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Microsoft Corporation (MSFT) Extended Graph Analysis

May 4th, 2020 Posted by Extended Analysis No Comment yet

Microsoft Corporation (MSFT) Extended Graph Analysis

Company Profile

MSFT logo

Microsoft Corporation (Nasdaq: MSFT) is a technology American multinational corporation headquartered in Redmond, Washington. According to Wikipedia, it develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and related services.

The company enables digital transformation that empowers users and organizations in achieving more. Microsoft has a variety of products and services including Microsoft Office, Microsoft Word, Microsoft Excel, Onedrive, Microsoft Outlook, Microsoft PowerPoint, Microsoft Teams, Microsoft Windows, Microsoft Azure, Microsoft Visual Studio, Microsoft Onenote, Microsoft Exchange Server, Xbox and Microsoft System Center Configuration Manager.

Microsoft Corporation (MSFT) Extended Graph Analysis

 

1. MSFT CASH FLOW

MSFT CASH FLOW

2015 2016 2017 2018 2019 2020
Net cash flow provided by operating activites 29,080,000,000 33,325,000,000 39,507,000,000 42,884,000,000 52,185,000,000 54,126,000,000
Net cash used for investing activities -23,001,000,000 -23,950,000,000 -46,781,000,000 6,061,000,000 -15,773,000,000 -16,432,000,000
Net cash provided by (used for) financing activities -9,080,000,000 -8,393,000,000 8,408,000,000 -33,590,000,000 -36,887,000,000 -35,411,000,000
Capital expenditure -5,944,000,000 -8,343,000,000 -8,129,000,000 -11,632,000,000 -13,925,000,000 -13,546,000,000
Free cash flow 23,136,000,000 24,982,000,000 31,378,000,000 32,252,000,000 38,260,000,000 40,580,000,000
Working Capital 74,854,000,000 80,303,000,000 95,324,000,000 111,174,000,000 106,132,000,000 106,132,000,000

Facts:

  • Cash provided by operating activities was $54 billion in the trailing twelve months 2020.
  • Cash used for investing activities was $-16 billion in 2020 trailing twelve months.
  • Net cash provided by (used for) financing activities was $-35 billion in 2020 trailing twelve months.
  • Capital expenditure was $-14 billion in 2020 trailing twelve months.
  • Free cash flow was $41 billion in 2020 trailing twelve months.
  • Working capital was $106 billion in 2020 trailing twelve months.

Explanation

  • Cash from operating activities increased year-over-year and had a growth rate of 86 percent in five years.
  • Cash used for investing activities were investment in property, plant and equipment; and purchases of investment.
  • Net cash provided by (used for) financing activities were debt repayment, common stock repurchase and dividend paid.
  • Capital expenditures were investment in property, plant and equipment.
  • Free cash flow increased year-over-year and had a growth rate of 75 percent in five years.
  • Working capital had a growth rate of 42 percent in five years.

Interpretation

MSFT is efficient in maintaining cash from operations in the last five years and it is increasing year-over-year as the net income increases as well. Moreover, the company is capable of generating a positive cash and working capital in the last five years.

 

2. MSFT BALANCE SHEET

MSFT BALANCE SHEET

2015 2016 2017 2018 2019
Total cash 96,526,000,000 113,240,000,000 132,981,000,000 133,768,000,000 133,819,000,000
Current Assets 124,712,000,000 139,660,000,000 159,851,000,000 169,662,000,000 175,552,000,000
Net property, plant and equipment 14,731,000,000 18,356,000,000 23,734,000,000 36,146,000,000 43,856,000,000
Total non-current assets 51,511,000,000 54,034,000,000 81,235,000,000 89,186,000,000 111,004,000,000
Total assets 176,223,000,000 193,694,000,000 241,086,000,000 258,848,000,000 286,556,000,000
Current liabilities 49,858,000,000 59,357,000,000 64,527,000,000 58,488,000,000 69,420,000,000
Non-current liabilities 46,282,000,000 62,640,000,000 104,165,000,000 117,642,000,000 114,806,000,000
Total liabilities 96,140,000,000 121,697,000,000 168,692,000,000 176,130,000,000 184,226,000,000
Retained earnings 9,096,000,000 2,282,000,000 2,648,000,000 13,682,000,000 24,150,000,000
Stockholders equity 80,083,000,000 71,997,000,000 72,394,000,000 82,718,000,000 102,330,000,000
Total Liabilities and Stockholders Equity 176,223,000,000 193,694,000,000 241,018,600,000 258,848,000,000 286,556,000,000

