Microsoft Corp. (NASDAQ:MSFT)

The analysis of the liquidity ratios over the reported periods reveals notable trends in the company's short-term financial health. Three key ratios are presented: the current ratio, the quick ratio, and the cash ratio. Each provides insight into the firm's ability to meet its short-term obligations using different scopes of current assets.

Current Ratio

The current ratio shows a general downward trend from 2.53 at the beginning of the period to a low near 1.22 around December 2023, signifying a reduction in current assets relative to current liabilities. Subsequently, it gradually recovers to about 1.40 by September 2025. This variation suggests an initial tightening of liquidity, with an improvement in more recent quarters, potentially reflecting better management of working capital or changes in the composition of current assets and liabilities.

Quick Ratio

The quick ratio, which excludes inventories from current assets, follows a similar downward pattern. Starting at 2.30 early on, the ratio declines steadily to approximately 1.02 by December 2023, indicating a reduced buffer of liquid assets available to cover short-term liabilities without relying on inventory sales. After hitting this low, a slight recovery trend emerges, raising the ratio to about 1.15 by September 2025. The lower values relative to the current ratio underscore the importance of inventory in the company's liquidity position and raise considerations regarding the liquidity quality of current assets.

Cash Ratio

The cash ratio exhibits the most pronounced decline among the three ratios. Starting close to 1.97, it falls continuously to around 0.60 by mid-2024, indicating a significant reduction in the most liquid assets—cash and cash equivalents—relative to current liabilities. Although some mild fluctuations and a slight recovery occur thereafter, the ratio remains below 0.80 towards the end of the observed periods. This points to a more conservative cash holding strategy or an increase in liabilities, necessitating an evaluation of cash flow management practices and potential liquidity risks.

Overall, the trends suggest that while the company experienced a decrease in liquidity metrics over time, particularly in cash holdings, there are signs of stabilization and modest improvement in the most recent quarters. The declining ratios up to late 2023 may have indicated increased pressure on short-term financial flexibility, while the partial rebounds could reflect strategic adjustments to enhance liquidity. Continuous monitoring and analysis of working capital components and cash management strategies are advisable to ensure financial resilience.

Current Assets

The current assets show fluctuations over the analyzed quarters. Initially, there is a decline from approximately 177 billion USD at the end of September 2020 to a lower level around 153 billion USD by the first quarter of 2022. After this trough, current assets generally trend upward, reaching a peak of about 208 billion USD in the third quarter of 2023. This peak is followed by another decline in late 2023 and early 2024 periods, with values stabilizing around 150 billion USD. In the most recent quarters, there is a noticeable increase again, peaking near 191 billion USD by the third quarter of 2025. This pattern suggests periodic adjustments in liquidity or asset management strategies within the company.

Current Liabilities

Current liabilities exhibit a rising trend over the examined timeframe. Starting from roughly 70 billion USD in late 2020, liabilities increase steadily with some fluctuations, reaching approximately 125 billion USD by mid-2024. The latter part of the series shows further increases, with current liabilities exceeding 140 billion USD in mid-2025, before a slight decrease to about 135 billion USD at the end of the observed period. This upward movement in current liabilities may indicate growing short-term obligations or operational scaling.

Current Ratio

The current ratio demonstrates a declining trend across the periods under review, indicating a gradual reduction in liquidity relative to short-term obligations. Starting at a high level of approximately 2.53 in the third quarter of 2020, the ratio declines steadily to around 1.66 by the last quarter of 2023. The ratio drops further to near 1.22 by the end of 2023, marking the lowest point in the sequence. After this low, the current ratio shows slight improvements, oscillating between 1.24 and 1.40 through the successive quarters up to the third quarter of 2025. Despite this partial recovery, the overall trend points to a decreasing buffer of current assets over current liabilities, potentially signaling increased risk in meeting short-term obligations or shifts in working capital management.

The analysis of the quarterly financial data reveals several important trends in liquidity and working capital management over the observed period.

