Microsoft Financial Statements and Financial Ratios Analyzed from 2016 to 2020

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Hey All,

Thanks for visiting my Microsoft Financial Report page. On this page, you will be able to find preliminary information about Microsoft's current financial performance as well as some historical track records and trends. 

For a more detailed examination of Microsoft's financial performance, please check out the "Financial Report".  In this report, written by myself, Paul Borosky, MBA., Doctoral Candidate, and published author, you will find:

  • Summarized income statement for the last 5 years.
  • Summarized balance sheet for the last 5 years.
  • Summary analysis by myself of important income statement, balance sheet, and financial ratio trends and other happenings.
  • Five year’s worth of over twenty common financial ratios presented with formulas, calculations, and analysis tips for each ratio.
  • Line by line description, explanation, and analysis tip for most financial statement line items and financial ratios.
  • Professional financial analysis tips provided in each section to help YOU conduct your OWN financial analysis!
  • Each section includes an “in other words” segment.  This is were I use plain English to explain concepts.

Enjoy the preliminary information and for a more detailed analysis, buy the financial report!

Sincerely,

Paul Borosky, MBA.

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Microsoft 2020 Financial Analysis and Report by Paul Borosky, MBA.
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Sample Financial Report

Sample Financial Report by Paul Borosky, MBA.
Financial Report Sample 2

Microsoft: Brief Summary

Microsoft's headquarters is located in Redmond, Washington.  The company competes in the software infrastructure sector—specifically, the technology industry.  At present, the organization employs approximately 160,000 individuals.  Microsoft sells its products on a global scale, with a heavy presence in the United States, Europe, Asia, and the Middle East.  Their main revenue generators are software license sales, game sales, hardware, and cloud computing services.

From a financial perspective, Microsoft's market capitalization is about $1.6 trillion.  Their beta is .82.  This indicates that the company's stock is slightly less risky as compared to the overall market.  Their stock price range for the last 52 weeks has been between $132.52 to $232.86.  In the last year, their dividend payout has increased moderately.  At present, the dividend yield is 1.06%.

Microsoft Financial Report Sources

“Microsoft 2020 Company Analysis: 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's 2018 10k, 2017 10k annual report, 2016 10k annual report, 2015 10k annual report, and Microsoft's 2019 10k annual report as the basis for information gathering. 

Microsoft Income Statement Analyzed 2016 to 2020

Revenues:  

Microsoft ended 2016 with $85.3 billion in revenues.  In the next four years, the organization would continually grow its revenues ending 2020 with $143 billion.  On average, this is approximately 13.9% annual revenue growth.

The sustained revenue growth over a five-year time span indicates that the organization is still in its expansion phase of growth for its business model.  For an organization that is decades-old, this is an impressive feat.  However, inevitably, the organization's sales growth will moderate.  For example, the company sales growth from 2017 to 2018 was 22%.  In the next year, the company sales growth fell to 14%, and finally, in 2020, its sales growth was 13.6%.  This shows that the firm's growth is starting to taper off.  Granted, double-digit sales growth is quite impressive, but it also shows that the company is starting to saturate the market with its software products.

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

Microsoft ended 2016 with the cost of goods at approximately $32.7 billion or 38.4% of revenues.  In the next four years, the organization's cost of goods would increase, ending 2020 at $46 billion.  However, their cost of goods as compared to revenues would continually fall, ending 2020 at 32.2%. 

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 Summary 2020

Column1 2020 2019 2018 2017 2016
Revenues                  143,015                  125,843                  110,360                    89,950                      85,320
COGS                    46,078                    42,910                    38,353                    34,261                      32,780
Gross Profit                    96,937                    82,933                    72,007                    55,689                      52,540
 
SG&A                    24,709                    23,098                    22,223                    20,020                      19,260
Depreciation                    12,796                    11,682                    10,261                      8,778                        6,622
R & D                    19,269                    16,876                    14,726                    13,037                      11,988
Other                            -                            -                            -                             -
Operating Expenses                    56,774                    39,974                    36,949                    33,057                      31,248
EBIT                    52,959                    42,959                    35,058                    22,632                      21,292
Other Income                            -                            -                            -                            -                             -
Interest Expense                      2,591                      2,686                      2,733                      2,222                        1,243
EBT                    53,036                    43,688                    36,474                    23,149                      19,751
Taxes                      8,755                      4,448                    19,903                      1,945                        2,953
Net Income                   44,291                   39,240                   16,571                   21,204                    16,798
Tax Rate 16.5% 10.2% 54.6% 8.4% 15.0%

Section 2: Microsoft Balance Sheet Analyzed from 2015 to 2019

For Microsoft Inc. balance sheet, I again go through each important line item from the balance sheet.  In reviewing each line item, I will define Microsoft’s balance sheet line item, such as cash, property, plant and equipment, and liabilities between 2016 to 2020.  Next, I then offer a summary analysis of Microsoft’s important balance sheet line items.

Cash: 

Microsoft's cash position ended 2016 at $6.5 billion.  In the next four years, the organization would increase its cash position ending 2020 at $13.5 billion.  As compared to sales, the company's cash position was 7.6% in 2016.  In the next two years, the organization's cash position would end at approximately 10.8% of sales.  However, in the last two years, the company would reduce its cash position as compared to sales ending 2020 at 9.5% of total sales.

