2. 2
Table of Contents
History Of Microsoft................................................................................................................... 3
Sector & Industry Analysis..................................................................................................... 4
Capital Structure.......................................................................................................................... 5
Ratio Overview .............................................................................................................................. 7
Profitability Ratios.......................................................................................................... 9
Liquidity Ratios ............................................................................................................. 16
Debt Ratios..................................................................................................................... 19
Efficiency Ratios.......................................................................................................... 22
Market Value Ratios.................................................................................................. 25
Growth Ratios................................................................................................................ 27
Financial Strengths and Weaknesses.......................................................................... 30
Financial Analysis..................................................................................................................... 31
Recommendations ................................................................................................................... 32
Work Cited.................................................................................................................................... 33
3. 3
History of Microsoft
With the mission to ‘empower every person and every organization on the planet
to achieve more’, Microsoft has become the leading developer of personal computer
software systems and applications since the 1980’s. Starting with only 13 employees in
1978, Microsoft started off as an unreliable and weak competitor in the technology
industry. This is small company had big dreams lead by Gates was president and
chairman. The companies dream was reached in the 1980 when IBM partnered with
Microsoft and introduced the PC, making Microsoft a multibillion-dollar company.
Multiple law suites against Microsoft tried to destroy the company, but they prevailed. In
1999 Microsoft had managed to reserve over $13 billion in cash, and held no long-term
debt. At this time, Gates stepped down and allowed different Presidents to step in.
Microsoft then began launching the ‘every-day Office program’ and Windows programs.
In recent years, revenue has stayed at a consistent increase, now holding over 100,00
employees, Microsoft has not yet disappointed the technology industry.
Microsoft Timeline
1975 – founded by Bill Gates and Paul Allen
1980 – Operating program for PC introduced
1981 – Microsoft, Inc. is incorporated
1982 – Microsoft, UK., Ltd. is incorporated
1985 – Microsoft and IBM forge a joint development agreement
1986 – Microsoft stock goes public at $21 per share
1990 – First software firm to surpass $1 billion of sales in a single year
1991 – FTC claims Microsoft monopolizes PC market
1994 – Microsoft buys Intuit/Quicken
1995 –Gates shifts company strategy to Internet/cable service
1997 – U.S. Department of Justice files case violating Sherman Act
1997 – Apple makes deal with Windows to share technology
2000 – Gates steps down to chief executive
2001 – Microsoft is released internationally
4. 4
Sector & Industry Analysis
Microsoft is in the Technology Sector. According to Investopedia.com, this
sector contains businesses revolving around the manufacturing of electronics, creating
of software, computers or products and services relating to information technology. A
success with low risk in this sector has increased an average stock by 6.3% since
2011.
Microsoft is in the Business Software and Services Industry, also known as the
Software and Programming Industry. The United States is known to have the top
Businesses Software and Services Industry in the world. This very highly valued and
successful industry has had an average increase of 6% since 2011.
Specifically looking into Microsoft, their success has been as one of the top
competitors in the technology sector within the Business Software and Services
Industry. As of May, 2015, Microsoft sits as #2 world’s most valuable brand on Forbes
list. Below shows a graph of the top seven mature tech companies that have been very
strong financially in the past years. As you can see, Microsoft follows second behind
their close competitor Apple in the Technology Sector.
Top Tech Company Finances
5. 5
Capital Structure
A company’s overall financial operations of growth can be determined by a
yearly layout of capital structure. The capital structure compares the long-term debt to
shareholder equity. The shareholders equity is the company’s total assets value
factoring the firm’s total liabilities, which represents the amount by which the company
financed through common and preferred shares. A stronger shareholder equity
percentage is important compared to the company’s long-term debt. This is because
the long-term debt of the company is determined by borrowed money. The shareholder
equity is an asset, while long-term debt is a liability.
Until 2009 Microsoft held no long-term debt. Since then the company has
gradually and constantly increased their predicted long-term debt. Looking at recent
years, each year has increased by 4%. This is very affordable and carries low risk for
Microsoft to take on debt; this should worry no one until the company’s debt outweighs
the stockholders equity. Apple has gained long-term debt drastically over two years.
Intel has stayed very consistent and carried low risk with their capital budget.
