SCHOOL OF ARCHITECTURE, BUILDING & DESIGN
Research Unit for Modern Architecture Studies in Southeast Asia
Foundation of Na...
Table of Content

CONTENT

PAGE

Cover page

1

Table of Content

2

Brief History of Business

3

Ratio Analysis of Busin...
Brief History of Microsoft
Microsoft was founded by Bill Gates who was born on Oct28 1955. Even in his
early school days, ...
Ratio Analysis on the Business Based on the Year 2012 & 2013
Profitability Ratios
Return on Equity
(ROE)

2012
16978/72653...
Stability Ratios
Working Capital

2012
85084/32688
=2.60:1

2013
101466/37417
=2.71:1

Interpretation

Total Debt

54908/1...
Share Price Earnings Ratio

Price/Earnings or P/E ratio
=Current share price/Earnings per share
=36.17/2.68
=13.49

With a...
Appendix

Income Statements
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(In millions, except per share amounts)
Year Ended...
Basic

$2.61

$2.02

$2.73

Diluted

$2.58

$2.00

$2.69

Basic

8,375

8,396

8,490

Diluted

8,470

8,506

8,593

$0.92
...
Balance Sheets
(In millions)
June 30,

2013

2012

Cash and cash equivalents

$ 3,804

$ 6,938

Short-term investments (in...
Liabilities and stockholders' equity
Current liabilities:
Accounts payable

$ 4,828

$ 4,175

Current portion of long-term...
Total stockholders' equity
Total liabilities and stockholders' equity

11

78,944

66,363

$ 142,431

$ 121,271
Reference
Microsoft.com.
Income Statements
In-text: (Microsoft.com, 2014)
Bibliography: Microsoft.com. (2014). Income stat...
Bibliography: Microsoft.com. (2014). Awards and recognition. [online] Retrieved from:
http://www.microsoft.com/en-us/diver...
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Accounts project

