Additionally, the risk factor is something to take into consideration. Firms that have very high debt ratios are not only closer to insolvency, but because they are riskier will also have higher borrowing costs. There is little to choose form in terms of solvency between these companies, but the higher debt ratio at Microsoft will ultimately be better for investors because more of their money is returned in the form of profits.

All told, Google is the better investment, because the company has more upside than does Microsoft. This comes down to Google's management style and its innovation track record. Because Google's key innovations are more recent than Microsoft's, and because Google seems to be more oriented towards innovation today, it is expected that Google will outperform Microsoft in the future with respect to introducing new businesses. These new businesses are not yet priced into the companies' stock prices, whereas...
[ View Full Essay]