Moving onto Apple’s Capital structure, we see a large increase in long-term
debt. In 2013 Apple held $16,960 million in long-term debt, and $123,549 million in
shareholder equity. The 12 to 88 percent difference eventually grew to a 31 to 69
percent difference in 2015. 2015 Apple held a $53,463 million in long-term debt. This
huge increase is not necessarily bad for Apple, since they can afford the debt. The
debt also increases the probability on revenue increase because the borrowed bonds
are put to use. They can afford this risk.
When looking at Intel we see a very consistent capital structure of the company.
In 2012 Intel held a 20% long-term debt, with only $13,136 million. This ratio decreased
by 2014 and 2015. Both years held a 18 to 82 percent ratio of long-term debt to
shareholder equity. The long-term debt decreased to $12,107 million. This impressive
hold of capital structure shows low risk and promising return for shareholders.
7. 7
Ratio Overview - Microsoft
Profitability Ratios Microsoft
2015
Microsoft
2014
Microsoft
2013
Gross Profit Margin 64.70% 68.82% 73.81%
Operating Profit Margin 19.78% 32.04% 34.75%
Net Profit Margin 13.03% 25.42% 28.08%
ROA 6.92% 12.81% 15.35%
ROE 15.23% 24.59% 27.69%
ROI 11.30% 19.99% 23.88%
Liquidity Ratios
Current Ratio 2.5 2.5 2.71
Quick Ratio 2.44 2.45 2.66
Debt Ratios
Total Debt to Total Assets 17.39% 13.56% 15.96%
Debt to Equity 34.72% 22.99% 15.96%
Times Interest Earned 1.02 1 1.01
Efficiency Ratios
Average Collection Period 5.68 -4.71 -8.47
Inventory Turnover 11.38 10.18 10.45
Total Asset Turnover 0.53 0.5 0.55
Market Value Ratios
P/E Ratio 29.89 15.87 13.39
Price to Book 4.55 3.9 3.71
Growth Rates
Sales Growth 7.77% 11.54% 5.60%
Profit Growth -44.76% 0.97% 28.77%
8. 8
Ratio Overview – Apple & Intel
Profitability Ratios Microsoft
2015
Apple Inc.
2015
Intel
2015
Gross Profit 64.70% 40.06% 63.74%
Operating Profit Margin 19.78% 90.42% 27.47%
Net Profit Margin 13.03% 22.85% 20.95%
ROA 6.92% 18.38% 12.73%
ROE 15.23% 44.74% 20.95%
ROI 11.30% 30.90% 17.22%
Liquidity Ratios
Current Ratio 2.5 2.52 1.73
Quick Ratio 2.44 2.45 1.46
Debt Ratios
Total Debt to Total Assets 17.39% 19.65% 39%
Debt to Equity 34.72% 44.79% 21%
Times Interest Earned 1.02 8.39 356.91
Efficiency Ratios
Average Collection Period 5.68 0.95 28.92
Inventory Turnover 11.38 59.64 4.74
Total Asset Turnover 0.53 0.8 0.61
Market Value Ratios
P/E Ratio 29.89 12.44 16.22
Price to Book 4.55 3.64 3.40
Growth Rates
Sales Growth 7.77% 27.86% 6.00%
Profit Growth -44.76% 35.14% 21.66%
9. 9
Profitability Ratio
Gross Profit Margin
Gross Profit Margin shows the percent of every dollar that is returned in revenue
after paying cost of goods sold. To find this value of the company we look at gross
profit made per sale.
Microsoft does decreased Gross Profit compared through the past three years.
From a 74% return on their sales, Microsoft has dropped by about 10%. The return on
each sale is still at a high percentage of about 64% though. This means that thought
the graph shows a large drop, Microsoft is still making a great percentage of revenue
in their sales compared to their gross profit. In 2013 they were strong at a 73% margin
of dollar. Now in 2015 they are returning about 65%. I think this is a stable position for
the company.
73.81%
68.82%
64.70%
60.00%
62.00%
64.00%
66.00%
68.00%
70.00%
72.00%
74.00%
76.00%
2013 2014 2015
Microsoft - Gross Profit Margin
73.81%
68.82%
64.70%
37.62% 38.59% 40.06%
62.15% 59.80%
63.74%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2013 2014 2015
Gross Profit Margin
Microsoft
Apple
Intel
10. 10
When comparing Gross Profit Margin to Microsoft’s top competitors, Apple has
a lot less dollar back per sale than Microsoft and Intel do. All seem to be pretty
consistent through out the past three years. Intel and Apple have had about a 3% raise
on gross profit margin, while Microsoft decline a little.
