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. 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. 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. 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. 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. 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. 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. 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. 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. 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
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. 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
