How Microsofts Increasing Liabilities Signaled Growth, Unlike Apple

Abstract

Question 3 The case study noted that an increase in liabilities would raise a red flag for a company. However, this was not the case for Microsoft, why? An increase in the liabilities of a company implies that it earned most of its goods from buying them on credit and borrowing. This acts as a threat to the financial statements and reports. Further, an increase in liabilities interferes with the total stock of the company. However, Microsoft recorded an increase in the current liabilities, which turned out beneficial rather than detrimental. Microsoft’s short-term unearned revenue, which are current liabilities that increased per year. Earned revenue arises from the sale of internet explorers and windows. Further, Microsoft has coupons for upgrades of their programs which help to increase their sales of Xbox consoles ad surface tablets. When updating these programs, clients pay the upgrading fees and the subscription fees which are then recorded as earned revenue, to cater for the future upgrades Microsoft owes the customers. Generally, it is a good sign if a company’s current liabilities are decreasing. Of course, a company would want its current liabilities to go down. However, according to the case study, Apple’s current liabilities declining implied a negative signal about future profits. Why? Like Microsoft, Apple had a similar incident where the total value of software updates for iPhones decreased which implies that the future upgrade revenue will be unsuccessful. Therefore, the decrease in the earned revenues of Apple, means a negative signal regarding its future profits. Are increases in current liabilities good or bad? Market analysis shows that an increase in current liabilities can be good or detrimental to organizations. In this context, an increase in the current liabilities of Microsoft has a positive effect because it means an increase in the earned revenue....