Total Quick Assets

The total quick assets exhibit a fluctuating trend across the quarters, starting at 160,828 million US dollars and experiencing several rises and falls. Notably, there is a peak at 180,904 million US dollars in the quarter ending September 30, 2023, followed by a substantial decline to 123,848 million US dollars in December 31, 2023. After this dip, there is a moderate recovery trend heading towards 164,470 million US dollars by June 30, 2025. This variability indicates intermittently changing liquidity levels possibly reflecting adjustments in cash, marketable securities, or receivables.

Current Liabilities

Current liabilities also show significant variability over the period. They initially stand at 70,056 million US dollars and generally increase, with some fluctuation, reaching a peak of 141,218 million US dollars by June 30, 2025. The growth trend is notable especially after mid-2022, indicating that short-term obligations have almost doubled over the analyzed timeline. This increase may signal expanded operational activities or increased reliance on short-term funding.

Quick Ratio

The quick ratio, an indicator of liquidity measuring the ability to cover current liabilities with quick assets, shows a clear declining trend from 2.3 in September 30, 2020, down to just above 1.0 during late 2023 and early 2024. The ratio bottoms out around 1.02 in December 31, 2023, and then stabilizes slightly above 1.0 through mid-2025. This suggests a tightening liquidity position over time, with the company moving closer to the minimum threshold generally considered safe (a ratio of 1.0). The decline implies that while quick assets have fluctuated, current liabilities have grown at a faster pace, diminishing the margin of safety.

Summary Insights

Overall, the data points to increased operational or financing activity leading to higher current liabilities and a relatively less proportional increase in quick assets. The substantial drop in the quick ratio during late 2023 indicates a period of reduced liquidity buffer, requiring close monitoring. The subsequent recovery in total quick assets by mid-2025 suggests some corrective measures or improved asset management, yet the quick ratio remains closer to 1.1, indicating a more conservative liquidity safety margin. The company’s liquidity management appears to have become more constrained over the analyzed quarters, which may impact its flexibility to meet short-term obligations without additional financing.

Cash Assets Trend

The total cash assets demonstrate a fluctuating pattern over the observed periods. Initially, cash assets decreased steadily from approximately 138 billion US dollars in September 2020 to around 125 billion by December 2021. A notable decline occurred in early 2022, where cash assets dropped to just above 104 billion US dollars and remained relatively stable through the latter half of 2022. The trend reversed with a significant surge reaching approximately 144 billion by September 2023, followed by a sharp decline to a low near 71 billion by December 2024. In the latest quarters, there is a recovery trend as cash assets increase to around 102 billion by September 2025.

Current Liabilities Trend

Current liabilities depict an overall increasing trend with some volatility. Starting near 70 billion US dollars in September 2020, current liabilities decreased slightly toward the end of 2020 before rising sharply in mid-2021, peaking at over 95 billion by June 2022. After this peak, liabilities fluctuated downward and upward but showed a marked increase from approximately 104 billion in December 2022 to about 141 billion in June 2025. The most significant spikes occur toward the end of the dataset, indicating an increase in short-term obligations.

Cash Ratio Analysis

The cash ratio exhibits a steadily declining trend throughout the periods, beginning at 1.97 in September 2020 and falling below 1 after December 2022. This downward trend shows a reduction in liquidity relative to current liabilities. The lowest point is reached around June 2024, with a ratio near 0.6, indicating a period where cash assets are substantially less than current liabilities. A slight recovery occurs in the final quarters, with the ratio rising modestly to 0.76 by September 2025, yet it remains significantly below earlier levels.

Summary Insight

The data reflects a decline in liquidity over time, with cash assets fluctuating but generally trending downward relative to increasing current liabilities. The decreasing cash ratio signals reduced short-term financial flexibility, especially during 2023 and 2024. The rebound in cash assets and cash ratio in the most recent quarters suggests an effort to strengthen liquidity, though it remains below historical highs. Overall, the financial position indicates increasing short-term obligations amid varying cash reserves, which may imply a tighter liquidity management environment and heightened need for efficient cash flow control.