Operating Profit Margin
Operating Profit Margin shows the earnings before interest & taxes (EBIT),
divided by sales. This shows what area of the company’s revenue is valuable after
paying different costs. These costs include product, wages, raw material, and
operations.
Microsoft’s Operating Profit Margin is very low. A percent of return of only 20%
is very low given the operating expenses. In 2013 Microsoft had a revenue of 35%,
given operating expenses, this is the highest of the three years. Later in 2014 Microsoft
had only a 2% decline, keeping them at almost a steady return, but only a fair percent
return. This is because Microsoft recently hit a decrease of $900 million towards
operating expense. The difference of 2013 to 2015 can show this decline in revenue
earned.
34.75%
32.04%
19.78%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2013 2014 2015
Microsoft - Operating Profit
Margin
34.75% 32.04%
19.78%
91.04% 90.13% 90.42%
27.44%
23.32%
27.47%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2013 2014 2015
Operating Profit Margin
Microsoft
Apple
Intel
11. 11
Comparing Microsoft to Apple, and Intel now, we can see that Microsoft did
have a drastic fall, but never stood at a position like Apple. Apple must have very low
expenses for operations (which is slightly concerning given they are so highly thought of
for quality), but they also could be making such remarkable revenue that expenses
don’t fact. Either way, Apple blows Microsoft and Intel out of the water. Intel seemed to
have a slope if decline then increase in 2015 for their Operating Profit Margin. It’s very
clear when looking at the competition that Microsoft took a hit in their operating
expenses. In this section of 2015 profitability, Apple leads, followed by Intel and then
lastly is Microsoft.
Net Profit Margin
Net Profit Margin shows the percentage of revenue remaining after all operating
expenses, interest, taxes and preferred stock are accounted for to deduct from the
company’s total revenue. The higher the percentage, the better the net profit margin.
Microsoft shows a decrease in net profit margin compared to previous years.
Looking closer, Microsoft’s revenue as increased at a steady rate in recent years. This
means that operating costs have increased for the company. Reading the 2015 Annual
report, Microsoft notes that in March of 2013 European Commission decreased
operating income by $900 million. This explains the reason for decrease in Net Profit
Margin. The Net profit Margin shows the bottom line of the company, which here shows
that they have decreased their company profitability in 2015 drastically. This shows
that they are still low-risk but definitely not consistent in operations.
28.08%
25.42%
13.03%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2013 2014 2015
Microsoft - Net Profit Margin
12. 12
Comparing Net Profit Margin of Microsoft to their close competitors Apple and
Intel, they look weak. Both Apple and Intel have increased Net Profit within the last two
years. Its interesting to see Microsoft as a top leader between the companies then see
a one year difference of the competition changing. Apple catches up to Microsoft’s
2014 percentage, but Microsoft looses the lead. Here this really shows that bottom line,
Apple is consistent with their net profit, rather than Intel and Microsoft who seem to be
high risk.
Return on Assets (ROA)
When looking at the company’s return on assets, we divide the net income by
total assets to see the value of assets or return on investments. This gives the
company an idea as to how efficient management is at using its assets to generate
earnings.
28.08%
25.42%
13.03%
21.67% 21.61%
22.85%
20.63%
18.25%
20.95%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2013 2014 2015
Net Profit Margin
Microsoft
Apple
Intel
15.35%
12.81%
6.92%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2013 2014 2015
Microsoft - ROA
13. 13
15.35%
12.81%
6.92%
17.89%
17.04%
18.38%
13.05%
10.42%
12.73%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2013 2014 2015
ROA
Microsoft
Apple
Intel
Looking at Microsoft’s return on assets, they did not have a recently efficient
year. Previously in 2013, Microsoft had a 15% return, which is low. Even worse, 2014
dropped value by 2%. 2015 hit an all time low of 6% return. This percentage shows
that the value of their resources did have a gain in value, but the percent of return
decreased each year.
Comparing Microsoft to their competitors, Apple and Intel, they were doing well
for 2013 and 2014. Apple is a leader for all three years. Their return on assets were
not completely consistent, but close by a 2% difference, and leading 19% return on
assets. Intel had a ‘u’ shaped graph with a high in 2013 of 13% return on asset.
