Microsoft Corp. (NASDAQ:MSFT)

The analysis of liquidity ratios over the presented periods reveals notable trends in the company's short-term financial health and ability to cover its current liabilities.

Current Ratio

The current ratio started at a relatively high level of 2.92 as of September 30, 2018, indicating strong liquidity. It showed some fluctuations, with peaks above 3.0, such as in December 2018 (3.12), but generally exhibited a gradual declining trend over the years. By the end of the period, in March 31, 2025, the current ratio was 1.37, reflecting a considerable reduction in the margin of current assets over current liabilities. The gradual decline suggests a tightening in available short-term assets relative to liabilities, albeit still above 1, which traditionally signals coverage of current obligations.

Quick Ratio

The quick ratio mirrored the pattern of the current ratio but at consistently lower values, indicating the exclusion of inventory from liquid assets. It started at 2.72 in September 2018, experienced peaks and troughs similar to the current ratio, but overall decreased steadily to 1.15 by March 2025. This reduction denotes a decrease in the company’s most liquid assets (excluding inventory) relative to current liabilities, though the ratio remains above 1, still indicating a reasonable ability to meet short-term obligations without relying on inventory liquidation.

Cash Ratio

The cash ratio registered the most pronounced decline among the liquidity measures. Starting at 2.41 in September 2018, it declined with some variability and notable drops especially in later periods, falling to 0.7 by March 2025. This indicates a significant reduction in cash and cash equivalents relative to current liabilities. A cash ratio below 1 suggests reliance on converting other current assets or obtaining financing to meet immediate obligations, which could imply a more conservative cash management approach or changes in working capital strategy.

Overall, the observed patterns indicate a gradual tightening of liquidity positions across all three ratios. While the company maintained ratios generally above 1, suggesting it has not faced immediate liquidity distress, the consistent decline over the examined seven-year span calls for attention to short-term asset management and potential impacts on financial flexibility. The relatively sharper decrease in the cash ratio implies reduced cash reserves, which may affect the ability to respond to sudden cash needs without relying on receivables or inventory conversion.

The analyzed data reveals notable trends in the liquidity position over the observed periods. Current assets exhibit fluctuations with an initial upward trajectory followed by periods of decline and recovery. Starting at 164,195 million US dollars in September 2018, current assets reached a peak of approximately 184,406 million in June 2021, before experiencing declines and intermittent recoveries towards the end of the observed timeline.

Current liabilities show a general increasing trend with some volatility. The values rose from 56,277 million US dollars in September 2018 to a high point of 124,792 million in September 2023. Post this peak, there is a slight decreasing movement observed, with liabilities standing at 114,206 million by March 2025.

The current ratio, an indicator of short-term financial health, demonstrates a steady deterioration over time. Starting at a robust 2.92 in September 2018, the ratio declines consistently to levels near 1.3 by the end of the period. Notably, the decline accelerates after late 2021, corresponding with both the decrease in current assets and the increase in current liabilities.

Current Assets

Demonstrate variability with peaks around mid-2021 and a general downward tendency afterward, indicating increased volatility in asset liquidity or possible strategic shifts in asset management.

Current Liabilities

Show a rising trend with rapid growth particularly from 2020 onward, suggesting increased short-term obligations which may stress liquidity if not matched by asset growth.

Current Ratio

Declines steadily from a comfortable multiple above 2.5 to near 1.3, signaling a weakening liquidity position and a narrowed margin for covering short-term liabilities with current assets.

Overall, the financial data reflects a strengthening of short-term liabilities relative to assets, resulting in a progressive contraction of liquidity coverage. Continuous monitoring and potential adjustments in working capital management may be advisable to maintain adequate liquidity levels.

The analysis of the quarterly financial data reveals several notable trends in liquidity and short-term financial position over the observed periods.

Total Quick Assets

Total quick assets show a fluctuating pattern with a visible decline starting from late 2021. Initially, the quick assets increased from about 153 billion USD in September 2018 to a peak just over 168 billion USD in June 2020. After this peak, a downward trend ensues, with values falling to approximately 119.7 billion USD by December 2024. There are some intermittent recoveries, but the overall trajectory is downward towards the end of the series.

Current Liabilities

Current liabilities display a general increasing trend over the time frame. Early values near 56 billion USD grow steadily, escalating to a high of about 125 billion USD by December 2024. Despite some minor fluctuations, the liabilities tend to rise consistently, suggesting increased short-term obligations or payables relative to the earlier periods.

Quick Ratio

The quick ratio shows a clear declining trend across the quarters. Starting from a strong liquidity position at 2.72 in September 2018, the ratio gradually decreases, crossing below 2.0 in the first half of 2021. The downward movement becomes more pronounced afterwards, reaching around 1.1 by the end of 2024. This persistent reduction reflects weakening liquidity, as the company’s quick assets shrink relative to its current liabilities.

Overall, the data indicate a deterioration in the company's liquidity position over the years. While quick assets initially increased and then fluctuated, current liabilities grew more consistently, exerting pressure on liquidity ratios. The significant decline in the quick ratio suggests potentially increased short-term financial risk, implying that the company may have less buffer to cover immediate liabilities solely with its most liquid assets as time progresses.

The analysis of the quarterly financial data reveals several notable trends concerning liquidity and short-term financial health over the observed periods.

Total Cash Assets

The total cash assets demonstrate a fluctuating pattern, beginning at approximately 135.9 billion USD in late 2018, with moderate variation around the 130 billion USD mark throughout 2019 and 2020. Starting from early 2021, there is a gradual decline in cash reserves, reaching a low below 80 billion USD by late 2024. This decline suggests a reduction in readily available cash over time, indicating either increased cash utilization or diminished cash inflows relative to outflows.

Current Liabilities

The current liabilities show an overall increasing trend. Beginning near 56.3 billion USD at the end of September 2018, liabilities rise steadily with some fluctuations, peaking at above 125 billion USD by the end of 2024. The increase in current liabilities implies a growing obligation to meet short-term debts or operational expenses, which, combined with the declining cash assets, could pressure liquidity.

Cash Ratio

The cash ratio, which measures the company's ability to cover current liabilities using just cash and equivalents, reflects a declining trend consistent with the observations in cash assets and liabilities. Starting above 2.4 in 2018, it gradually decreases quarter by quarter, dropping below 1.0 after mid-2023 and remaining around 0.6 to 0.7 towards the end of the observed period. A cash ratio below 1.0 indicates that cash on hand is insufficient to cover current liabilities, signaling potential liquidity risk.

In summary, the data reveals a diminishing cash reserve alongside rising current liabilities, resulting in a decreasing cash ratio over the years analyzed. This trend suggests increased pressure on short-term liquidity and indicates that the company may have relied more on other forms of financing or asset liquidation to meet obligations. Monitoring these indicators would be prudent to ensure the maintenance of adequate liquidity levels going forward.