Facts:

  • Total cash was $134 billion in 2019.
  • Current assets were $176 billion in 2019.
  • Net property, plant and equipment was $44 billion in 2019.
  • Total non-current assets were $111 billion in 2019.
  • Total assets were $287 billion in 2019.
  • Current liabilities were $69 billion in 2019.
  • Non-current liabilities were $184 billion in 2019.
  • Total liabilities were $184 billion in 2019.
  • Retained earnings were $24 billion in 2019.
  • Stockholders equity was $102 billion in 2019.

Explanation:

  • Total cash increased year-over-year and has a growth rate of 39 percent in five years.
  • Total cash represents 47 percent of total assets.
  • Current assets increased year-over-year and have a growth rate of 61 percent in five years.
  • Current assets represent 61 percent of total assets.
  • Net property, plant and equipment increased year-over-year and have grown 198 percent in five years.
  • Net property, plant and equipment represent 15 percent of the total assets.
  • Total non-current assets increased year-over-year and grew 116 percent in five years.
  • Non-current assets represent 39 percent of total assets.
  • Total assets increased year-over-year and it grew 63 percent in five years.
  • Current liabilities represent 38 percent of total liabilities.
  • Non-current liabilities represent 62 percent of total liabilities.
  • Current liabilities represent 64 percent of total liabilities and equities.
  • Retained earnings represent 24 percent of total equities.
  • Total liabilities represent 64 percent of total liabilities and stockholders equity.
  • Stockholders equity represents 36 percent of total liabilities and stockholders equity.

Interpretation

The balance sheet is stable and the company is liquid; its total cash is more than enough to pay for its current obligations.

3. MSFT INCOME AND MARKET

MSFT INCOME AND MARKET

2015 2016 2017 2018 2019 2020
Revenue 93,580,000,000 85,320,000,000 89,950,000,000 110,360,000,000 125,843,000,000 134,249,000,000
EBIT 28,172,000,000 21,292,000,000 22,632,000,000 35,058,000,000 42,959,000,000 49,323,000,000
Net Income 12,193,000,000 16,798,000,000 21,204,000,000 16,571,000,000 39,240,000,000 44,323,000,000
EBITDA 25,245,000,000 27,616,000,000 34,149,000,000 49,468,000,000 58,056,000,000 64,508,000,000
Market Capitalization 439,679,000,000 483,160,000,000 659,906,000,000 780,362,000,000 1,200,255,000,000 1,303,800,000,000
Intrinsic Value 401,084,844,920 573,333,286,219 993,423,476,928 2,363,321,837,249 3,311,254,516,335 4,673,490,334,265

Facts:

  • Revenue was $134 billion in  2020.
  • EBIT was $49 billion in 2020.
  • Net income was $44 billion in 2020.
  • EBITDA was $65 billion in 2020.
  • The market capitalization was $1.304 trillion in the trailing twelve months of 2020.
  • Intrinsic value was $4.7 trillion in the trailing twelve months 2020.

Explanation

  • Revenue grew 43 percent in five years.
  • EBIT grew 75 percent in five years and represented 37 percent of revenue.
  • Net income grew 264 percent in five years and it represented 33 percent of revenue.
  • EBITDA grew 131 percent in five years and it represented 48 percent of revenue.
  • Market capitalization is lesser than the intrinsic value.
  • Intrinsic value is higher than the market capitalization.
  • The stock price of MSFT is undervalued.

Interpretation

Microsoft Corporation has been profitable in the last five years. The company was able to maintain a net income of one/third of its revenue. Market capitalization was lesser than the intrinsic value of the stock. In other terms the stock price of Microsoft was undervalued.

 

4. MSFT FINANCIAL RATIOS

MSFT FINANCIAL RATIOS

2015 2016 2017 2018 2019 2020
Asset turnover (average) 0.54 0.46 0.41 0.44 0.46 0.50
Return on assets % 7.00 9.08 9.75 6.63 14.39 16.37
Return on equity % 14.36 22.09 29.37 21.37 42.41 43.83
Return on invested capital % 11.16 14.81 16.39 11.49 24.13 26.08
Debt/Equity 0.35 0.57 1.05 0.94 0.71 0.64

Facts

  • Asset turnover was averaging 0.50 in 2020.
  • Return on assets was 16.37 percent in 2020.
  • Return on equity was 43.83 percent in 2020.
  • Return on invested capital was 26.08 percent in 2020.
  • Debt/Equity ratio was 0.64 in 2020.