Microsoft had their high in 2013 but compared to their competition, Microsoft was beat
drastically in 2015 by a minimum of 6% difference by Intel and 12% difference with
Apple.
Return on Equity (ROE)
Return on Equity is a measure of profitability that calculates the worth of each
dollar the company profits per each dollar of shareholder equity. The equation for this
is Net Income/Shareholder equity. This basically shows if the investment of
shareholders money is making a profit. Shareholders usually focus on this area of the
profitability ratios. The company will write to the shareholders in the annual report under
the shareholder letter, focusing on the return on equity. This relates to the stock market
and shareholders part of the company. Depending on how much the shareholder owns,
they are owner of part of the company because they are investing and funding the
company’s actions. That’s why return on equity is very important for shareholders to
see if they are making a return on their investment or not.
14. 14
Microsoft’s shareholder’s must be upset because each year since recently they
are making less and almost 50% less of a return on their investment. This is due to the
Net Income decreasing in recent years. I am confused on why the Shareholder letter
claims that they have “significantly increased their total cash return to shareholders by
nearly 50% to 23.3 billion.” A net income raise would result in higher ROE %, but
Microsoft has decreased Net income from 2013 of 21,863 million to 2015 of 12,193
million. While an increase in Stockholder Equity would result in higher percentages,
while 2013 to 2015 the stockholder equity increased, but the percentage still managed
to fall by almost 50%. Total cash return is annual before-tax cash flow/total cash
invested, which is a scam to Microsoft’s investors.
Comparing Microsoft to Apple, and Intel once again makes
Microsoft looks weak. They have not made a reliable return to their investors.
Apple investors are making 15% more on their return in two years. Intel took at hit in
2012, since their Net Profit decreased, along with their ROE. In 2013 Intel recovered
though, their investors that stayed true to the company received an increase of about
5% between the years.
27.69%
24.59%
15.23%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2013 2014 2015
Microsoft - ROE
27.69%
24.59%
15.23%
29.98%
35.42%
44.74%
21.49%
16.51%
20.95%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
2013 2014 2015
ROE
Microsoft
Apple
Intel
15. 15
28.88%
19.99%
11.30%
26.36%
28.11%
30.90%
17.10%
13.47%
17.22%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2013 2014 2015
ROI
Microsoft
Apple
Intel
Return on Investment (ROI)
This is the area of Profitability you should focus on. The ROI ratio determines
net profitability by assets. Rather than just focusing on the shareholders return, we are
looking into the future now by adding Long-Term Debt into the equation, by looking at
the return of investments.
Here with Microsoft we can see that the long-term debt does not affect the
future return on investments any dramatic percentage different than previous years.
With an average of about 4% difference, Investors should not expect any drastic shift.
Though, when we look at capital structure the long-term debt of Microsoft has been
growing yearly. This can be a future foreshadow for Investors when expecting a return.
As the long-term debt increases, their return on investment will decrease. When we
were looking at shareholder equity return (ROE), the long-term debt was only affecting
the net profit margin, but now with return on investment, this is a more serous issue.
Technically Microsoft is still making a return, so investors will be satisfied. Investors
that are traditional have been experiencing a drastic downward shift in their returns
lately, though. Same as ROE, about a 50% difference in previous year returns ROI for
Microsoft.
28.88%
19.99%
11.30%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2013 2014 2015
Microsoft - ROI
16. 16
Looking at Apple and Intel’s ROI compared to Microsoft, Microsoft is third again. Same
situation as ROE, given long-term debt into the equation only drops each company
slightly more than ROE. Over a two-year period the leader, Apple, has increased return
on investors money by about 5%. Same as Return on Equity shows the same situation
as Intel. Looking back on Intel’s capital, their Long-Term Debt was constant during the
three-year period. This explains why their ROE and ROI are mirrored closely. This shows
very low risk and stability within their company.
Liquidity Ratio
Current Ratio
Comparing Microsoft’s current assets to its current liabilities, this is a good way
to look at the company and predict if they will go into debt or not. Based on the load
of liabilities, the company can predict the next 12 months of financial stability.
Microsoft is in a sound position to pay off their debt over the next year.
Compared to other years, it’s less likely that they will pay off the debt they are liable
for. This is because their long-term debt has risen. The same probability between 2014
and 2015 sets Microsoft at a very promising position. If 2015 was below 2.45 I would
be very worried for the company because they’d be running on a tight budget with no
rooms for error. I can tell they have taken hold of their liabilities and set at a sound
position. I know it’s a lot less than 2013, but they have room for a set back like they
have been faced with.
