Microsoft Corp Power Point Presentation

8/6/2019 Microsoft Corp Power Point Presentation

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Financial Analysis of

Jang-Soo LeeStephen Kow Bosomafi

December 1, 2007

MBA 644 Financial Statement AnalysisFall 2007 Marist College


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MBA 644 Financial statement Analysis Fall 2007 Marist College

Financial Analysis of Microsoft

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Ex ecutive Summary

An American multinational computer corporationLocated in 102 countriesNumber of employees = 79,000Very strong financial condition

High liquidityNo interest-bearing debt,High profit marginSteady growing revenue - $51.1 billion as of 2007 (15% increase from $44.3 billion 2006)Steady growing net income - $14 billion as of 2007 (12% increase from $12.6 billion 2006)Steady growing EPS $1.42 as of 2007 (18% increase from $1.20 of 2006)Microsoft Windows operating system and the Microsoft Office suite have prominentpositions in the desktop computer market, with market share estimates as high as 90% or more.

MissionCreating technology that transforms the way

people work, play and communicate


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3

O perating Segments

ClientWindows Vista, Windows XP

Server and toolsWindows Server OS, SQL Server, Visual Studio ...O nline Services Business

MSN Search, MSN Hotmail Plus, Windows Live ...

Microsoft Business DivisionMS Office, MS Project, MS Visio

E ntertainment and Devices DivisionXbox 360, Xbox Live, Zune


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4

Foundation for Long-term Growth

D elivering innovative productsCreating opportunities for partnersContinuing investment in R& DImproving customer satisfaction with keyaudiences

Improving Microsofts internal businessprocesses


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5

ChallengesIntense competition across all markets for Microsoft products andservicesOpen source software vendors developing software that mimic thefeatures and functionality of Microsofts productsProtecting intellectual property rightsSecurity vulnerabilities affecting revenues

Attracting and retaining talented employeesD elays in product development affecting revenues

Claims and lawsuits leading adverse outcomes Adverse economic conditions & catastrophic events Additional tax liabilities Acquisition and joint ventures resulting in an adverse effectImpaired intangible assets negatively impacting earnings


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Liquidity Analysis


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7

Breakdown of CR & CL

6 414 3

4 9 6 7 6 1

42 6

46 3

32 9 27 417 3

5 2

5 9

7 2 9 3

11 3

7 2 6 5 7 5 9 1 10 8

0 0

10 0

20 0

30 0

40 0

50 0

60 0

70 0

2003 2004 2005 2006 2007

Year

B i l l i o n

$

Other current liabilities

ecurities lending payable

hort-term unearned re enue

Income ta es

Accrued compensation

Accounts payable

Other current assets

Deferred income ta es

In entories

Accounts recei able

hort-term in estments

Cash and equi alents


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8

Liquidity Ratios

4 22

4 7

2 8

2 8

648

2 2

74

88

4 44

2 66

4

4686

24

4 0

2 24

2

0

0

2

4

200 2004 200 2006 2007 n stry A g

ector A g 00

A gear

i

i i t y r a

t i o s

C rrent atioic atio

Cas atio


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Activity Analysis


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10

Days Sales O utstanding

.16 . 46. 4

.2

10.. 44.

.

7 .767.

0.00

2.00

4.00

6.00

.00

10.00

12.00

200 2004 200 2006 2007

ear

A v g . a c

c o n

t r e c e

i v a

l e i n

i l l i o n

0

1020

0

40

0

60

70

0

D

a y s s al e

s o t s t an

i n g Average acco nt receiva leD ays sales o tstan ing


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11

Asset E fficiency Ratios

0 00 6 0 64

0 1

0 27 4 1 0

2 64 6

14 4 1 4 16 6 14 11 7

0 010 020 0

0 040 0

0 0

60 070 0

0 00 0

100 0

200 2004 200 2006 2007

ear

B i l l i o n

0 10

1 00

10 00

100 00

T r n

o er r a

t i o

Total assets

n entoriesFi e assets

e en eTotal asset t rno er n entory t rno er Fi e asset t rno er


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Solvency Analysis


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13

Breakdown of Liabilities

$1 717 $2 086 $2 909 $3 247$1 339 $1 662

$1 938 $2 325$3 478 $2 020 $1 557 $1 040

$6 514 $7 502$9 138 $10 779

$3 117$2 741

$1 921 $3 607

$3 783$3 622

$1 663$1 665

$1 764 $1 867

$1 979$3 066

$4 194$5 071

$0

$5 000

$10 000

$15 000

$20 000

$25 000

$30 000

$35 000

2004 2005 2006 2007

ear

M i l l i o n

$

ther long term liabilitiesLegal contingencies

a contingenciesLong term unearned re enue

ther current liabilitiesSecurities lending payableShort term unearned re enuencome ta es

