success of the business (Microsoft, 2017).
The budgeting process is significantly vital to an organization. It forces the entity to make largely informed decisions regarding apportionment of investments and resources and it generates self-control across the organization concerning accomplishing goals and objectives. The organization regularly prepares budgets during the various financial periods and its system of budgeting is not only working but also efficacious. There are different types of budgets that are generated by the company (DuBrin, 2011).To begin with, there is the operating budget which is a forecast and analysis of projected income and expected over the course of a specified time period. This takes into account different factors like overhead costs, sales costs, material costs and labor costs. The organization also prepares the cash flow budget, which enables the company to project when the cash flows in and out of its business operations over a certain time. This makes it possible for Microsoft to examine whether its cash management is efficacious (DuBrin, 2011). Moreover, there is the financial budget that delineates Microsoft’s approach to the management of its income, costs, assets, as well as cash flow. It facilitates the creation of a depiction of the firm’s financial status and shows a wide ranging summary of its level of expenditure incurred in relation to revenues generated. Lastly, there is the master budget. It is a summative of the corporation's different budgets intended to demonstrate a comprehensive representation of its financial doings and health. It encompasses factors such as sales, operating costs, assets, and income to permit the firm to establish objectives and assess its general performance (DuBrin, 2011).
Participative budgeting is a practice under which those individuals affected by a budget are dynamically and significantly involved in the process of generating a budget. The corporate culture of Microsoft Corporation is a team-oriented one and ensures all members participate. The company uses participative budget as it ensures participation by personnel. Imperatively, the key executives within the organization offer the other personnel with the guiding principles concerning the general direction and course the company wishes to take and the manner in which their personal divisions fit in such a path. This boosts the morale level and implementation of the financial and operational objectives set within the organization. Moreover, it provides a sense of responsibility across all departments and also nurtures creativity (Hansen et al., 2007).
Management accounting information within Microsoft Corporation is properly disseminated and communicated so as to have efficacious management of resources. This is grounded on the aspect that the organization encourages creativity and employee participation through its team-oriented corporate culture. As a result, it implies that personnel have accessibility to the information necessitated in order for them to efficaciously perform their jobs. As aforementioned, the organization uses Microsoft Dynamics as its accounting and finance software. This is a software that was developed and advanced by Microsoft itself and therefore is successful and effective (Microsoft, 2016).
Chapter 4: Financial Management Analysis of Microsoft
Financial management strategies that are in place within Microsoft Corporation include capital budgeting and risk management. Risk management strategy encompasses placing in order where the risk with the utmost loss and utmost probability of incidence is handled first and risks with lower loss are dealt with later (Rejda, 2008). Risk management has changed for the company in the past number of years. In particular, the organization operates in an intensely competitive business setting involving high risk owing to the fast-changing and progressing technology as well as products with shorter life spans. As a result, in the recent times, the organization has sought to create and execute a risk management system that spans across the enterprise (Microsoft, 2016). Capital budgeting takes into account the practice in which a business ascertains and examines prospective expenses or investments that are usually massive in nature. Some of the ways in which capital budgeting is undertaken encompasses net present value, throughput analysis and discounted cash flow. Capital projects for Microsoft Corporation are financed using debt. The capitalization structure is the manner in which the projected are funded and in this case the company uses more of debt than equity in attaining such capital projects (Baker and English, 2011).
Capital rationing is fundamentally a management technique to apportioning accessible funds across multiple investment prospects, increasing an organization’s bottom line. The amalgamation of projects together with the aggregate net present value is accepted by the organization. The key purpose of capital rationing is to make certain that an organization does not make an over-investment in the different assets. In particular, Microsoft Organization faces numerous asset investment prospects in its business operation. Through capital rationing, it makes certain that the managers do not invest in every opportunity that comes along. In particular, soft capital rationing seems to be most sensible as it emanates owing to the internal policies of a corporation (Investopedia, 2017). Most of all, I believe that the financial management system in operation at Microsoft Corporation is largely successful and effective.
Chapter 5: Conclusions and SWOT Analysis
Conclusion
In conclusion, Microsoft Corporation is one of the most successful and renowned organization. The accounting and finance functions of the company are efficacious and this is largely linked to its team-oriented corporate culture and use of proper accounting and finance software, Microsoft Dynamics. The corporate governance structures are in proportion to what you would expect for the reason that the conformation of the board takes into account independent directors who are not liable for everyday management. Also, the business aspects include the use of independent advisors and also undertaking and performance assessments. The company also has incessant communication with stakeholders to provide incessant and adequate information. Microsoft’s CSR dedications add to its longstanding value to our business, its stakeholders, and communities across the globe. The organization is not able to achieve its mission to empower each individual and each entity in the world to accomplish more simply by providing products and services that allow the users to attain remarkable things. Bearing this in mind, Microsoft is incessantly considerate about the influence of its business practices and policies and its investments in societies (Microsoft, 2016).
SWOT Analysis
Strengths
1. Dominant brand image
2. Product alignment with positive externalities
3. Strong associations with other companies
Weaknesses
1. Susceptibility to cybercrime
2. Imitation and duplication of some of its products
3. Lack of overriding computer hardware products

Opportunities
1. Business diversification
2. Innovation for computer hardware products
3. Stronger security against cybercrime
Threats
1. Cybercrime
2. Piracy
3. Intense competition and rivalry in the market





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