Financial Analysis of the Microsoft Corporation

...

Everything is not lost with Microsoft, the company has made some major hits lately with Azure, their cloud based operating platform. Boeing and General Electric all announced their decisions to use the Azure for their data servicing needs (Zafar, 2016).

The Microsoft Surface lineup still continues to be a strong performer. The Surface Pro and the Surface Book are responsible for contributing nine percent increase in revenues (Zafar, 2016). So while Windows Mobile might not have been up to the snuff the Surface line is paying off due to their design, portability and performance.

- Expense Distribution:

Operating Expenses

- All numbers in thousands

Research and development(R&D)

11,988,000

Selling general and administrative (SG&A)

19,260,000

Nonrecurring (NR)

1,110,000

Total Expenses

32,385,000

[pic 2]

I was quite surprised to discover that Microsoft’s largest operating expense is selling and general administrative. As a casual observer I would have thought this expense would be R&D. For fiscal year 2016, Microsoft spent $19,260,000.00 on selling and general administrative last year while Apple spent $14,329,000.00. Maybe this is one of the ways Microsoft continues to dominate the world’s operating system market by out spending the competition on selling. Microsoft’s second largest expense is R&D. Microsoft spent $11,988,000.00 on R&D in 2016 while Apple spent $8,067,000.00

- Assets Distribution:

Asset Distribution FY 16 (USD in Million)

Cash and cash equivalents

6,510

Short term investments

106,730

Receivables

18,277

Inventories

2,251

Other current assets

5,892

Gross plant property

38,156

Accumulated depreciated

(19,800)

Equity and other investments

10,431

Goodwill

17,872

Intangible assets

3,733

Other long term assets

3,642

Total Assets

193,694

[pic 3]

Microsoft's cash and cash equivalents declined from 2014 to 2015 but this year showed a slight increase from $5,595 million to $6,510 million. Microsoft’s largest asset is its short term investments. Their short term investments increased from $90,931 million in 2015 to $106,730 million in 2016. Microsoft’s total assets increased from $176,223 million in 2015 to $193,694 in 2016.

- Capital Structure:

Capital Structure USD in Millions

Short term debt

$12,904

Accounts payable

$6,898

Taxable payable

$580

Accrued liabilities

$5,264

Deferred revenues

$27,468

Other current liabilities

$6,243

Non-current liabilities

$62,340

Common stock

$68,178

Retained earnings

$2,282

Accumulated other comprehensive income

$1,537

Total liabilities

$193,694

[pic 4]

Microsoft’s value has grown substantially in the last three years (Downie, 2016). The company's capital structure relies more on equity capital than debt for financing. However, Microsoft has been issuing an increasing amount of debt in the last two fiscal years. In December, Microsoft's total stockholder equity was $76.8 billion, consisting of $68.3 billion of common stock and paid-in capital at $0.00000625 par value per share, $6.7 billion in retained earnings and $1.8 billion in accumulated other comprehensive income (Downie, 2016). The reduction in Microsoft's shareholder equity value over from 2013 to 2015 was driven primarily by falling retained earnings. The new Microsoft CEO is currently endorsing a campaign to increase Microsoft’s shareholder equity by increasing the retained earnings.

PART III, RATIO ANALYSIS:

- LIQUIDITY:

FY 2014

FY 2015

Current Ratio:

Microsoft’s

2.50

2.50

Apple’s

1.08

1.10

Quick Ratio:

Microsoft’s

...