Accrued compensation

Accounts payable


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14

Debt- E quity Ratio

64 9

74 8

48 1

40 1

31 1

16 8 19 522 7

29 5 32 125 9 26 1

47 2

73 5

103 1

0 010 0

20 0

30 0

40 0

50 0

60 0

70 0

80 0

2003 2004 2005 2006 2007

ear

B i l l i o n

$

0 0

20 0

40 0

60 0

80 0

100 0

120 0

D

e b t e q ui t y r a

t i o

otal toc holders quityotal Liabilities

D ebt equity Ratio


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P rofitability Analysis


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16

Breakdown of Revenues

60 6 67 2 60 76106

66 0 77 61 0 6

71 27 6

16

2114 6

240 0

4 47 6

0 14 6164 7

1 2

0 0

100 0

200 0

00 0

400 0

00 0

600 0

200 2004 200 2006 2007

ear

B i l l i o n

erating incomeGeneral an a ministrative

ales an marketingesearc an evelo ment

Cost of reven e


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17

Breakdown of Incomes

9 5 9 0

14 616 5

18 51 5 3 2

2 11 8

1 6

3 5 4 0 4 45 7 6 0

7 5 8 2

12 312 6

14 1

0 0

5 0

10 0

15 0

20 0

25 0

2003 2004 2005 2006 2007

Year

B i l l i o n

$

et income

ro ision for income ta esIn estment income and other

perating income


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18

P rofit Margin Ratios

81 2 81 884 8 82 7

7 174 2

2 644 24

2 724

6 6 7 2 6 2

2 817 44 1 47

2 422 2

0 8 28 27

1 62 14 46 1 40 0

10 0

20 0

0 0

40 0

0 060 0

70 0

80 0

0 0

200 2004 200 2006 2007 n stry A g

ector A g 00 A g

ear

M a r g

i n %

ross MarginO erating Margin

et rofit Margin


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19

Changes of Asset and NI

1 7

94 4

70 69 66 264 9

74

4 140 1

1 1

16 1922 7

29 2 1

7 212 12 6 14 1

10 020 0

0 0

40 0

0 0

60 070 0

0 0

90 0

100 0

200 2004 200 2006 2007

ear

B i l l i o n

otal Assetsotal tock ol ers ityotal ia ilitieset ncome


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20

RO A and R O E Ratios

6

47

2

064

67

7 66

2 0

2 6 2 47

2 7 2 6

0

0

20

0

40

0

200 2004 200 2006 2007 n stry A g

ector A g 00

A gear

a t i o

e t rn on Assetse t rn on i ty


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21

E P S and D P S

10 2 10 4 10 06 10 1 6

0 6 0 7

1 121 20

1 42

0 00 16

0 2 0 40

0 20

0 40

0 60

0 0

1 00

1 20

1 40

1 60

200 2004 200 2006 2007

ear

/

0

2000

4000

6000

000

10000

12000

C omm

on

s t o c o

t s t ani n

g

Common stoc o tstan ingarnings er arei i en s er are


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23

E P S Growth Rates

2 76

2 724 6

36 3

2 3

20 3

32 4

23 4

3 2

42

02

23 46

0

0

20

2

30

3

40

M s tr r Ago M s M r Ago r ro t ate

r o t

a t e

Microsoft n stry A g ector A g 00 A g


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Summary


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25

Strengths and Weaknesses

Strengths Weaknesses

Liquidity - Higher liquidity than industry average - Declining liquidity

Activity

- Small portions of inventory and fixed assets

- Improving asset management efficiency- Much higher asset efficiency than industry

average

- Increasing account receivable and DSO

- Increasing inventories and fixed assets

Solvency - No interest-bearing debt - Increasing liability to equity ratio

Profitability

- Steady increases of revenue and profit- Higher profit margin than industry average- Steady increases of ROI and ROE- Much higher ROI and ROE than industry

average- Steady increases of EPS and DPS- Lower beta (0.8) than S&P500 average (1)- Higher growth expectation than S&P500

average

- Decreasing profit margin


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Recommendations

Focusing on sustainable long-term growth through:- echnological innovation- Engineering excellence- Commitment to delivering high-quality products and services

to customers and partners- Increasing liquidity- D ecreasing D SO and Liabilities

Microsoft Corporation would be the one of the wisest investment choices since it can provide a stable long- term growth of blue-chip companies as well as a

possibility of high growth of high-tech companies.

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