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SAMANTA CHANDRASEKHAR (AUTONOMOUS)COLLEGE, PURI
Submitted by:Rajendranath Behera
Roll no:-20204031Under the Guidance of
Prof, N.C JenaLecturer in Commerce
S.C.S (A) College, Puri
GUIDE & H.O.D
CERTIFICATE
This is to certify that the candidate Rajendranath Behera of +3 Final Year Commerce, Honors having Finance was working under my supervision and guidance for his project work. His project work entitled “FINANCIAL STATEMENT ANALYSIS OF MICROSOFT” which is submitting in his genuine and original work.
Signature of H.O.D Signature of GuidePlace: Puri Prof.N.C.JenaDate: Senior Faculty Dept of Commerce
2
ACKNOWLEDGEMENT
At the prime outset , I am privi leged to
acknowledged encouragement and guidance provided to
me by Prof N.C Jena, Lecturer of Commerce S.C.S (A)
Col lege, Puri , which enable me to f inish this study
properly, I am great ly indebted to him for permitt ing to
under take this study.
My sincere thanks to al l my fr iends, whose thoughts
and insights help me in furnishing my knowledge and
understanding of this project.
At last my sincere to my parents to have backing
support me on my way.
Rajendranath Behera
3
+3 Final year Commerce College Roll no:-304C186 Exam Roll no:-20204031
DECLARATION
I do hereby solemnly declare that the project work
ent i t led “FINANCIAL STATEMENT ANALYSIS OF MICROSOFT”
is submitted by me is part ial ful f i l lment of the Final year
Commerce Degree having Finance as Honors in S.C.S (A)
Col lege, Puri is my own original work and has not been
submitted ear l ier to S.C.S (A) Col lege, Puri or any other
Inst i tution for the ful f i l lment of the requirement for any
course of study .
I also declare that no chapter of this manuscript in
whole or part is l i f ted and incorporated in this report form
my any earl ier work done by me for others.
Place:-Puri Signature of Candidate Date: - Rajendranath Behera +3 Final year Commerce College Roll no:-304C186
4
Exam Roll no:-20204031
CONTENTS
INTRODUCTION.
BRIEF HISTORY OF MICROSOFT.
ANALYSIS & INTERPRETATION.
SUMMARY & FINDINGS.
CONCLUSION.
BIBLIOGRAPHY.
5
CHAPTER-1
INTRODUCTION6
Microsof t prov ides sof tware and serv ices that help
people communicate, do thei r work, be enter ta ined, and manage
thei r personal l ives. Over the past 30 years, innovat ive
technology has t ransformed how we access and share
in format ion, changed the way of businesses and inst i tu t ions
operate, and made the wor ld smal ler by g iv ing us instant access
to people and resources everywhere.
Microsof t was founded in 1975 and remains a leader in
the wave of innovat ion that has created so much new
oppor tuni ty , convenience, and value over the past three
decades. Dur ing that t ime, Microsoft has created many new
products, added new l ines of business, and expanded thei r
operat ions wor ldwide. A long the way, Microsof t was guided by
thei r corporate miss ion and the s ix core values i t re f lects-and
wi l l cont inue to guide us in the future.
Microsof t is commit ted to being a responsib le industry
par tner, work ing wi th businesses, communi t ies, and governments
to help advance socia l and economic wel l -being and to enable
people around the wor ld to real ize thei r fu l l potent ia l . Microsof t ’s
commitment and responsib i l i t ies as a global corporate c i t izen are
grounded in thei r company miss ion and values, mani fested
through thei r business pract ices and operat ions, and carr ied out
by thousands of Microsof t employees and suppl iers wor ldwide.
Microsof t ’s Global Ci t izenship In i t ia t ive is organized
around three themes, or s trategic concepts, which form the
foundat ion of thei r c i t izenship act iv i t ies wor ldwide:
Responsib le Business Pract ices, 7
Secur i ty and Internet Safety,
Bui ld ing a Knowledge Economy.
Each of these themes is fundamental to Microsoft `s
business. Microsof t organize thei r Global Ci t izenship In i t ia t ive
th is way to help ensure i ts business st rategies fu l ly support thei r
commitment to corporate governance, business eth ics, and
g lobal c i t izenship
OBJECTIVES
So far as Microsof t is concerned the object ive is to f ind
out the whole fund investment and i ts area of investment
inc luding i ts fu ture analys is , which wi l l ass is t in compar ing
the other sof tware agencies. Now some of the object ive of
Microsof t re lat ing to th is pro ject is as fo l lows.
To f ind out the total Investment of the
organization.
To f ind out the rate of progress.
To f ind out the ut i l izat ion of fund.
To know the sources of fund generated.