  1. 1. SCHOOL OF ARCHITECTURE, BUILDING & DESIGN Research Unit for Modern Architecture Studies in Southeast Asia Foundation of Natural Build Environments (FNBE) Basic Accounting FNBE 0145 Financial Ratio Analysis: MICROSOFT Group Members: Jake Sia Chyi Sern Yap Yong Xing 1 0314396 0314715
  2. 2. Table of Content CONTENT PAGE Cover page 1 Table of Content 2 Brief History of Business 3 Ratio Analysis of Business 4 Investment Recommendation 6 Appendix 7 Reference 12 2
  3. 3. Brief History of Microsoft Microsoft was founded by Bill Gates who was born on Oct28 1955. Even in his early school days, Bill Gates was already the top student in his class especially for maths and science. At the age of 13, he was introduced to computers. Together with his friend Paul Allen, they eventually skip classes just to find out more about computers by reading books and soon enough, they also started writing programs. It was at the age of 13 that he claimed the title as one of the youngest programmer in the world and was hired by a company. But the company never paid them, seeing as they were just kids the company allowed them to use the computer anytime they want. When Bill Gates finished his schooling days, he enrolled into Harvard University where he went full time into the computer world. Around this time, they were already quite well-known in the city and were frequently hired to do fix bugs and to write programmes. At the age of 20, Gates and Allen were ready to start their own company. They were able to arrange a meeting with Altair 8800, a popular electronics company. After that, they worked very hard into producing a programme for the meeting. During the meeting, the programme worked flawlessly. This made them famous. Their business kept spreading around the world and in 1981, they changed the name to Microsoft Inc. Eventually the market was glooming at around 1995. That was when Gates came up with a Microsoft browser for the internet and in a year‟s time he published Internet Explorer to the market. Then again by the end of 2000, Microsoft became the monopoly in the computer industry all because of the product called Microsoft Windows namely, Windows 98 and Windows 2000 and followed by Windows XP, Windows Vista and Windows 7 in 2009. Recently in 2012 and 2013 Microsoft launched Windows 8 which features apps and tiles. They also launched Windows 8.1 shortly afterwards, which advances the Windows 8 vision by providing cloud connectivity on various devices, plus some additional enhancements. In 2012, Microsoft have received various awards such as „No. 1 Highest-Paying Company for Millennials, Millennial Branding and PayScale, Inc.‟ and „Human Rights Campaign's (HRC) 2013 Corporate Equality Index rating‟. Recently in 2013, Microsoft once again managed to have received various awards such as „No. 1 on 12th Annual “Top 50 Employers” in Workforce Diversity for Engineering & IT Professionals Magazine‟ and „Best Multinational Workplace in Europe for 6th consecutive year, Great Place to Work Institute‟. 3
  4. 4. Ratio Analysis on the Business Based on the Year 2012 & 2013 Profitability Ratios Return on Equity (ROE) 2012 16978/72653.5 x 100 =23.4% 2013 21863/72653.5 x 100 =30.1% Net Profit Margin (NPM) 16978/73723 x 100 =23.0% 21863/77849 x 100 =28.1% Gross Profit Margin (GPM) 56193/73723 x 100 =76.2% 57600/77849 x 100 =74.0% Selling Expense Ratio (SER) 13857/73723 x 100 =18.8% 15276/77849 x 100 =19.6% General Expense Ratio (GER) 4569/73723 x 100 =6.2% 5149/77849 x 100 =6.6% Financial Expense Ratio (FER) 9811/73723 x 100 =13.3% 10411/77849 x 100 =13.4% 4 Interpretation During the period 2012 to 2013 the ROE has increased from 23.4% to 30.1%. This means the owner is getting a higher return on his capital this year. During the period 2012 to 2013 the NPM has increased from 23.0% to 28.1%. This means the business is getting better in controlling expenses. During the period 2012 to 2013 the GPM has decreased from 76.2% to 74.0%. This means the business is getting worse in controlling its cost of goods sold expenses. During the period 2012 to 2013 the SER has increased from 18.8% to 19.6%. This means the owner is getting worse in controlling the selling expenses. During the period 2012 to 2013 the GER has increased from 6.2% to 6.6%. This means the owner is getting worse in controlling the general expenses. During the period 2012 to 2013 the FER has increased from 13.3% to 13.4%. This means the business is getting worse in controlling the financial expenses.
  5. 5. Stability Ratios Working Capital 2012 85084/32688 =2.60:1 2013 101466/37417 =2.71:1 Interpretation Total Debt 54908/121271 x 100 =45.3% 63487/142431 x 100 =44.6% During the period 2012 to 2013 the TDR has decreased from 45.3% to 44.6%. This means the business' total debt level has gone down and is below 50%. Stock Turnover 365÷(17530/1537.5) =32.0 days 365÷(20249/1537.5) =27.7days Debtor Turnover 365÷(36861.5/3126.5) =31.0days 365÷(38924.5/3126.5) =29.3days During the period 2012 to 2013 the ITR has decreased from 32.0 days to 27.7 days . This means that the business is selling its stocks faster. During the period 2012 to 2013 the DTR has decreased from 31days to 29.3days. This means that the business is getting its debts faster. Interest Coverage (380+16978)÷380 =45.7times (429+21863)÷429 52.0times 5 During the period 2012 to 2013 the WCR has increased from 2.60:1 to 2.71:1. This means the business' ability to pay off current liability is getting better .It satisfies the minimum 2:1 ratio During the period 2012 to 2013 the ICR has increased from 45.7 times to 52.0 times .This means the business has the ability to pay back the interest is better. It satisfies the minimum 5 times requirement.