Explanation:

  • Asset turnover ratio means that every dollar invested in assets it generates $0.50 in sales.
  • Return on assets indicate that every dollar invested in the asset it generated $0.16 net income.
  • Return on equity indicates that every dollar invested in equity it generated 44 cents in profit.
  • Return on invested capital indicates that the company generated $0.26 profit for every dollar invested in capital.
  • Debt/Equity indicate that for every dollar in equity the company has 64 cents in leverage.

Interpretation

Financial ratios indicate that the company was efficient in producing a good return on the investments made in equity, assets and capital.

 

5. MSFT KEY EXECUTIVE COMPENSATION

MSFT KEY EXECUTIVE COMPENSATION

2015 2016 2017 2018 2019
Key Executive Compensation
Salary 3,065,189 3,339,584 4,554,804 4,723,000 5,654,666
Bonus 11,393,000 106,949,000 0 0 0
Annual Other Income 0 0 0 0 0
Restricted Stock Award 33,866,330 29,339,737 43,286,384 48,925,444 76,879,883
Securities Options 0 0 0 0 0
LTIP Payout 0 0 0 0 0
Non-Equity Compensation 0 0 18,830,384 20,055,199 22,993,561
Other Compensation 58,991 65,442 419,890 459,964 500,139
Total 48,383,510 43,393,763 67,091,602 74,163,607 106,028,249
Satya Nadella, CEO and Director
Salary 1,200,000 1,200,000 1,450,000 1,500,000 2,333,333
Bonus 4,320,000 4,464,000 0 0 0
Annual Other Income 0 0 0 0 0
Restricted Stock Award 12,761,263 12,013,927 11,434,557 16,807,208 29,668,651
Securities Options 0 0 0 0 0
LTIP Payout 0 0 0 0 0
Non-Equity Compensation 0 0 7,032,406 7,425,000 10,796,868
Other Compensation 13,007 14,104 97,189 111,055 111,363
Total 18,294,270 17,692,031 20,014,152 25,843,263 42,910,215
Amy Hood, Executive VP and CFO
Salary 675,985 731,250 852,917 875,000 958,333
Bonus 1,978,000 2,304,000 0 0 0
Annual Other Income 0 0 0 0 0
Restricted Stock Award 6,090,606 7,326,650 7,015,071 10,232,265 15,316,653
Securities Options 0 0 0 0 0
LTIP Payout 0 0 0 0 0
Non-Equity Compensation 0 0 3,624,896 3,718,750 3,855,040
Other Compensation 10,372 12,730 89,260 98,442 97,608
Total 8,754,963 10,374,630 11,582,144 14,924,457 20,227,634
Bradford L. Smith, President and Chief Legal Officer
Salary 650,000 704,167 785,833 800,000 850,000
Bonus 1,300,000 1,972,000 0 0 0
Annual Other Income 0 0 0 0 0
Restricted Stock Award 4,833,835 5,915,948 6,193,370 9,033,868 13,045,437
Securities Options 0 0 0 0 0
LTIP Payout 0 0 0 0 0
Non-Equity Compensation 0 0 3,241,543 3,566,700 3,366,148
Other Compensation 16,847 18,497 98,989 111,055 111,412
Total 6,800,682 8,610,612 10,319,735 13,511,623 17,372,997
Jean-philippe Courtois, EVP and President Global Sales Marketing and Operations
Salary 751,054 833,000 798,000
Bonus 0 0 0
Annual Other Income 0 0 0
Restricted Stock Award 14,735,464 7,149,549 11,309,474
Securities Options 0 0 0
LTIP Payout 0 0 0
Non-Equity Compensation 2,762,884 3,092,513 2,889,049
Other Compensation 45,214 51,187 88,231
Total 18,294,616 11,126,249 15,084,754
Margaret L. Johnson, EVP, Business Development
Salary 539,204 704,167 715,000 715,000 715,000
Bonus 3,795,000 1,909,000 0 0 0
Annual Other Income 0 0 0 0 0
Restricted Stock Award 10,180,626 4,083,212 3,907,922 5,702,554 7,539,668
Securities Options 0 0 0 0 0
LTIP Payout 0 0 0 0 0
Non-Equity Compensation 0 0 2,168,795 2,252,236 2,086,456
Other Compensation 18,765 20,111 89,238 88,225 91,525
Total 14,533,595 6,716,490 6,880,955 8,758,015 10,432,649