To know the ut i l izat ion of excess fund.
To assess the rate of income in earning on
investments.
SCOPE
The scope of the pro ject “F inancia l Statement Analys is
of Microsof t ” is to carryout the min imum analys is over i ts present
progress. At the same t ime th is project a lso conta ins the prof i t
8
analys is as wel l as some part o f f inancia l aspect of the
organizat ion. The Microsof t wi l l g ive more importance over i ts
s t ructura l progress. Now, some analys is char ts of Microsof t are
as under .
Selected f inancial data, stock price information and
issuer purchases of equity securi t ies.
Income Statement.
Balance Sheet.
Cash f low Statement.
Stock Holder’s Equity Statement
METHODOLOGY
The informat ion and data have been col lected main ly
f rom secondary sources. Though informat ion col lected for the
pro jects are f rom the Microsof t Head Off ice in One Park
Centra l Tower in A lbuquerque, USA and Microsof t Off ice at
Bangalore. The secondary data have been col lected f rom
var ious magazines, newspaper, catalogue, companies’
brochure, adver t isement out lay, f r iends f rom chart rooms and
d i fferent l inks. Most in format ion has been col lected f rom
Microsof t websi tes, Microsof t agents and Shareholders.
9
LIMITATION
At the last instance, I t ry my best to col lect adequate
data for complet ing a l l the aspect of Financia l Condi t ion of
MICROSOFT in a col lect ive manner. Though, i t is a t ime
consuming process, which wi l l carry more resul t -or iented
in format ion to the organizat ion. But to some extent I t r ied my
a l l e ffor t to make i t best inspi te of my fo l lowing l imi tat ion.
Due to f ina l exam there is no suff ic ient t ime provided for
preparat ion of pro ject work
Lack of suff ic ient magazines and publ icat ion.
Lack of co-operat ion of off ice staff .
Inadequacy f inancia l condi t ion
Unable to have Author izat ion, requi red for log in to
Microsof t D i rector`s Desk
10
CHAPTER-2
11
Brief History Microsof t was founded on 1975 by Bi l l Gates and h is
f r iend Paul Al len, A l len was an employee of Honeywel l and Bi l l
Gates was a sophomore at Harvard. Gates and Al len created a
s imulator on a DEC PDP-10 computer that a l lowed i t to emulate
the MITS machine. Work ing day and n ight , they created the f i rs t
vers ion of MICROSOFT BASIC for the Al ta i r . Their object ive: to
create a s impl i f ied computer language for teaching students how
to program. Af ter Successfu l Complet ion of thei r pro ject Paul
Al len jo ins MITS (Micro Inst rumentat ion and Telemetry Systems)
as Director of Sof tware. , and Gates fo l lows h im later that year
to form an in formal par tnership cal led Micro-sof t , complete wi th
hyphen.
On November 1, 1975 Paul A l len res igns f rom MITS to
jo in Microsof t fu l l t ime. On November 26, the t rade name
"Microsof t " is registered wi th the Of f ice of the Secretary of the
State of New Mexico " to ident i fy computer programs for use in
automat ic data processing systems; pre-programming
processing systems; and data processing serv ices inc luding
computer programming serv ices." The appl icat ion says that the
name has been in cont inuous use s ince November 12.
On November 29, 1975 in a le t ter to Paul A l len, B i l l Gates
uses the name "Micro-sof t " to refer to thei r (60/40) Partnership
wi th a Revenue of $16,005 and 3 Employees (A l len, Gates, and
Ric Wei land).MITS promotes Al ta i r BASIC, the computer
language developed by Gates and Al len for the Al ta i r computer.
12
On July 1 1976, Microsof t ref ines and enhances BASIC to
sale to other customers inc luding DTC, General E lectr ic , NCR,
and Ci t ibank. Microsoft develops i ts f i rs t ad campaign, ca l led
"The Legend of Micro-Kid." Al though st i l l an in formal
par tnership, Microsof t moves to i ts f i rs t real of f ices in One Park
Centra l Tower in Albuquerque. Gates returns to Harvard for the
spr ing term, but f inds t ime to d i rect Microsof t in i ts ef for ts to
l icense BASIC to General Elect r ic , NCR, Ci t ibank, and others.
Ti l l the date Revenue was increased to $22,496and the number
of employees was extended to 7.
On February 3 1977, a par tnership agreement between
Paul Al len and Bi l l Gates is of f ic ia l ly executed. Their main
product is s t i l l BASIC, but i t 's t ied up wi th MITS, which has
agreed to make a "best ef for t " to l icense i t to other companies.
