Accounts payable turnover:

The average number of days that an amount owing to a creditor stays unpaid is used to compute accounts
payable turnover rates.

Accounts Payable Turnover Ratio = Totals Purchases / Average accounts payable

MSFT GP

Year Ratio Year Ratio

2018 18.89

2019 13.02 2019 19.66

2020 12.14 2020 18.60

Accounts Payable Turnover

19.66
20 18.89 18.6
18
16
14 13.02
12.14
12
10
2018 2019 2020

MSFT GP
The higher the number of accounts payable turned over, the better the company is managing its cash flow
and debts. From the ratio we can see that GP’s payable turnover was 18.89 in 2018 and increased by 0.77
in 2019 but in 2020, the ratio decreases by 1.06 from previous year. Therefore, GP has enough money in
the bank to pay off its short-term debt. But in the long run, if the decreasing trend continues GP could
face a short-term cash liquidity crisis. In terms of Microsoft in 2019, the ratio was 13.02 and it decreases
by 0.88. A decreasing trend in ratio indicates that MSFT is in financial trouble. On the other hand,
decreasing ratio may mean that MSFT negotiated a different payment arrangement with its creditors.

Payable Days
The average number of days it takes a corporation to pay back its accounts payable is referred to as Days
Payable Outstanding (DPO). Days payable outstanding so indicates how successfully a corporation
manages its accounts payable.

Days Payable Outstanding = (Average Accounts Payable / Cost of Goods Sold) x Number of Days in
Accounting Period

MSFT GP

Year Ratio Year Ratio

2018 76.17

2019 76.55 2019 68.79

2020 86.79 2020 60.79

Payable Days
90 86.79
85
80 76.55
75
70 76.17
65 68.79
60
55 60.79
50
2018 2019 2020

MSFT GP

According to the ratio, we can see that GP’s payable was paid in 76.17 days in 2018 and it was decreased
to 68.79 days which means 9.68% de-growth in 2019 and again it decreased to 60.79 resulted in 11.62%
de-growth. Therefore, GP is taking less time to paying off its creditors which means they could not utilize
their short-term debt for a longer period and used the fund for less days. In terms of MSFT, the payable
was paid at 76.55 days in 2019 and in 2020, the payable was paid at 86.79 days resulted in 13.37%
growth. Therefore, MSFT can use available cash for short-term investments and increase working capital
and free cash flow. However, higher DPO values may not always be beneficial to the business. If MSFT
pays creditors for too long, it may endanger its relationship with creditors, who may refuse to provide
trade credit in the future, or may provide trade credit on unfavorable terms to MSFT.
Cash Conversion Cycle (CCC)

The cash conversion cycle (CCC) is one of several management effectiveness indicators. It determines
how quickly a corporation can turn its cash on hand into additional cash on hand.

Cash Conversion Cycle =Days Sales Outstanding + Days Inventory- Days Payable

MSFT GP

Year Ratio Year Ratio

2018 6 days

2019 25 days 2019 3 days

2020 7 days 2020 5 days

According to ratio we can see that GP’s CCC ratio was 6 days in 2018, 3 days in 2019, and 5 days in
2020. On average it takes 4.6 or 5 days to convert GP’s cash on hand to additional cash which means they
are performing extremely well to convert credits to cash. It means, GP won’t face liquidity crisis as they
can manage their cash flow very well. According to ratio we can see that Microsoft’s CCC ratio was 25
days in 2018, and it took only 7 days in 2020 resulted in 72% degrowth. This is an amazing example of

Cash Conversion Cycle (CCC)

30
25
25
20
15
7
10 6
3
5
5
0
2018 2019 2020

MSFT GP
how efficiently MSFT manages its credits. They also have cash in hand to work with short term
obligations which is also great.

Total Asset Turnover:

The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales
from its assets by comparing net sales with average total assets.
 Total Asset Turnover = Sales / Total Assets

MSFT GP

Year Ratio Year Ratio

2018 0.95

2019 0.43 2019 0.96

2020 0.47 2020 0.94

In 2018-2020, total asset turnover of GP was 0.95, 0.96 and, 0.94 times. Turnover ratios of less than one,
which is typical for firms in the telecommunications-utilities sector. Due to GP’s large asset base, GP is
expected to slowly take over their assets through sales. For every BDT in assets, they are generating 0.94

Total Asset Turnover

1.2
0.95 0.96 0.94
1
0.8
0.6
0.4
0.43 0.47
0.2
0
2018 2019 2020

MSFT GP
BDT in sales Microsoft’s total asset turnover for year 2019 and 2020 were 0.43 and 0.47 times which
means for every USD in their assets, they are generating $0.43 in sales which is pretty bad. But Microsoft
also has huge fixed assets, so it could convey a mixed result. They could cut off some large assets to
increase earning more dollars per sale.