2.71
2.5 2.5
2.35
2.4
2.45
2.5
2.55
2.6
2.65
2.7
2.75
2013 2014 2015
Microsoft - Current Ratio
17. 17
Comparing Microsoft to other companies shows Microsoft’s sound position as
‘not so sound’. As the leader Apple has increased long term debt drastically, they still
have managed to increase their assets so highly that they are still very stable to pay
back their liabilities. Though liabilities show more than just long-term debt, Apple is a
very promising business with a bright future. Now looking at Intel, here Microsoft blows
them out of the water in 2015. The probability of Intel paying of their liabilities, when
comparing assets, is almost 1 return point lower. Though this is a huge change, I still
think they sit in a stable position. All these companies are promising for investors.
Quick Ratio
Quick ratio measures how well a company can meet its short-term financial
liabilities. Here we look at the company’s current assets, taken out the inventory,
divided by the liabilities. So we can look at the companies worth in assets, without the
inventory, per liability. For example, the asset is not worth anything if the liability is
required to still be paid off. The assets here must be greater than liability to be in a
comfortable position. Same as Current Ratio, but we now put Inventory into the position,
so the value of your assets rather than sitting assets that have yet to be given a value
towards the company’s assets.
2.71
2.5 2.5
1.68
2.27
2.52 2.43 2.36
1.73
0
0.5
1
1.5
2
2.5
3
2013 2014 2015
Current Ratio
MicrosoE
Apple
Intel
2.66
2.45 2.44
2.3
2.35
2.4
2.45
2.5
2.55
2.6
2.65
2.7
2013 2014 2015
Microsoft - Quick Ratio
18. 18
Looking at Microsoft’s Quick Ratio, we can see the real value when comparing
to the company’s current ratio. Before taking Inventory into account, Microsoft looked
strong at paying back their debt. But now with liabilities they have dropped probability
by about .05, which seems little but this means their inventory takes a lot of position in
their asset value. Microsoft’s inventory would only plays into the company’s value of
assets if their inventory was sold.
This now shows that they have a less likelihood of paying off their liabilities
than previously noted. I still think given the inventory, that Microsoft is stable for 2015,
when not comparing previous stability.
Here we see that Intel decreases, Apple increases, and Microsoft doesn’t
dramatically change. The graph showing only Microsoft almost skewed the graph
because the drop looks a lot more drastic than it does compared to their competitors.
Apple in 2013 was very weak given their inventory being taken from their assets. Intel
takes a hit when noted Inventory into the equation as well. Microsoft seems to be
strongest in Quick Ratios because they are more constant.
2.66
2.45 2.44
1.64
2.29
2.45
2.12 2.06
1.46
0
0.5
1
1.5
2
2.5
3
2013 2014 2015
Quick Ratio
Microsoft
Apple
Intel
19. 19
Debt Ratio
Total Debt to Total Assets
The total debt to total assets tells the company’s financial leverage. This is
found by dividing the total debts by total assets. The percentage means the percent of
assets that were financed by creditors, liabilities and debt, which in sum is total debt.
The lower the percentage, the better.
Microsoft’s total debt to total assets has improved. Unlike the other graphs,
Microsoft has a lead in this category because their operating expenses are not
calculated into total debt. Here Microsoft has shown that their assets are strong
because debt is weak.
15.96%
13.56%
17.39%
0.00%
5.00%
10.00%
15.00%
20.00%
2013 2014 2015
Microsoft - Total Debt to Total
Assets
15.96%
13.56%
17.39%
9.46%
13.81%
19.65%
39%
37%
39%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
2013 2014 2015
Total Debt to Total Assets
Microsoft
Apple
Intel
20. 20
15.96%
22.99%
34.72%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2013 2014 2015
Microsoft - Debt to Equity
When comparing total debts to total assets between Microsoft, Apple, and Intel,
Intel does very poorly. First strongest is Microsoft. Second is Apple, which was very
strong in 2013 when they had low debt, and strong assets, but in 2015 when their debt
grew to over 40%, their percent on assets increased.
Debt to Equity
Debt to Equity ratio indicates relative proportion of shareholders’ equity and
debt used to finance the company’s assets. This means the total liabilities are divided
by the equity.