Bi l l Gates and Paul A l len shared the t i t le of general partner
unt i l 1977, when Bi l l Gates became president and Paul A l len
v ice president of Microsof t Corporat ion wi th Revenue of
$381,715 and 9 Employees (Steve Wood, Bob Wal lace, J im
Lane, Bob O'Rear , Bob Greenburg, Marc McDonald, Gordon
Letwin, B i l l Gates, Andrea Lewis, Mar la Wood & Paul Al len) .
Steve Jobs and Stephen Wozniak, one of the Contenders
of Microsof t s tands as a chal lenging compet i tor . They
in t roduces the Apple I personal computer, for only
$666.66.Steve Jobs and Stephen Wozniak bui ld the f i rs t s ingle
c i rcu i t board PC complete wi th v ideo in ter face and 8K of RAM
and a keyboard out of the garage and in to the h is tory book.
Another compet i tor IBM ar ises wi th a cheaper personal
computer for ind iv idual . In 1981 Microsoft r ides the wave of
13
the IBM PC wi th vers ions of BASIC, COBOL, and Pascal . Steve
Jobs of Apple v is i ts Microsof t to g ive a sneak preview of the
revolut ionary Macintosh computer. Microsof t becomes the f i rs t
major company to develop products for the Mac.
On June 25, 1981 Microsoft reorganizes into a pr ivate ly
held corporat ion wi th Bi l l Gates as President and Chairman of
the Board, and Paul A l len as Execut ive V ice President.
Microsof t becomes Microsof t , Inc. , an incorporated business in
the State of Washington wi th Revenue of $16,000,000 and 128
Employees. In 1982 Revenue increases to $24,486,000 wi th 220
employees. In 1985 Microsof t in t roduces a new wide select ion of
min i -appl icat ions of sof tware packages:-
MS-DOS Execut ive
Calendar
Cardf i le
Notepad
Terminal
Calculator
Clock
Revers i (a s t rategy game)
Contro l Panel
PIF (Program Informat ion Fi le) Edi tor
Pr int Spooler
Cl ipboard
RAM Drive
Windows Wri te
Windows Paint
14
which increases i t Revenue to $140,417,000 wi th 910
employees. Now Microsof t sh ips i ts one-mi l l ionth uni t of
Mul t ip lan.
On Apr i l 2 1987, Microsof t announces Microsof t
Operat ing System/2 (MS OS/2) a new personal computer
operat ing system. I t has been designed and developed
speci f ical ly to harness the capabi l i t ies of personal computers
based upon the Inte l 80286 and 80386 microprocessors. I t is
p lanned for phased re lease to OEMs in the four th quar ter of
1987. This is the f i rs t product to be announced as a resul t o f
the Joint Development Agreement between IBM and Microsof t
announced in August , 1985. T i l l now Microsof t has expanded
h is Business to Massive f igure hold ing about 60% of USA
Capi tal .
EMPLOYEES
As of June 30, 2006, Microsof t has employed
approximate ly 71,000 people on a fu l l - t ime basis, 44,000 in the
Uni ted States and 27,000 internat ional ly . Of the tota l , 28,000
were in product research and development , 21,000 in sales and
market ing, 13,000 in product suppor t and consul t ing serv ices,
2,000 in manufactur ing and d is t r ibut ion, and 7,000 in general
and administration. Its success is highly dependent on its ability to
attract and retain qualified employees. None of its employees are
subject to collective bargaining agreement .
15
PROPERTIES
Microsoft corporate offices consist of approximately
11.0 million square feet of office building space located in King
County, Washington: 8.5 million square feet of owned space that
is situated on approximately 500 acres of land it own in its
corporate campus and approximately 2.5 million square feet of
space it lease. Microsoft own approximately 533,000 square feet
of office building space domestically (outside of the Puget Sound
corporate campus) and lease many sites domestically totaling
approximately 2.7 million square feet of office building space.
Microsoft occupies many sites internationally, totaling
approximately 6.9 million square feet that is leased and
approximately 883,000 square feet that is owned. These facil ities
include its European Operations Center that leases an 187,000
square foot campus in Dublin, Ireland, a 56,000 square foot disk
duplication facility in Humacao, Puerto Rico, and a 159,000
square foot facility in Singapore for the Asia Pacific Operations
Center and Regional headquarters.
Leased office building space includes the following locations:
Tokyo, Japan 408,000 square feet; Unterschleissheim, Germany
381,000 square feet; Les Ulis, France 262,000 square feet;
Reading, England 241,000 square feet; and Mississauga, Canada
161,000 square feet. In addition to the above locations, it has
various product development facilities, both domestically and
internationally, as described in “Operations” above. Microsoft
facilities are fully used for current operations of all segments, a
16
suitable additional space is available to accommodate expansion
needs.