Facts:

  • The total key executive compensation in 2015 was $48,383,510.
  • Total key executive compensation in 2016 was $43,393,763.
  • Total key executive compensation in 2017 was $67,091,602.
  • Key executive compensation in 2018 was $74,163,607.
  • The total key executive compensation in 2019 was $106,028,249.

Explanation:

  • Total key compensation represents 0.24 percent of the net income in 2019.
  • Total compensation of Satya Nadella, CEO and Director represents 40 percent of the total key executive compensation in 2019.
  • Total compensation of Amy Hood, Executive VP and CFO represents19 percent of the total key executive compensation in 2019.
  • Total compensation of Bradford L. Smith, President and Chief Legal Officer representing 16 percent of the total compensation in 2019.
  • Total compensation of Jean-philippe Courtois, EVP and President Global Sales Marketing and Operations represent 14 percent of the total compensation in 2019.
  • Total compensation of Margaret L. Johnson, EVP, Business Development represents 10 percent of the total compensation in 2019.

Interpretation

The total key executive compensation increased year-over-year at a different level. Compensation includes salary, bonus, restricted stock award and non-equity compensation and some other income.

 

6. MSFT LOBBYING AND CONTRIBUTIONS

MSFT LOBBYING AND CONTRIBUTIONS

PERIOD USD
1998 3,920,000
1999 4,860,000
2000 6,520,000
2001 6,640,000
2002 6,500,000
2003 8,740,000
2004 9,460,000
2005 8,700,000
2006 8,880,000
2007 9,000,000
2008 8,900,000
2010 6,910,000
2011 7,340,000
2012 8,090,000
2013 10,490,000
2014 8,330,000
2015 8,490,000
2016 8,710,000
2017 8,660,000
2018 9,590,000
2019 10,260,000

Facts:

Microsoft Corp is incurring lobbying and contributions to politicians since 1998 to the current period.

Explanation:

A note from OpenSecret.org

Campaign finance totals for the current election cycle were released by the FEC on March 23, 2020 and by the IRS on April 03, 2019, lobbying data was released by the Senate Office of Public Records on March 19, 2019, outside spending data was released by the FEC on April 24, 2020, and personal finances data was released by the House, Senate, and US Office of Government Ethics starting in June 2011.

 

7. MSFT FINANCIAL STRENGTH

MSFT FINANCIAL STRENGTH

DATA

USD
Working capital 106,132,000,000
Total assets 286,556,000,000
Sales 134,249,000,000
EBIT 49,323,000,000
Market value of equity 1,199,550,000,000
Book value of total liabilities 184,226,000,000
Retained earnings 24,150,000,000

CALCULATION

Ratio Score Result
A – Working Capital / Total Assets 0.37 1.2 0.44
B – Retained Earnings / Total Assets 0.08 1.4 0.12
C – EBIT / Total Assets 0.17 3.3 0.57
D – Market Value of Equity / Book Value of Total Liabilities 6.51 0.6 3.91
E – Sales / Total Assets 0.47 1 0.47
Z-Score     5.51

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Explanation:

Z-Score is a statistical measurement that compares data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Interpretation

The calculated Z-Score of Microsoft Corp was 5.51. Dr. Altman’s grading scale of 3.0 and above indicates that the company will not declare bankruptcy in near future. In other terms, the company is not close to insolvency. The main factors of this statistical measurement are profitability, liquidity, leverage and efficiency. MSFT has a strong financial health and is very far from insolvency.

OVERVIEW

Microsoft Corp is financially stable and net margin was 33 percent of revenue. The balance sheet is liquid and its current is more than enough to settle current obligations in due period.The management was efficient in maintaining a positive cash from operations and free cash flow in the five years. The company has been profitable in the last five years. Market capitalization was undervalued.

CITATION

https://www.microsoft.com

https://www.morningstar.com/stocks/xnas/msft/quote

https://www.opensecrets.org/orgs/summary?id=D000000115

Researched and written by Criselda

Note:

Research Reports can be found under the company tab.