The organization's cash trend indicates that the firm holds a cash level of approximately 9 to 10% of sales.  This strategy may indicate that the firm has identified an optimal cash level as compared to sales and has been exploiting this optimal level for the last two years.  From an investor's perspective, if the organization is able to stay close to the nine or 10% cash as compared to the sales range, then it means the company may be optimally using their cash position.  Shifts higher may indicate that the company is becoming inefficient with its cash holdings.  However, this is just not the case at this point in time.

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's short-term investments ended 2016 at $106 billion.  In the next year, the organization's short-term investments would climb to $125.3 billion.  However, for the next three years, the organization would moderate its investment holdings ranging between $121 to $122.9 billion. 

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.

Summary Balance Sheet for Microsoft 2020

Column1 2020 2019 2018 2017 2016
Cash                      13,576                  11,356                  11,946                    7,663                    6,510
Short Term Investment                    122,951                122,463                121,822                125,318                106,730
Account Receivable                      32,011                  29,524                  26,481                  19,792                  18,277
Inventory                        1,895                    2,063                    2,662                    2,181                    2,251
Other                              -                         -                         -                         -                         -
Current Assets                  181,915              175,552              169,662              159,851              139,660
Net PPE                      52,904                  43,856                  36,146                  23,734                  18,356
Goodwill                      43,351                  42,026                  35,683                  35,122                  17,872
Other                              -                         -                         -                         -                         -
Total Assets                  301,311              286,556              258,848              241,086              193,694
Accounts Payable                      12,530                    9,382                    8,617                    7,390                    6,898
Accrued Expense                        7,874                    6,830                    6,103                    5,819                    5,264
Accrued Taxes                        2,130                    5,665                    2,121                       718                       580
Notes Payable                              -                         -                         -                    9,072                  12,904
LT Debt - Current                        3,749                    5,516                    3,998                    6,280                    5,949
Other                              -                         -                         -                         -                         -
Total Current Liabilities                      72,310                  69,420                  58,488                  64,527                  59,375
LT Debt                      59,578                  66,662                  72,242                  76,073                  40,783
Other                              -                         -                         -                         -                         -
Total Liabilities                  183,007              184,226              176,130              168,692              121,697
Common Stock                      80,552                  78,520                  71,223                  69,315                  68,178
Treasury                              -                         -                         -                         -                         -
Retained Earnings                      34,566                  24,150                  13,682                    2,648                    2,282
Other                              -                         -                         -                         -                         -
Total Equity                  118,304              102,330                82,718                72,394                71,997
Total Equity & Liability                  301,311              286,556              258,848              241,086              193,694

Section 3: Microsoft Financial Ratios Analyzed from 2016 to 2020

For this section, I have chosen several different financial ratios to review for Microsoft from 2016 to 2020.  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 Important Financial ratios. 

Microsoft Current Ratio

Microsoft's current ratio in 2016 was at 2.3.  In the next two years, the organization's current ratio would gradually increase to 2.9 ending in 2018.  However, in the next two years, the firm would moderate its current ratio and achieve a 2.5 ratio for both 2019 as well as 2020.

A ratio of 2.0 and above indicates that Microsoft has more than twice the amount of current assets as compared to current liabilities.  For most organizations, a 1.0 ratio is adequate for achieving optimal usage of current assets as compared to current liabilities.  A 2.0 and above current ratio indicates that the firm is not managing its current assets in an optimal manner.  A better strategy would be for the company to use up cash by repurchasing stock from the open market, increase dividends, or invest excess cash in new business projects.  Locking up significant current assets as compared to current liability is a poor strategic move by the organization.

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.

Microsoft Total Asset Turnover

The company's total asset turnover ended in 2016 at .44.  In the next year, the organization's total asset turnover would fall slightly to .37.  However, in the next three years, the organization would take steps to gradually improve its total asset turnover and end 2020 at .47.

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.

Microsoft Return on Assets

Microsoft's return on assets in 2016 was at 8.6%.  In the next year, the organization's return on assets would increase slightly to 8.8%.  However, in 2018, the company's return on assets would fall moderately, ending the year at 6.4%.  In the next two years, the organization would take steps to better utilize their assets, which resulted in a 14.7% return on assets in 2020.

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.

Microsoft Liquidity Ratios 2020

Ratios 2020 2019 2018 2017 2016
Current Ratio                           2.52                    2.53
Cash Ratio                           0.19                    0.16
Quick Ratio                           2.49                    2.50
Net Working Capital                       24,948                21,066

 

Microsoft Asset Utilization 2020

Ratios 2020 2019 2018 2017 2016
Total Asset Turnover                           0.47                    0.44
Fixed Asset Turnover                           2.70                    2.87
Days Sales Outstanding                         81.70                  85.63
Inventory Turnover                         75.47                  61.00
Accounts Receivable Turnover                           4.47                    4.26
Working Capital Turnover                           5.73                    5.97
AP Turnover                         11.41                  13.41
Average Days Inventory                         15.01                  17.55
Average Days Payable                         99.25                  79.80

 

Profitability Ratios for Microsoft 2020

Ratios 2020 2019 2018 2017 2016
Return on Assets 14.70% 13.69%
Return on Equity 37.44% 38.35%
Net Profit Margin 30.97% 31.18%
Gross Profit Margin 67.78% 65.90%
Operating Profit Margin 37.03% 34.14%
Basic Earning Power 17.58% 14.99%
ROCE 23.13% 19.78%
Capital Employed                     229,001              217,136              200,360
ROIC 56.80% 59.43% 26.37%

 

Microsoft 2020 Long-term Debt
Ratios 2020 2019 2018 2017 2016
Debt Ratio 19.77% 23.26%
Debt/Equity 50.36% 65.14%
Times Interest Earned                         20.44                  15.99