Microsoft own 63 acres of land in Issaquah, Washington,
which can accommodate 1.2 million square feet of office space
and it has an agreement with the City of Redmond under which it
may develop an additional 2.2 million square feet of facilities at its
campus in Redmond, Washington.
COMPETITORS
Competitors to the Microsoft Office system include many
software application vendors such as Apple, Corel, Google, IBM,
Novell, Oracle, Red Hat, Sun Microsystems, and local application
developers in Europe and Asia. IBM (SmartSuite) and Corel
(WordPerfect Suite) have measurable installed bases with their
office productivity products. Apple may distribute certain of their
application software products with various models of their PCs.
The OpenOffice.org project provides a freely downloadable cross-
platform application that also has been adapted by various
commercial software vendors to sell under their brands, including
IBM, Novell, Red Hat, and Sun. Corel’s suite and many local
software suites around the world are aggressively priced for OEMs
to preinstall on low-priced PCs. In addition to traditional client-
side applications, Web-based offerings such as AjaxWrite,
gOffice, iNetOffice, SimDesk, ThinkFree, wikiCalc, or other small
projects competing with individual applications, can also provide
17
an alternative to Microsoft Office system products. Google has
announced spreadsheet and word processing applications as web-
based offerings and also provides an enterprise search offering
that competes with SharePoint and the new enterprise search
product. IBM has many different points of competition with Office
system products with its Notes and Workplace offerings. As
Microsoft continue to respond to market demand for additional
functionality and products, it compete with additional vendors,
most notably in enterprise content management, collaboration
tools, unified messaging, and business intelligence. These
competitors include WebEx, and a number of business intelligence
vendors such as Business Objects, Cognos, and Hyperion.
Microsoft competition varies based upon the size and
geographic location of the customer for whom it is competing. It
competes with well-known vendors such as Intuit and Sage in the
market focused on providing solutions for small and mid-sized
businesses. The market for large organizations and divisions of
global enterprises continues to be intensely competitive with a
small number of primary vendors including Oracle and SAP.
Additionally, these large enterprise-focused vendors are
repositioning some of their business applications to focus on small
and mid-sized businesses. Microsoft believe its products compete
effectively with these vendors based on its strategy of providing
integrated, adaptable solutions that work like and with Microsoft
technologies its customers already have. .
18
CHAPTER-3
19
Brief Analysis MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
On August 18, 2006, Microsof t announced that the
author izat ion for the ongoing share repurchase program,
previously announced on July 20, 2006, had been increased by
approximate ly $16.2 b i l l ion. As a resul t , the company is
author ized to repurchase addi t ional shares in an amount up to
$36.2 b i l l ion through June 30, 2011.
SELECTED FINANCIAL DATA, STOCK PRICE INFORMATION, AND ISSUER PURCHASES OF EQUITY SECURITIES
(In millions, except per share data)
Fiscal Year Ended June 30 2006 2005 2004
Revenue $ 44,282 $39,78
8 $36,83
5
Operating income 16,472 14,56
1 9,034
Net income 12,599 12,25
4 8,168
Diluted earnings per share $ 1.20 $ 1.12 $ 0.75
Cash dividends declared per share $ 0.35 $ 3.40 $ 0.16
20
(In millions, except per share data)
Fiscal Year Ended June 30 2006 2005 2004
Cash and short-term investments 34,161 37,75
1 60,59
2
Total assets 69,597 70,81
5 94,36
8
Long-term obligations 7,051 5,823 4,574
Stockholders’ equity 40,104 48,11
5 74,82
5
Microsof t common stock is t raded on the NASDAQ Stock
Market under the symbol MSFT. On August 18, 2006, there were
148,993 registered holders of record of our common stock. The
h igh and low common stock pr ices per share were as fo l lows
Quarter Ended Sep. 30 Dec. 31 Mar. 31 June 30 Year
Fiscal year 2005
Common stock price per share:
High $29.00 $29.9
8 $ 26.84 $26.0
7 $ 29.98
Low $26.88 $26.5
3 $ 23.92 $24.1
2 $ 23.92
Fiscal year 2006
Common stock price per share:
High $27.7
6 $28.1
6 $28.1
5 $27.7
4 $28.1
6
Low $24.6
5 $24.3
0 $26.2
8 $21.5
1 $21.5
1
21
Stockholders ’ Equi ty of the Notes to F inancial Statements for
in format ion regarding d iv idends approved by our Board of
Di rectors in f iscal years 2006 and 2005.