  6. 6. Share Price Earnings Ratio Price/Earnings or P/E ratio =Current share price/Earnings per share =36.17/2.68 =13.49 With a P/E ratio of 13.49, Microsoft will have a fair amount of investors because they just have to wait for 13.49 years to claim their share. Investment Recommendation Profitability: Based on the profitability ratio, we found that Microsoft is not doing so well in controlling its profitability ratios namely, the Gross Profit Margin (GPM), Selling Expense Ratio (SER), General Expense Ratio (GPM) and Financial Expense Ratio (FER). Stability: Based on the stability ratio, we found that Microsoft is doing very well in controlling its stability ratio with every area facing improvement from 2012 to 2013. Price: Based on the P/E ratio, we found that Microsoft has 13.49. This means that any investor will have to wait for 13.49 years to reclaim his share. We recommend investors to invest in Microsoft. 6
  7. 7. Appendix Income Statements FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (In millions, except per share amounts) Year Ended June 30, 2013 2012 2011 $77,849 $73,723 $69,943 20,249 17,530 15,577 57,600 56,193 54,366 Research and development 10,411 9,811 9,043 Sales and marketing 15,276 13,857 13,940 5,149 4,569 4,222 0 6,193 0 30,836 34,430 27,205 26,764 21,763 27,161 288 504 910 27,052 22,267 28,071 5,189 5,289 4,921 $21,863 $16,978 $23,150 Revenue Cost of revenue Gross profit Operating expenses: General and administrative Goodwill impairment Total operating expenses Operating income Other income Income before income taxes Provision for income taxes Net income Earnings per share: 7
  8. 8. Basic $2.61 $2.02 $2.73 Diluted $2.58 $2.00 $2.69 Basic 8,375 8,396 8,490 Diluted 8,470 8,506 8,593 $0.92 $0.80 $0.64 2013 2012 2011 $21,863 $16,978 $23,150 Net unrealized gains (losses) on derivatives (net of tax effects of $(14), $137, and $(338)) (26) 255 (627) Net unrealized gains (losses) on investments (net of tax effects of $195, $(210), and $567) 363 (390) 1,054 Translation adjustments and other (net of tax effects of $(8), $(165), and $205) (16) (306) 381 321 (441) 808 $22,184 $16,537 $23,95 Weighted average shares outstanding: Cash dividends declared per common share See accompanying notes. COMPREHENSIVE INCOME STATEMENTS (In millions) Year Ended June 30, Net income Other comprehensive income (loss): Other comprehensive income (loss) Comprehensive income 8
  9. 9. Balance Sheets (In millions) June 30, 2013 2012 Cash and cash equivalents $ 3,804 $ 6,938 Short-term investments (including securities loaned of $579 and $785) 73,218 56,102 Total cash, cash equivalents, and short-term investments 77,022 63,040 Accounts receivable, net of allowance for doubtful accounts of $336 and $389 17,486 15,780 Inventories 1,938 1,137 Deferred income taxes 1,632 2,035 Other 3,388 3,092 101,466 85,084 9,991 8,269 Equity and other investments 10,844 9,776 Goodwill 14,655 13,452 Intangible assets, net 3,083 3,170 Other long-term assets 2,392 1,520 $ 142,431 $ 121,271 Assets Current assets: Total current assets Property and equipment, net of accumulated depreciation of $12,513 and $10,962 Total assets 9
  10. 10. Liabilities and stockholders' equity Current liabilities: Accounts payable $ 4,828 $ 4,175 Current portion of long-term debt 2,999 1,231 Accrued compensation 4,117 3,875 592 789 20,639 18,653 645 814 3,597 3,151 37,417 32,688 12,601 10,713 Long-term unearned revenue 1,760 1,406 Deferred income taxes 1,709 1,893 10,000 8,208 63,487 54,908 67,306 65,797 Retained earnings (deficit) 9,895 (856) Accumulated other comprehensive income 1,743 1,422 Income taxes Short-term unearned revenue Securities lending payable Other Total current liabilities Long-term debt Other long-term liabilities Total liabilities Commitments and contingencies Stockholders' equity: Common stock and paid-in capital – shares authorized 24,000; outstanding 8,328and 8,381 10
  11. 11. Total stockholders' equity Total liabilities and stockholders' equity 11 78,944 66,363 $ 142,431 $ 121,271
  12. 12. Reference Microsoft.com. Income Statements In-text: (Microsoft.com, 2014) Bibliography: Microsoft.com. (2014). Income statements. [online] Retrieved from: http://www.microsoft.com/investor/reports/ar13/financial-review/income-statements/index.html [Accessed: 22 Jan 2014]. Microsoft.com. Balance Sheets In-text: (Microsoft.com, 2014) Bibliography: Microsoft.com. (2014). Balance sheets. [online] Retrieved from: http://www.microsoft.com/investor/reports/ar13/financial-review/balance-sheets/index.html [Accessed: 22 Jan 2014]. windows.microsoft.com. A history of Windows - Microsoft Windows In-text: (windows.microsoft.com, n.d.) Bibliography: windows.microsoft.com. (n.d.). A history of windows - microsoft windows. [online] Retrieved from: http://windows.microsoft.com/en-us/windows/history#T1=era8 [Accessed: 13 Jan 2014]. Google.com. microsoft current share price - Google Search In-text: (Google.com, 2014) Bibliography: Google.com. (2014). Microsoft current share price - google search. [online] Retrieved from: https://www.google.com/search?q=microsoft+current+share+price&oq=microsoft+&aqs=chrome.0.69i59j69i 57j69i60l2j69i59l2.2870j0j8&sourceid=chrome&espv=210&es_sm=122&ie=UTF-8 [Accessed: 22 Jan 2014]. Microsoft.com. Awards and Recognition In-text: (Microsoft.com, 2014) 12
  13. 13. Bibliography: Microsoft.com. (2014). Awards and recognition. [online] Retrieved from: http://www.microsoft.com/en-us/diversity/programs/awards.aspx### [Accessed: 24 Jan 2014]. 13

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