Microsoft Corp. (NASDAQ:MSFT)

Over the observed period, the liquidity ratios exhibited distinct trends. Generally, a decline in all three ratios – current, quick, and cash – is apparent, particularly from the latter half of 2022 through 2023. While some stabilization and slight increases are noted in 2024 and early 2025, the ratios remain below their levels observed in the earlier part of the analyzed timeframe.

Current Ratio

The current ratio began at 2.53 and generally decreased, reaching a low of 1.22 in December 2023. A modest recovery is then observed, with the ratio reaching 1.39 by December 2025. This suggests a diminishing ability to cover short-term liabilities with short-term assets, although the ratio remains above one, indicating a basic level of liquidity is maintained.

Quick Ratio

Similar to the current ratio, the quick ratio demonstrates a downward trend, starting at 2.30 and falling to 1.02 in December 2023. The quick ratio also shows some improvement in the later periods, reaching 1.12 by December 2025. The decline indicates a weakening ability to meet short-term obligations with the most liquid assets, excluding inventory. The ratio’s movement closely mirrors that of the current ratio.

Cash Ratio

The cash ratio experienced the most significant decline of the three ratios, beginning at 1.97 and decreasing to 0.67 in December 2023. While it shows some fluctuation, it only recovers to 0.69 by December 2025. This substantial decrease suggests a considerable reduction in the proportion of current assets held as cash, and a corresponding decrease in the immediate ability to cover short-term liabilities with available cash and cash equivalents.

The concurrent declines in all three ratios suggest a potential shift in working capital management or an increase in short-term liabilities relative to liquid assets. The slight recoveries observed in 2024 and 2025 may indicate corrective actions or a change in business conditions, but the ratios have not returned to their previous levels. Continued monitoring of these ratios is recommended to assess the long-term implications of these trends.

The current ratio exhibited a generally declining trend over the observed period, spanning from September 2020 to June 2025. Initial values indicated a strong liquidity position, but subsequent quarters demonstrate a gradual erosion of this strength.

Initial Period (Sep 2020 – Dec 2021)

The current ratio began at 2.53 and peaked at 2.58 before experiencing a moderate decline to 2.25. This suggests a consistently healthy ability to cover short-term liabilities with short-term assets during this timeframe, although a slight weakening is apparent.

Declining Trend (Mar 2022 – Sep 2023)

A more pronounced downward trend is observed from March 2022 through September 2023. The ratio decreased from 1.99 to 1.66, indicating a diminishing margin of safety in meeting short-term obligations. This period reflects a faster rate of decline compared to the previous one.

Lowest Point and Stabilization (Dec 2023 – Jun 2025)

The current ratio reached its lowest point at 1.22 in December 2023. Following this, a slight stabilization and modest increase occurred, with the ratio reaching 1.35 in December 2024 and 1.35 in June 2025. While this suggests a potential bottoming out, the ratio remains significantly lower than its initial values.

Underlying Components

The decline in the current ratio is attributable to a combination of factors. While current assets experienced fluctuations, current liabilities generally increased over the period, exerting downward pressure on the ratio. The increase in current liabilities appears to have outpaced the growth in current assets, particularly during the period of most rapid decline.

Overall, the analysis reveals a shift from a robust liquidity position to a more constrained one. While the ratio remains above 1.0, indicating the company possesses more current assets than current liabilities, the decreasing trend warrants continued monitoring and potential investigation into the underlying drivers of this change.

The quick ratio exhibited a generally declining trend over the observed period, spanning from September 2020 to December 2025. Initially strong, the ratio demonstrated a gradual decrease, with periods of stabilization and minor fluctuations. A more pronounced decline occurred in the latter half of the period, raising potential concerns regarding short-term liquidity.

Initial Period (Sep 2020 – Dec 2021)

The quick ratio began at 2.30 and peaked at 2.36 before settling at 2.05. This indicates a consistently strong ability to meet short-term obligations with highly liquid assets. The values remained above 2.0, suggesting a comfortable margin of safety.

Moderate Decline (Mar 2022 – Jun 2023)

A noticeable downward trend commenced, with the quick ratio decreasing from 1.77 to 1.54. While still above 1.5, this period signals a weakening in the company’s immediate liquidity position. The decrease suggests a relative increase in current liabilities compared to quick assets.

Accelerated Decline (Sep 2023 – Dec 2025)

The most significant decline occurred during this phase, with the quick ratio falling from 1.45 to 1.12. The ratio briefly recovered to 1.16 in June 2025, but then decreased again. This suggests a substantial erosion of the company’s ability to cover short-term liabilities with its most liquid assets. The ratio consistently remained above 1.0, but the narrowing margin warrants attention.

Asset and Liability Trends

Total quick assets generally increased from US$160,828 million to US$145,997 million, with fluctuations throughout the period. However, current liabilities experienced a more substantial increase, rising from US$70,056 million to US$130,005 million. This disparity between the growth of liabilities and quick assets is a primary driver of the observed decline in the quick ratio.

In conclusion, while the quick ratio remained above 1.0 throughout the analyzed period, the consistent downward trend, particularly in the latter years, indicates a diminishing capacity to readily cover short-term obligations. Further investigation into the composition of quick assets and the nature of current liabilities is recommended to fully understand the underlying causes of this trend and assess potential risks.

The cash ratio, calculated as total cash assets divided by current liabilities, demonstrates a generally decreasing trend over the observed period. Initially, the ratio is relatively high, indicating a strong ability to meet short-term obligations with readily available cash. However, this strength diminishes over time, with notable fluctuations.

Initial Period (Sep 30, 2020 – Dec 31, 2021)

The cash ratio begins at 1.97 and remains consistently above 1.60 through December 31, 2021. This suggests a robust liquidity position, with cash assets nearly double the value of current liabilities. There is a slight dip from 1.97 to 1.96, followed by a decrease to 1.74, then a recovery to 1.62, indicating some quarterly variability but overall stability.

Declining Trend (Mar 31, 2022 – Dec 31, 2023)

A clear downward trend emerges starting in March 2022. The ratio declines from 1.35 to 1.10, 1.22, and then to 0.67 by December 2023. This indicates a weakening liquidity position, with cash assets becoming less able to cover current liabilities. The most significant drop occurs between June 30, 2023 (1.15) and December 31, 2023 (0.67).

Recent Fluctuations (Mar 31, 2024 – Dec 31, 2025)

The ratio experiences some fluctuation in the most recent periods. It rises slightly to 0.68 and 0.66, then 0.70, before decreasing again to 0.67. A subsequent increase to 0.76 is observed, followed by a decrease to 0.69 and finally 0.69 at the end of the period. While there is some volatility, the ratio remains significantly lower than its initial values, hovering around the 0.60-0.76 range. This suggests that while the company maintains some immediate liquidity, it is considerably reduced compared to earlier periods.

Overall Assessment

The observed trend suggests a strategic shift in liquidity management or a change in the company’s operational needs. The consistent decline in the cash ratio warrants further investigation to understand the underlying reasons, such as increased investment in other assets, changes in working capital management, or increased short-term debt. While the ratio remains above zero throughout the period, the substantial decrease indicates a reduced margin of safety in meeting short-term obligations.