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.

Section 1: Microsoft Income Statement Analyzed 2015 to 2019

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

Column1 2019 2018 2017 2016 2015
Revenues                  125,843                  110,360                    89,950                    85,320                      93,580
COGS                    42,910                    38,353                    34,261                    32,780                      33,038
Gross Profit                    82,933                    72,007                    55,689                    52,540                      60,542
SG&A                    23,098                    22,223                    20,020                    19,260                      15,713
Depreciation                            -                            -                            -                            -                             -
R & D                    16,876                    14,726                    13,037                    11,988                      12,046
Other                            -                            -                            -                            -                             -
Operating Expenses                    39,974                    36,949                    33,057                    31,248                      27,759
EBIT                    42,959                    35,058                    22,632                    21,292                      18,161
Other Income                      3,415                      4,149                      2,739                      2,222                           346
Interest Expense                      2,686                      2,733                      2,222                      1,243                           781
EBT                    43,688                    36,474                    23,149                    19,751                      18,507
Taxes                      4,448                    19,903                      1,945                      2,953                        6,314
Net Income                   39,240                   16,571                   21,204                   16,798                    12,193
Tax Rate 10.2% 54.6% 8.4% 15.0% 34.1%

Section 2: Microsoft Balance Sheet Analyzed from 2015 to 2019

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

Column1 2019 2018 2017 2016 2015
Cash                      11,356                  11,946                    7,663                    6,510                    5,595
Short Term Investment                    122,463                121,822                125,318                106,730                  90,931
Account Receivable                      29,524                  26,481                  19,792                  18,277                  17,908
Inventory                        2,063                    2,662                    2,181                    2,251                    2,902
Other                      10,146                    6,751                    4,897                    5,892                    5,461
Current Assets                  175,552              169,662              159,851              139,660              124,712
Net PPE                      43,856                  36,146                  23,734                  18,356                  14,731
Goodwill                      42,026                  35,683                  35,122                  17,872                  16,939
Other                      14,723                    7,442                    6,250                    3,642                    2,953
Total Assets                  286,556              258,848              241,086              193,694              176,223
Accounts Payable                        9,382                    8,617                    7,390                    6,898                    6,591
Accrued Expense                        6,830                    6,103                    5,819                    5,264                       606
Accrued Taxes                        5,665                    2,121                       718                       580                  23,223
Notes Payable                              -                         -                    9,072                  12,904                    6,766
LT Debt - Current                        5,516                    3,998                    6,280                    5,949                    2,499
Other                              -                         -                         -                         -                         -
Total Current Liabilities                      69,420                  58,488                  64,527                  59,375                  49,858
LT Debt                      66,662                  72,242                  76,073                  40,783                  27,808
Other                        7,581                    5,211                  17,184                  13,640                  13,544
Total Liabilities                  184,226              176,130              168,692              121,697                96,140
Common Stock                      78,520                  71,223                  69,315                  68,178                  68,465
Treasury                              -                         -                         -                         -                         -
Retained Earnings                      24,150                  13,682                    2,648                    2,282                    9,096
Other                              -                         -                         -                         -                         -
Total Equity                  102,330                82,718                72,394                71,997                80,083
Total Equity & Liability                  286,556              258,848              241,086              193,694              176,223

Section 3: Microsoft Financial Ratios Analyzed from 2015 to 2019

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

Ratios 2019 2018 2017 2016 2015
Current Ratio                           2.53                    2.90                    2.48                    2.35                    2.50
Cash Ratio                           0.16                    0.20                    0.12                    0.11                    0.11
Quick Ratio                           2.50                    2.86                    2.44                    2.31                    2.44
Net Working Capital                       21,066                24,248                15,709                14,296                (4,015)

Microsoft Asset Utilization

Ratios 2019 2018 2017 2016 2015
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
Inventory Turnover                         61.00                  41.46                  41.24                  37.90                  32.25
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)
AP Turnover                         13.41                  12.81                  12.17                  12.37                  14.20
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

Ratios 2019 2018 2017 2016 2015
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%
ROCE 19.78% 17.50% 12.82% 15.85% 14.37%
Capital Employed                     217,136              200,360              176,559              134,319              126,365
ROIC 59.43% 26.37% 52.56% 55.46% 111.66%

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