On July 20, 2006, Microsof t announced the complet ion of the
repurchase program approved by i ts Board of Di rectors on
July 20, 2004, to buy back up to $30 b i l l ion in Microsof t
common stock. The repurchases were made using our cash
resources. Microsof t repurchased common stock in each
quar ter of f iscal year 2006 as fo l lows:
PeriodTotal number of
shares purchasedAverage pricepaid per share
July 1, 2005 – September 30, 2005 114,134,218 $ 26.54
October 1, 2005 – December 31, 2005 283,112,246 $ 27.08
January 1, 2006 – March 31, 2006 180,720,830 $ 27.00
April 1, 2006 – June 30, 2006 175,609,060 $ 23.78
Common stock repurchases in the fourth quarter of f iscal year
2006 were as fo l lows
Period
(a) Total number of
shares purchased
(b) Averageprice paid per
share
(c) Total number of shares
purchased as part of publicly
announced plans or programs
(d) Maximum number of shares (or approximate dollar value) of shares
that may yet be purchased under the plans or programs (in
millions)
April 1, 2006 – April 30, 2006 38,041,415 $ 27.08 38,041,415 $ 5,394
May 1, 2006 – May 31, 2006 8,618,036 $ 24.37 8,618,036 $ 5,184
22
Period
(a) Total number of
shares purchased
(b) Averageprice paid per
share
(c) Total number of shares
purchased as part of publicly
announced plans or programs
(d) Maximum number of shares (or approximate dollar value) of shares
that may yet be purchased under the plans or programs (in
millions)
June 1, 2006 – June 30, 2006 128,949,609 $ 22.76 128,949,609 $ 2,249
175,609,060
175,609,060
On July 20, 2006, i t announced that i ts Board of Di rectors
author ized two new share repurchase programs: a $20 b i l l ion
tender of fer which was completed on August 17, 2006; and
author izat ion for up to an addi t ional $20 b i l l ion ongoing share
repurchase program wi th an expi rat ion of June 30, 2011.
Under the tender of fer , i t repurchased approximate ly 155
mi l l ion shares of common stock, or 1.5% of i ts common shares
outstanding, for approximate ly $3.8 b i l l ion at a pr ice per
share of $24.75.
INCOME STATEMENT
23
(In millions, except per share amounts)
Absolute Change
in $
Percentage Change
%
Year Ended June 30 2006 2005
Revenue $ 44,282 $ 39,788 4494 11.29
Operating expenses:
Cost of revenue 7,650 6,031 1619 26.84
Research and development 6,584 6,097 487 7.98
Sales and marketing 9,818 8,563 1255 14.65
General and administrative 3,758 4,536 (178) (3.92)
Total operating expenses 27,810 25,227 2583 10.23
Operating income 16,472 14,561 1911 13.12
Investment income and other 1,790 2,067 (277) (13.40)
Income before income taxes 18,262 16,628 1634 9.82
Provision for income taxes 5,663 4,374 1289 29.46
Net income$
12,599 $ 12,254 345 2.81
Earnings per share:
Basic$ 1.21 $ 1.13 0.08 7.07
Diluted$
1.20 $ 1.12 0.08 7.14
Weighted average shares outstanding:
Basic 10,438 10,839 (401) (3.69)
Diluted 10,531 10,906 (375) (3.43)
Cash dividends declared per common share$ 0.35
$ 3.40(3.05) (89.70)
. From the above Income Statement analys is I f ind that the
tota l operat ing expenses had a t remendous increase of $2583 24
mil l ion wi th a 10.23% of change, the revenue increased f rom
$39788 mi l l ion to $44282 mi l l ion wi th an Absolute change of
$4494 Mi l l ion wi th 11.29% of change. Where as the net income
f rom al l sources is just increased to $345 mi l l ion. The earn ing
per share has an increase of 7.07% and 7.14% whereas the
weighted average share outstanding is reduced to 3.69% and
3.43%
BALANCE SHEET
25
(In millions)
Absolute Change
in $
Precentage Change%
June 30 2006 2005
Assets
Current assets:
Cash and equivalents $ 6,71
4 $ 4,851 1863 38.40
Short-term investments (including securities pledged as collateral of $3,065 and $-) 27,447 32,900 (5453) (16.57)
Total cash and short-term investments 34,161 37,751 (3590) (9.50)
Accounts receivable, net of allowance for doubtful accounts of $142 and $171 9,316 7,180 2136 29.74
Inventories, net 1,478 491 987 201.01
Deferred income taxes 1,940 1,701 239 14.05
Other 2,115 1,614 501 31.04
Total current assets 49,010 48,737 273 0.56
Property and equipment, net3,044 2,346 698 29.75