In Microsoft’s case, the liabilities do not outweigh the shareholders equity.
Compared to previous years though, the company is almost double as unlikely to be
able to outweigh the liabilities. I think the company is in a safe position still though. The
graph is skewed by being enlarged.
15.96%
22.99%
34.72%
13.73%
25.99%
44.79%
24%
22% 21%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
2013 2014 2015
Debt to Equity
Microsoft
Apple
Intel
21. 21
Comparing debt to equity of Microsoft to Apple and Intel, we can see a better
graph. Microsoft shows an increase in shareholders percentage going towards debt.
Apple is in second with a very unimpressive raise in percentage of their shareholders
going towards debt. I believe that this is how they have managed to pay of debt; with
shareholders investments. The best company is Intel, with less of their shareholders
money going towards debt, with a decrease in 2012 of 21% to 24% in 2014.
Times Interest Earned
Times interest earned shows the company their operating income by interest
expense. The ratio shows how many times the company is able to cover the expenses
of charges by income of operation. This can determine if the company can meet their
ability to pay debt obligations.
Microsoft increased percentage of times interest earned from 2013 to 2015. In
2013 Microsoft had 16% times interest earned, and increased to 35% in 2015.
15.96%
22.99%
34.72%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2013 2014 2015
Microsoft - Times Interest
Earned
15.96%
22.99%
34.72%
13.73%
25.99%
44.79%
24%
22% 21%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
2013 2014 2015
Times Interest Earned
Microsoft
Apple
Intel
22. 22
Looking at the competition, Apple continues to increase their times interest
earned from 2013 to 2015. Microsoft also increased from 2013 to 2015, but with not
such a large amount. Neither of the three years was Microsoft a leader in Interest
earned. From 2012 to 2014 Intel seemed to decrease slightly, which isn’t necessary a
noticeably bad difference.
Efficiency Ratio
Average Collection Period
This is the collection period counted by number of days between the date the
sale is made and the date the money is received from the customer. The collection
period average is found by taking accounts receivable divided by sales divided by year.
This shows the average daily sales.
Looking at Microsoft’s collection period over the past three years, it slowly
increases to a later time period. In 2013 Microsoft had a impressive return rate of
negative 8, which in turn is because they had a very low accounts receivable. As 2015
came, Microsoft’s accounts receivable increased, leaving them at a weaker position
when looking at their Average collection Period rate.
-8.47
-4.71
5.68
-10
-8
-6
-4
-2
0
2
4
6
8
2013 2014 2015
Microsoft - Average Collection
Period
23. 23
When comparing the three companies, Apple has a strong average collection
period from 2013 to 2015. Intel has a very weak return rate of a collection period due
to low sales.
Inventory Turnover
Inventory turnover shows the company the number of times inventory is sold in a
years time period. To find this probability we use the cost of goods sold divided by the
average inventory. The higher the inventory turnover, the better.
Microsoft has improved in this area of the company. This is because sales have
increased since 2013. 2013 reported a 10.45, 2014 a 10.18 and a major increase in
2015 with an 11.38.
-8.47
-4.71
5.68
-4.64 -8.45
0.95
26.23 24.81
28.92
-15
-10
-5
0
5
10
15
20
25
30
35
2013 2014 2015
Average Collection Period
Microsoft
Apple
Intel
10.45
10.18
11.38
9.4
9.6
9.8
10
10.2
10.4
10.6
10.8
11
11.2
11.4
11.6
2013 2014 2015
Microsoft - Inventory Turnover
24. 24
Inventory turnover between the three companies is drastically different. Leading
company is Apple with a high turnover rate of 60, while Microsoft and Intel show very
low numbers ranging around 10 between 2014 and 2015.
Total Asset Turnover
Total Asset Turnover is a good indication of the efficiency with a company
between assets and revenue. This is found by dividing the revenue by total assets.
Microsoft shows that it was very strong in 2013 with delivering revenue for their
assets. In 2014 their revenue, noted again, dropped because of operating expenses,
which caused the assets to not bring in as much revenue as previous years. Though
2014 looks like a decrease, it was still an increase.
