Microsoft Corporation (MSFT) Extended Graph Analysis

Company Profile

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

	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

	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

	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

	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

	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

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

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