Equity and other investments 9,232 11,004 (1772) (16.10)
Goodwill 3,866 3,309 557 16.83
Intangible assets, net 539 499 40 8.01
Deferred income taxes 2,611 3,621 (1010) (27.89)
Other long-term assets 1,295 1,299 (4) (0.30)
Total assets $ 69,597 $ 70,815 (1218) (1.72)
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 2,909 $ 2,086 823 39.45
Accrued compensation 1,938 1,662 276 16.60
Income taxes 1,557 2,020 (463) (22.92)
Short-term unearned revenue 9,138 7,502 1636 21.80
Securities lending payable 3,117 — 3117 100
Other 3,783 3,607 176 4.87
Total current liabilities 22,442 16,877 5565 32.97
Long-term unearned revenue 1,764 1,665 99 5.94
Other long-term liabilities
26
CASH FLOW STATEMENTS
(In millions)
Absolute Change
in $
Precentage Change%
Year Ended June 30 2006 2005
Operations
Net income $ 12,599 $ 12,254 345 2.81
Depreciation, amortization, and other non cash items 903 855
48 5.61
Stock-based compensation 1,715 2,448 (733) (29.94)
Net recognized gains on investments (270) (527) 257 (48.76)
Stock option income tax benefits – 668 (668) (100)
Excess tax benefits from stock-based payment arrangements (89) – (89) -
Deferred income taxes 219 (179) 398 (222.34)
Unearned revenue 16,453 13,831 2622 18.95
Recognition of unearned revenue (14,729) (12,919) (1810) 14.01
Accounts receivable (2,071) (1,243) (828) 66.61
Other current assets (1,405) (245) (1160) 473.46
Other long-term assets (49) 21 (70) (333.33)
Other current liabilities (145) 396 (541) (136.61)
Other long-term liabilities 1,273 1,245 28 2.24
Net cash from operations 14,404 16,605 (2201) (13.25)
Financing
Common stock issued 2,101 3,109(1008) (32.42)
Common stock repurchased (19,207) (8,057)(11150) 138.38
Common stock cash dividends (3,545) (36,112)32567 (90.18)
Excess tax benefits from stock-based payment arrangements 89 – 89 100
– (18) 18 -27
(In millions)
Absolute Change
in $
Precentage Change%
Year Ended June 30 2006 2005
Other
Net cash used in financing (20,562) (41,078)20516 (49.94)
Investing
Additions to property and equipment (1,578) (812)(766) 94.33
Acquisition of companies, net of cash acquired (649) (207)(442) 213.52
Purchases of investments (51,117) (68,045)16928 (24.87)
Maturities of investments 3,877 29,153(25276) (86.70)
Sales of investments 54,353 54,938(585) (1.06)
Net proceeds from securities lending 3,117 –3117 100
Net cash from (used in) investing8,003 15,027 (7024) (46.74)
Net change in cash and equivalents 1,845 (9,446)11291 (119.53)
Effect of exchange rates on cash and equivalents 18 (7)25 (357.14)
Cash and equivalents, beginning of period 4,851 14,304(9453) (66.08)
Cash and equivalents, end of period $ 6,714 $ 4,8511863 38.40
STOCK HOLDER`S EQUITY STATEMENT
(In millions)
Absolute Change
in $
Precentage Change%
Year Ended June 30 2006 2005
28
(In millions)
Absolute Change
in $
Precentage Change%
Year Ended June 30 2006 2005
Common stock and paid-in capital
Balance, beginning of period$
60,413 $ 56,396 4017 7.12
Common stock issued 1,939 3,223 (1294) (40.14)
Common stock repurchased (4,447) (1,737) 3310 (190.55)
Stock-based compensation expense 1,715 2,448 (733) (29.94)
Stock option income tax benefits/(deficiencies) (617) 89 (706) (793.25)
Other, net 2 (6) 8 (133.33)
Balance, end of period$
59,005$
60,413 (1408) (2.33)
Retained earnings (deficit)
Balance, beginning of period (12,298) 18,429 (30727) (166.73)
Net income 12,599 12,254 345 2.81
Other comprehensive income:
Net gains/(losses) on derivative instruments 76 (58) 134 (231.03)
Net unrealized investments gains/(losses) (282) 371 (653) (176.01)
Translation adjustments and other 9 (6) 15 (250)
Comprehensive income 12,402 12,561 (159) (1.26)
Common stock cash dividends (3,594) (36,968) 33374 (90.27)
Common stock repurchased (15,411) (6,320) (9091) 143.84
Balance, end of period (18,901) (12,298) (6603) 53.69
Total stockholders’ equity$
40,104$
48,115 (8011) (16.64)
From the Balance sheet I conclude the there is decrease
tota l cash and shor t - term investment , the f igure reduces f rom
29
$37756 mi l l ion to $34161 mi l l ion wi th a 10.5% of decrease,
whereas the tota l current assets has increase of $273 mi l l ion.