10.45 10.18 11.38
60.43
53.18
59.64 59.64
5.08 4.74
0
10
20
30
40
50
60
70
2013 2014 2015
Inventory Turnover
Microsoft
Apple
Intel
0.55
0.5
0.53
0.47
0.48
0.49
0.5
0.51
0.52
0.53
0.54
0.55
0.56
2013 2014 2015
Microsoft - Total Asset
Turnover
25. 25
Market Value Ratio
Comparing the total asset turnover to other companies, Apple leads. All
companies stand strongly with turn over rates. All have a ‘u’ shaped graph, showing that
assets to revenue took a decreased drop in 2014.
Market Value Ratios
Price to Earnings (PE)
The ratio for price to earnings is measure of the share price relative to the
annual net income earned by the firm per share. This shows the current investor
demand for a company share. The higher the PE ratio generally indicates increased
demand because investors anticipate earnings growth in the future. This is determined
by the market stock price divided by the earnings per share. Earnings per share are
determined by the net income of the company per outstanding share.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2013 2014 2015
Total Asset Turnover
Microsoft
Apple
Intel
13.39
15.87
29.89
0
5
10
15
20
25
30
35
2013 2014 2015
Microsoft- Price to Earnings
26. 26
Microsoft Price to Earnings is high in 2015, and continually increases from 2013.
The higher the ratio, the higher the demand for the companies stock. This means
Microsoft was in high demand for 2015. This is great because this means investors are
determining a high rise in Microsoft’s value.
Given the market and stock prices of Apple, Microsoft, and Intel, investors can
be shown which is predicted an increase by the graph of Price to Earnings. Microsoft
blows both Apple and Intel out of the water in 2015, which is wonderful. Intel is on the
rise; the company has increased from 2013 to 2015. While Apple seems to have
decreased from 2013 to 2015, with a higher than 2013 raise, but about 3 points lower
than their 2014 price to earning ratio.
Price to Book
Price to book is found using the current market stock price by the book value
per share. The book value per share is found by shareholder equity divided by
outstanding shares.
13.39
15.87
29.89
12.14
15.62
12.44
9.49
13.56
16.22
0
5
10
15
20
25
30
35
2013 2014 2015
Price to Earnings
Microsoft
Apple
Intel
3.71
3.9
4.55
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2013 2014 2015
Microsoft - Price to Book
27. 27
An increase in Microsoft’s Price to Book from 2013 to 2015 is slowly but surely
increasing. This means a lower number in outstanding shares through 2015 has proven
the book value to increase.
The Price to book for Intel and Microsoft have both increased since 2013. Intel
started at 2.04 in 2013, and increased 1.36 points in the two years.
Growth Ratio
Sales Growth
The growth of sales for a company are determined by previous years sales. We
take the difference and divide by the previous year to see the total percentage
increase. This way we can see the company’s improvement.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2013 2014 2015
Microsoft - Sales Growth
3.71 3.9
4.55
4
6 6
2.04 2.24
3.40
0
1
2
3
4
5
6
7
2013 2014 2015
Price to Book
Microsoft
Apple
Intel
28. 28
When looking at Microsoft, we see that their sales did no increase as much as
previous years, but they still increased by 8%. This is a positive increase towards the
company.
Looking at two different graphs shows a clearer picture of growth of sales for
different companies. Microsoft shows a decrease from 2014 to 2015. Apple shows first
at a major increase in sales from 2014 t0 2015, recovering from a decrease in 2013 to
2014. Intel stayed almost constant from 2013 to 2014 but increased sales by 7% in
2015.
5.60%
11.54%
7.77%
9.20%
6.95%
27.86%
-1.22% -1.19%
6.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2013 2014 2015
Sales Growth
Microsoft
Apple
Intel
5.60%
11.54%
7.77%
9.20%
6.95%
27.86%
-1.22% -1.19%
6.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2013 2014 2015
Sales Growth
Microsoft
Apple
Intel
29. 29
Profit Growth
Profit Growth of a company takes more than just the revenue and sales of the
company, but the finished net profit. Profit growth compares previous years
When looking at Microsoft, we see the true profit of the company. Compared to
previous years, there was no profit growth. When looking at expenses and final
revenue, we see that Microsoft dropped almost 50%.
