Microsoft Financial Statements and Financial Ratios Analyzed from 2015 to 2019
“Microsoft 2019 Company Analysis… For Beginners: Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” was written by, Paul Borosky, MBA. and owner of Quality Business Plan. In this book, the author selected Microsoft, 2019 10k, 2018 10k, 2017 10k annual report, 2016 10k annual report, and 2015 10k annual report as the basis for information gathering.
Microsoft: Brief Summary
Microsoft ticker symbol is MSFT. Microsoft headquarters is located at One Microsoft Way in Redmond, WA. The firm competes in the technology industry. At present, they employ about 144,100 people.
In this section, I walk through a broad definition as to what an income statement is and why it is important. From this, I then discuss each of Microsoft's important income statement line items, such as revenues, gross profits, etc. in detail. After each line item is defined and discussed, I then offer an analysis of Microsoft's income statement line item from 2015 to 2019, in most cases.
Revenues: Microsoft ended 2015 with $93.6 billion in revenues. In 2016, this decline to 85.3 billion. From 2017 to date, the organization has increased revenue steadily to about $25.8 billion in 2019. This leads to an approximate 8.3% average growth over the last five years.
Microsoft’s Windows dominance has been lagging over the last several years. This is because Apple has gained more users of their OS system. However, Microsoft’s Office software package seems to have a loyal following. From this, investors should expect moderate to modest revenue growth with little concern for market share loss.
COGS: The cost of goods sold has been increasing annually at about a 7% rate. This is substantially lower than a revenue growth rate. This shows that the company is keeping its raw material cost in line with its revenue growth.
Microsoft Income Statement 2019
|R & D||16,876||14,726||13,037||11,988||12,046|
For Microsoft balance sheet, I again go through each important line item from the balance sheet. In reviewing each line item, I will define the Microsoft balance sheet line item, such as cash, property, plant and equipment, and liabilities between 2015 to 2019. Next, I then offer an analysis of Microsoft balance sheet line item.
Cash: Microsoft’s cash position and did 2015 at approximately $5.6 billion. In 2019, their cash storage increased to about $11.3 billion. The substantial cash amount may be better utilized as short-term assets as compared to idle cash.
Short-term investments: The organization had about $122.4 billion in short-term investments. This indicates a substantial cash reserve that could be used for company acquisitions or operational needs. Also, the organization should consider increasing dividend payouts to reward shareholders.
Microsoft Summary Balance Sheet 2019
|Short Term Investment||122,463||121,822||125,318||106,730||90,931|
|LT Debt - Current||5,516||3,998||6,280||5,949||2,499|
|Total Current Liabilities||69,420||58,488||64,527||59,375||49,858|
|Total Equity & Liability||286,556||258,848||241,086||193,694||176,223|
For this section, I have chosen about 16 different financial ratios to review for Microsoft Corp. from 2015 to 2019. In reviewing each of Microsoft's financial ratios, I first start with defining the financial ratio. Next, I supply the financial formula for calculating the specific ratio. Finally, I offer a brief analysis of Microsoft's Financial ratios. Ratios calculated and analyzed for the last five years include:
- the current ratio for 2015 to 2019
- quick ratio for 2015 to 2019
- cash ratio for 2015 to 2019
- total asset turnover for 2015 to 2019
- fixed asset turnover for 2015 to 2019
- Days Sales Outstanding for 2015 to 2019
- Inventory Turnover for 2015 to 2019
- Accounts Receivable Turnover for 2015 to 2019
- accounts payable turnover for 2015 to 2019
- return on assets (ROA) for 2015 to 2019
- return on equity (ROE) for 2015 to 2019
- profit margin for 2015 to 2019
- gross profit margin for 2015 to 2019
- operating profit margin for 2015 to 2019
- long-term debt ratio for 2015 to 2019
- debt to equity ratio for 2015 to 2019
- times interest earned for 2015 to 2019
Current Ratio: Microsoft’s current ratio has held steady at about 2.5. Industry-standard dictates that a well-funded company has a current ratio of approximately 1.0. The substantial cash reserve may be better suited in their short-term investment account as compared to holding such a substantial cash reserve.
Total Asset Turnover: In the last five years, Microsoft’s total asset turnover has ranged from .53 to .37 with 2019 ending at .44. The industry average for this ratio is .62. This shows that the firm is utilizing its assets less efficiently as compared to other competitors.
Return on Assets: Microsoft’s return on assets has increased from 6.9 in 2015 to 13.7 in 2019. This shows that the company is making more money per dollar of asset held. Also, the industry average is 9.4. This also shows that the company is doing better than industry competitors. To further improve upon this ratio, Microsoft should consider increasing its dividend payout. This will lower their total assets, which is the denominator for the ratio. As a result, the return on assets will inevitably increase.
Debt Ratio: Microsoft’s debt ratio has grown significantly over the last several years. In 2015, the company’s debt ratio was 18.4%. In the last five years, the debt ratio has substantially grown to 27.1%. As the organization takes on more debt, then the firm is also inherently taking on more risk. On the flip side, this also shows that Microsoft is taking advantage of benefits offered by debt, which may include tax write-offs for their interest earned as well as making money on borrowed money.
Microsoft Liquidity Ratios
|Net Working Capital||21,066||24,248||15,709||14,296||(4,015)|
Microsoft Asset Utilization
|Total Asset Turnover||0.44||0.43||0.37||0.44||0.53|
|Fixed Asset Turnover||2.87||3.05||3.79||4.65||6.35|
|Days Sales Outstanding||85.63||87.58||80.31||78.19||69.85|
|Accounts Receivable Turnover||4.26||4.17||4.54||4.67||5.23|
|Working Capital Turnover||5.97||4.55||5.73||5.97||(23.31)|
|Average Days Inventory||0.17||0.11||0.11||0.10||0.09|
|Average Days Payable||0.04||0.04||0.03||0.03||0.04|
Microsoft Profitability Ratios
|Return on Assets||13.69%||6.40%||8.80%||8.67%||6.92%|
|Return on Equity||38.35%||20.03%||29.29%||23.33%||15.23%|
|Net Profit Margin||31.18%||15.02%||23.57%||19.69%||13.03%|
|Gross Profit Margin||65.90%||65.25%||61.91%||61.58%||64.70%|
|Operating Profit Margin||34.14%||31.77%||25.16%||24.96%||19.41%|
|Basic Earning Power||14.99%||13.54%||9.39%||10.99%||10.31%|
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