But the tota l current l iab i l i ty has been increased $16877 mi l l ion
to $22442 mi l l ion wi th a tota l change of $5565 mi l l ion and
75.2% in change where as the stock holder ’s equi ty has been
t remendously reduct ion of $8011 mi l l ion. But overa l l the balance
sheet shows net decrease of $1218 mi l l ion f rom the perv ious
year . The statements are not sat is factory according to me, but I
th ink there must be some hidden reserve, investment
or some gains kept secrete which is not furn ished for va luat ion
of s tatement .
PERFORMANCE GRAPH The char t below compares the f ive-year cumulat ive tota l
return, assuming the re investment of d iv idends, on Microsof t
common stock wi th that of the S&P 500 Index and the
NASDAQ Computer Index. This graph assumes $100 was
invested on June 30, 2001, in each of Microsoft common
stock, the S&P 500 companies, and the companies in the
NASDAQ Computer Index.
Microsof t management caut ions that the stock pr ice
per formance shown in the graph below should not be
considered indicat ive of potent ia l fu ture stock pr ice
per formance.
C O M P A R I S O N O F 5 Y E A R C U M U L A T I V E T O T A L R E T U R N S
A M O N G M I C R O S O F T C O R P O R A T I O N , T H E S & P 5 0 0 I N D E X A N D T H E N A S D A Q C O M P U T E R I N D E X
30
Cumulative Total Return 6/01 6/02 6/03 6/04 6/05 6/06
Microsoft Corporation 100.00 74.93 70.48 78.93 77.07 73.25
NASDAQ Computer Index 100.00 90.10 70.13 98.36 93.62 99.03
S&P 500 Index 100.00 82.01 82.22 97.93 104.12 113.11
Ratio Analysis(in millions) 2005 2006
1 Current Ratio Current Asset Current Liability
4873716877 =2.8877 49010
22442 =2.184
2 Quick Ratio Liquid AssetCurrent Liability
4493116877 =2.662 43477
22442 =1.937
3 Absolute Liquid Ratio Cash & Bank + Securities Current Liability
3775116877 =2.326 9779
22442 =0.435
4 Stock turnover Ratio Sale Inventory
85633806 =2.249 9818
5633 =1.742
5 Capital Turn Over RatioSale--------------------------X 100Capital Employed
856370815 X100=12.092 9818
69597 X100 =14.108
Comment : - From the above rat io analys is that the current rat io
of the company is qui t sat is factory in the year 2006 but not in
2005 because the rat io should l ies wi th in the standard l imi t of
2 :1 but in the year 2006 i t is just above the standard l imi t which
31
can be ignored but in 2005 the rat io largely exceed the standard
l imi t , which means the company is inef f ic ient in proper
ut i l izat ion of fund.
Acid test rat io or the Quick rat io on the other hand is
qui t more the normal s tandard of 1:1, in the year 2005 the
company holds more than the standard l imi t which means the
f i rm has not ut i l ized the funds, in 2006 the f i rm has
mainta ined the standard l imi t by keeping the rat io by 1.937:1
which is just good enough than the previous year 2005.
Absolute l iqu id rat io or Cash rat io is s l ight ly low in the
year 2006 (0.436:1) whereas the accepted standard is 0.5.
But in the year 2005 the f i rm has 2.326:1 as absolute rat io
which means the holds a large amount of cash and secur i t ies
in hand and unable to ut i l ize the funds.
Inventory turnover rat io or the stock turnover rat io
Capi ta l turn over rat io is increased by 2.016%,
which means the company is ef f ic ient and i t ut i l i zes i ts
resources ef fect ive ly .
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CHAPTER-4
33
Summary & Finding From this pro ject report I got to know Microsof t ’s f inancia l
posi t ion, investments p lan, l iqu id i ty posi t ion, so lvency
posi t ion, prof i tabi l i ty rat io , net income, tota l assets and
l iab i l i t ies, income f rom al l possib le operat ions, consider ing
income statement , balance sheet and cash f low statement
inc luding the comparat ive statement analys is of 2005-2006.
The total operat ing expenses has increase by $2583 mi l l ion
wi th a rat io increase 10.23% and net income increase to
$12599 mi l l ion. Whereas tota l current assets increased by
$273 mi l l ion wi th 0.58%. The deta i l analys is and observat ion
has been ment ioned below.