28.77%
0.97%
-44.76% -50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
2013 2014 2015
Microsoft - Profit Growth
28.77%
0.97%
-44.76%
-11.25%
6.68%
35.14%
-14.58% -12.59%
21.66%
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
2013 2014 2015
Profit Growth
Microsoft
Apple
Intel
30. 30
Comparing Microsoft to their competitors we can now see that it wasn’t the
market that affected their 50% decrease. Apple continued to increase in Profit Growth
from 2014, following a low year in 2013. Microsoft prevailed with a high increase in
Profit Growth by 28% than previous years. Apple also took a hit in 2013, with a
decrease in -14%. Tables turned in 2014 when both Apple and Intel increased profit
growth by a large percent than their previous year, while Microsoft took a 50%
decrease in profit growth.
Financial Strengths and
Weaknesses
After looking at the ratios for Microsoft, many investors would see the low
numbers and recent decrease and be scared away. Microsoft has much strength over
weaknesses though. The graphs all show a decrease in Microsoft because their
revenue and profit decreased by 900 million since 2013. The cut was taken from
operating expenses. This weakness of a cut, I guarantee will be profitable eventually in
the next few years. Strength of Microsoft is their position in the Industry and Sectors.
Though we are comparing to Apple and Intel, Microsoft is still top ranked by a long
margin. Microsoft is a reliable and low-risk company.
28.77%
0.97%
-44.76%
-11.25%
6.68%
35.14%
-14.58%
-12.59%
21.66%
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
2013 2014 2015
Profit Growth
Microsoft
Apple
Intel
31. 31
Financial Analysis
Microsoft was compared to Apple and Intel in the following report.
Only three of the eighteen ratios Microsoft was the strongest in. With a
gross profit of 64.70%, Microsoft had a higher percentage than Apple,
40.06%, and Intel 63.74%. Also looking at the profitability ratios, Apple
leads in the following categories; a 90.42% in Operating Profit Margin,
18.38% in ROA, 44.74% for ROE, and 30.90% on ROI. Intel has the
highest percentage in; 20.95% in Net Profit Margin. Microsoft has the
lowest percentages of the three companies.
Liquidity ratios of a company determine the current assets with
their current liabilities and inventory. Apple holds the highest ratio, with
higher ratios of 2.52 in Current Ratio, and 2.45 in Quick Ratio. Microsoft
is strong in this area as well, only following behind Apple by .01 of a
ratio.
Debt ratios between Microsoft, Apple and Intel vary greatly. Total
debt to total asset is strongest for Intel. They have a 39% gain of
assets than debt. All companies hold a strong percent difference over
debt in this category.
The efficiency ratio of a company tells weather the company
holds a quick turn over period or not. The higher the ratio the lower the
average collection period for the company is. Microsoft holds the second
best ratios in this category. They have an average turnover rate. Apple
holds the strongest rate with a 0.95 ratio in collection period, 59.64 in
Inventory Turnover, and 0.8 in Total asset turnover.
The Market Value Ratios of a company should be high because
this means its increase on shares of stock. The predicted future of the
company can be determined by this ratio category. Microsoft is predicted
to have a high share value for the next year. They lead in both P/E and
Price to Book for 2015. P/E is predicted at 29.89 ratio and Price to Book
at 4.55.
Growth rates show the sales and profit of the three companies.
Microsoft has a very low percent change from previous years. Compared
to Apple who has increased yearly.
32. 32
Recommendations
If considering investing in Microsoft, I highly encourage a strong
investment as the 2016-year approaches. Microsoft took a hit in 2013
with a decrease of $900 million in operating expenses. The decrease
from the European Commission skewed majority of Microsoft’s financial
ratios. The return on equity for stockholders was not as high of an
increase than previous years, but I believe since Microsoft holds a strong
board of shareholders, they will most likely come back with a stronger
return on investment to the shareholders.
If I were CEO of Microsoft I would recommend working on gaining
more shareholders, widening the market, and focusing on my operations
budget.
In the shareholders letter, Microsoft told their holders that they are
investing in a new area of the market, which will soon increase more
revenue. The cost right now of a stock is very low because of recent
years decrease in revenue, but soon if the new market and new products
increase revenue, than the stocks and value of Microsoft will soon
increase.
The operations budget and expenses is really Microsoft’s biggest
weakness. I think that this is a very important part of the company
though, with a tight budget, because if expenses went lower than
revenue might as well. This is because the quality over quantity would
decrease and customers might find their products unreliable, which is
Microsoft’s biggest strength. To fix the budget, means Microsoft should
find funding and investors to create a more lose budget. This way
Microsoft’s ratios would all increase.
