Zoom and Microsoft Managerial Accounting

Managerial Accounting – Part 4 – Individual Analysis

To a large extent, the financial statements of both companies indicate that there has been sustained increase in both income and shareholder’s equity. However, Zoom registered greater revenue growth than Microsoft within the two years under consideration, i.e. between the years 2019 and 2020. More specifically, while Zoom had an 88.3% increase in revenue within the said period, Microsoft registered a 13.6% increase in the same. There was also significant growth in total asset value within the said period in the case of Zoom. While the company had total assets of $1.2 billion in the year 2019, the total asset figure for the year 2020 has been captured as $5.2 billion. This essentially represents a 310% increase in asset value over the two years under consideration. Microsoft’s total assets increased from $286 billion to $301 billion. It is clear from the financial statements of both companies that Microsoft also has more assets in its balance sheet. However, being a manufacturing entity, a huge chunk of its asset category happens to be inventory. In seeking to determine which company happens to be in better financial health, there would also be need to take into consideration their long-term solvency. Financial leverage ratios, as Franklin, Graybeal, and Cooper (2019) observe, could come in handy in this endeavor. One such ratio would be the debt ratio. The said ratio is computed by dividing the total debt figure with the total assets figure. In the case of Microsoft, we have a total debt ratio of 0.19. On the other hand, in the case of Zoom, we have a debt ratio of 0.07. This is an indication that both companies have more assets than debt. As Sittle and Wearing (2008) point out, “a debt ratio less than 100% indicates that a company has more assets than debt.” (p. 311). However, the lower ratio in the case of Zoom demonstrates that equity funds a greater proportion of its assets.

Both companies also utilize different accounting practices owing to the fact that they happen to have diverse operational aspects. This is more so the case given that while Microsoft could be considered more of a manufacturing entity, Zoom is a wholly service company. Thus, to a large extent, Microsoft – unlike is the case with Zoom – has a tangible output. Thus, given that it has no inventory, Zoom has no cost of goods sold. To a large extent, COGS and inventory valuation happen to be the two concepts of great relevance in as far as accounting is concerned in the case of Microsoft. Unlike Zoom, Microsoft seeks to ascertain the various stages in its production processes. For this reason, it maintains key inventory accounts. The said accounts are inclusive of; finished goods inventory, work-in-progress, and raw materials inventory. Zoom, unlike Microsoft, neither has a production budget, nor a cost of goods manufactured budget. In the final analysis, therefore, it is clear that Microsoft deploys a more detailed approach to accounting than Zoom. This is more so the case given that it must take into consideration all the product components. However, both entities make use of a similar accounting cycle.