Microsoft Corp. (NASDAQ:MSFT)

The analysis of the liquidity ratios over the reported six-year period reveals a downward trend, indicating a gradual decrease in the company's short-term liquidity position. Each of the current ratio, quick ratio, and cash ratio shows a consistent decline from June 30, 2020, to June 30, 2024, with a slight improvement observed in the final year ending June 30, 2025.

Current Ratio

The current ratio decreased from 2.52 in 2020 to 1.27 in 2024, before slightly increasing to 1.35 in 2025. This decline suggests a reduced buffer of current assets to cover current liabilities, which may imply tighter liquidity conditions over the years. However, the marginal uptick in 2025 could indicate preliminary improvements in managing current assets or liabilities.

Quick Ratio

Similarly, the quick ratio fell from 2.33 in 2020 to 1.06 in 2024, and then increased modestly to 1.16 in 2025. Given that the quick ratio excludes inventory, this pattern also reflects diminishing immediate liquidity, though the recent increase points to a potential strengthening of liquid assets relative to current liabilities.

Cash Ratio

The cash ratio experienced the most pronounced decrease, dropping from 1.89 in 2020 to 0.6 in 2024, followed by a slight recovery to 0.67 in 2025. This indicates a significant reduction in cash and cash equivalents available to cover current liabilities. Despite the small recovery, this ratio remains notably below the initial level, signaling a more conservative cash position or an increased reliance on other forms of current assets.

In summary, the company's liquidity ratios demonstrate a notable contraction in liquid resources over the observed timeframe, with some signs of stabilization or improvement in the most recent year. This trend may warrant attention to ensure sufficient liquidity is maintained to meet short-term obligations efficiently.

The analysis of the financial data over the six-year period reveals notable trends in the company's liquidity position and working capital management.

Current Assets

Current assets demonstrated some fluctuations throughout the years. Starting at 181,915 million US dollars in mid-2020, the value peaked slightly at 184,406 million in 2021 before declining to 169,684 million in 2022. This was followed by a recovery to 184,257 million in 2023. However, the subsequent year saw a decrease to 159,734 million, with a rebound in the forecast for 2025 reaching 191,131 million. These movements indicate moderate volatility in the company’s short-term asset base.

Current Liabilities

There is a consistent upward trend in current liabilities across all periods. Beginning at 72,310 million US dollars in 2020, the liabilities increased steadily each year, reaching 88,657 million in 2021, 95,082 million in 2022, and continuing upward to 104,149 million in 2023. The trend intensified with liabilities rising to 125,286 million in 2024 and further to 141,218 million in 2025. This consistent growth in short-term obligations highlights increasing obligations that need to be managed effectively.

Current Ratio

The current ratio, an indicator of short-term liquidity and the ability to cover current liabilities with current assets, shows a declining trend overall. It started at a strong 2.52 in 2020, indicating ample liquidity, then declined to 2.08 in 2021 and further to 1.78 in 2022. The ratio remained slightly below 1.80 in 2023 but dropped significantly to 1.27 in 2024, suggesting diminished liquidity buffers. A modest recovery to 1.35 in 2025 is projected but still reflects a lower level of liquidity compared to earlier years. This decline suggests that although current assets fluctuate, they have not kept pace with the growth of current liabilities, potentially increasing liquidity risk.

In summary, the company exhibits increasing current liabilities accompanied by fluctuating current assets and a decreasing current ratio over the analyzed period. This pattern indicates growing short-term financial obligations that may exert pressure on liquidity and working capital management. While the current ratio remains above 1, the downward trend signals a need for careful monitoring of liquidity to ensure the company maintains sufficient resources to meet its short-term commitments.

Trend in Total Quick Assets

The total quick assets demonstrated a general declining trend from 168,538 million US$ in mid-2020 to 149,018 million US$ in mid-2022. Following this decline, a partial recovery occurred with an increase to 159,950 million US$ in mid-2023, although the figure decreased again to 132,467 million US$ in mid-2024 before rising notably to 164,470 million US$ in mid-2025. This fluctuating pattern indicates some instability in the company's liquid asset availability over the observed periods.

Trend in Current Liabilities

The current liabilities increased steadily from 72,310 million US$ in mid-2020 to 141,218 million US$ in mid-2025. This growth suggests a rising short-term debt or obligations of the company that nearly doubled over this timeframe, indicating increased financial commitments due within one year.

Trend in Quick Ratio

The quick ratio displayed a consistent downward trend from 2.33 in mid-2020 to a low of 1.06 in mid-2024, reflecting a reduction in the company’s immediate liquidity position relative to its current liabilities. A slight improvement to 1.16 occurred by mid-2025, signaling a modest recovery in the company’s ability to cover short-term liabilities with the most liquid assets.

Overall Analysis

Despite some late recoveries in quick assets, the steady increase in current liabilities coupled with the marked decline in the quick ratio over most periods points to a weakening short-term liquidity position. This could imply increased reliance on short-term financing or growing operational costs that outpace liquid asset accumulation. The recent slight improvement in quick ratio suggests some corrective measures or improvements in liquid asset management were taken near the end of the period analyzed.

Total cash assets

The total cash assets show a declining trend from 2020 to 2024, dropping from 136,527 million US dollars in 2020 to 75,543 million in 2024. However, there is a slight recovery in 2025, with cash assets rising to 94,565 million US dollars. This overall reduction over the period may indicate increased utilization of cash or decreased liquidity reserves.

Current liabilities

Current liabilities exhibit a consistent upward trajectory throughout the period. Starting at 72,310 million US dollars in 2020, they increase steadily each year, reaching 141,218 million US dollars by 2025. This doubling of current liabilities reflects a significant rise in short-term financial obligations.

Cash ratio

The cash ratio declines markedly from 1.89 in 2020 to a low of 0.6 in 2024, indicating a weakening ability to cover current liabilities solely with cash assets. There is a minor improvement in 2025, with the ratio increasing to 0.67, but the ratio remains substantially lower than the initial level in 2020. This suggests increasing liquidity risk as cash assets are no longer sufficient to cover current liabilities on hand.