OBSERVATION
34
From the above analysis I have observed that the company is
passing through many up and downs in the middle of the previous
year but some how the company manage to control the total return
at the end of the period. But in the year 2006 the company tota l
operat ing expenses had a t remendous increase of $2583 mi l l ion
wi th a 10.23% of change, the revenue increased f rom $39788
mi l l ion to $44282 mi l l ion wi th an Absolute change of $4494
Mi l l ion wi th 11.29% of change. Where as the net income f rom al l
sources is just increased to $345 mi l l ion. The earn ing per share
has an increase of 7.07% and 7.14% whereas the weighted
average share outstanding is reduced to 3.69% and 3.43%. But
there is decrease total cash and short - term investment , the
f igure reduces f rom $37756 mi l l ion to $34161 mi l l ion wi th a
10.5% of decrease, whereas the tota l current asset has an
increase of $273 mi l l ion. But the tota l current l iabi l i ty has been
increased $16877 mi l l ion to $22442 mi l l ion wi th a tota l change
of $5565 mi l l ion and 75.2% in change where as the stock
holder ’s equi ty has been t remendously reduct ion of $8011
mi l l ion. But overal l the balance sheet shows net decrease of
$1218 mi l l ion f rom the perv ious year. The statements are st i l l
not sat is factory according to me, but I th ink there must be some
hidden reserve, investment or some gains kept secrete which is
not d isc losed or declared for va luat ion of s tock and income of
the year 2006
MAJOR SUGGESTION
Microsof t has t remendously increased the per capi ta income of
the company in 2006 up to $12599 mi l l ion wi th a net increase of
$345 mi l l ion and wi th 2.81% of increase, but in 2006 the
35
company’s investment income is great ly reduced $277 mi l l ion
wi th a net fa l l o f 13.4% f rom the previous year 2005. The
company should t ry to mainta in a posi t ive f igure towards
investment income by safe guarding the invested amount in
proper way. Microsof t should g ive more at tent ion towards shot-
term investments inc luding secur i t ies
I suggest that Microsof t should expand i ts business to
hardware manufactur ing and assembl ing. Though Microsof t is
one of the sof tware agencies, i t should t ry to hold a posi t ion in
hardware product ion and than Microsof t wi l l become the Global
Leader in overal l IT sector .
At last I suggest to the management of Microsof t to
improve thei r investment by imposing new pol ic ies, p lans as
wel l as other funds. Par t icular ly , the long-term investment
a lso increased dur ing the 2005-06. In a basic analys is I want
to suggest the management to improve the rate of growth
Conclusion Microsof t is one of the leading Software agency and
remains on top among other sof tware agencies, creat ing a
new dimension for the next generat ions’ technology.
36
From the above study I conclude that Microsof t has
re lat ive ly h igh earned revenue in an increasing order wi th an
average net growth rate of 9% to 18% and wi th a net income
increases every year wi th every new product and product
update launch, s ince last decades. Microsof t a lways kept i ts
pol ic ies of product assurance and so as of i ts shareholders.
From th is pro ject repor t I found that the Microsof t wi l l
increases i ts amount of investment in a speed way. Microsof t
a lso generates new system even in the f i rm’s product ion.
Here; the long- term investment a lso increases to a h igh by the
end of 2006. No doubt in f iscal year 2007, I expect double
d ig i t revenue growth pr imar i ly as a resul t o f the upcoming
launches of Windows Vista and the 2007 Microsof t Of f ice
system. I est imate wor ldwide PC shipments wi l l grow between
8% and 10% and PC uni t growth rates wi l l be h igher in the
consumer segment than in the business segment and h igher in
emerging markets than in mature markets. I est imate
wor ldwide server uni t sh ipments wi l l grow between 10% and
12% in f iscal year 2007 as compared to f iscal year 2006. I do
not expect a s igni f icant impact f rom year-over-year fore ign
currency exchange rates in f iscal year 2007.
37
BIBLIOGRAPHY &
REFERENCE1 . M e l l o n I n v e s t o r S e r v i c e s P . O . B o x 3 3 1 5 S o u t h H a c k e n s a c k , N e w J e r s e y 0 7 6 0 6 - 1 9 1 5
U . S . A
2 . I n v e s t o r R e l a t i o n s M i c r o s o f t C o r p o r a t i o n O n e M i c r o s o f t W a y R e d m o n d , W a s h i n g t o n 9 8 0 5 2 - 6 3 9 9
U . S . A
3 . m s f t @ m e l l o n i n v e s t o r . c o m
4 . C a l l ( 4 2 5 ) 7 0 6 - 4 4 0 0 .
5 . N A S D A Q ( U S A S t o c k e x c h a n g e ) S t o c k R e v i e w B u l l e t i n
6 . M i c r o s o f t H e l p D e s k
7 . M i c r o s o f t S h a r e H o l d e r ’ s R e p o r t s
8 . h t t p : / / w w w . t h o c p . n e t / c o m p a n i e s / m i c r o s o f t / m i c r o s o f t _ c o m p a n y . h t m
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