Microsoft Corporation

Microsoft Corporation

Building 92 on the Microsoft Redmond campus
Type	Public
Traded as	Nasdaq: MSFT Nasdaq-100 component DJIA component S&P 100 component S&P 500 component
ISIN	[https://stockhub.co/index.php?title=Toollabs:isin/&language=en&isin=US5949181045 US5949181045]
Industry	Information technology
Founded	April 4, 1975 (1975-04-04) in Albuquerque, New Mexico, U.S.
Founders	Bill Gates Paul Allen
Headquarters	One Microsoft Way Redmond, Washington, U.S.
Area served	Worldwide
Key people	Satya Nadella (Chairman and CEO) Brad Smith (vice chairman and president) Bill Gates (technical adviser)
Products	Software development Computer hardware Consumer electronics Social networking service Cloud computing Video games Internet Corporate venture capital
Brands	Windows Office Skype Visual Studio Bethesda Dynamics Xbox Minecraft Surface
Services	Azure Bing LinkedIn Yammer Microsoft 365 OneDrive Outlook.com GitHub Microsoft Store Windows Update Xbox Game Pass Xbox network
Revenue	US$198.3 billion (2022)
Operating income	US$83.4 billion (2022)
Net income	US$72.7 billion (2022)
Total assets	US$364.8 billion (2022)
Total equity	US$166.5 billion (2022)
Number of employees	221,000 (2022)
Divisions	Microsoft Engineering Groups Microsoft Digital Crimes Unit Microsoft Press Xbox Game Studios
Subsidiaries	GitHub LinkedIn Metaswitch Nuance Communications RiskIQ Skype Technologies Xamarin Xandr
Website	https://www.microsoft.com/ microsoft.com
Footnotes / references Financials as of June 30, 2022

In 1975, Microsoft was established as a software company primarily focused on delivering an operating system for IBM computers. Over the years, it has experienced remarkable growth and evolved into one of the largest corporations globally, propelled by its renowned products like Windows, Xbox, and Microsoft Office. Today, Microsoft stands as a prominent force in the technology industry.

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. Its Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Skype for Business, as well as related Client Access Licenses (CAL); Skype, Outlook.com, OneDrive, and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions. Its Intelligent Cloud segment licenses SQL, Windows Servers, Visual Studio, System Center, and related CALs; GitHub that provides a collaboration platform and code hosting service for developers; and Azure, a cloud platform. It also offers support services and Microsoft consulting services to assist customers in developing, deploying, and managing Microsoft server and desktop solutions; and training and certification on Microsoft products. Its More Personal Computing segment provides Windows original equipment manufacturer (OEM) licensing and other non-volume licensing of the Windows operating system; Windows Commercial, such as volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows Internet of Things; and MSN advertising. It also offers Surface, PC accessories, PCs, tablets, gaming and entertainment consoles, and other devices; Gaming, including Xbox hardware, and Xbox content and services; video games and third-party video game royalties; and Search, including Bing and Microsoft advertising. It sells its products through OEMs, distributors, and resellers; and directly through digital marketplaces, online stores, and retail stores. It has collaborations with Dynatrace, Inc., Morgan Stanley, Micro Focus, WPP plc, ACI Worldwide, Inc., and iCIMS, Inc., as well as strategic relationships with Avaya Holdings Corp. and wejo Limited.

Operations

How did the idea of the company come about?

The idea for Microsoft corporation originated when its co-founders, Bill Gates and Paul Allen, seized a business opportunity in 1975. After learning about Altair 8000, which was one of the first commercially successful computers, they realised that software was crucial and saw the potential to establish a software company. Using experience from their programming ventures in the early 1970s, they founded Microsoft on April 4, 1975.

What is the mission of the company?

Microsoft Corporations mission is to empower every person and every organisation on the planet to achieve more.

What are the main offerings of the company?

Feature	Comments	Prices
Operating Systems	Microsoft is well known for its operating systems, especially Windows. Windows powers a vast range of devices, from personal computers to servers and embedded systems. Various versions of windows are designed to suit the users need, for example Windows 11 for consumers and Windows Server for businesses.	PCs that meet requirements are eligible for a free upgrade to Windows 11. If PC needs a new license, Windows 11 Home can be bought from £119.99 and Windows 11 Pro from £219.99.
Microsoft 365	Including software such as Word, Excel and Outlook, Microsoft Office is widely used in both personal and professional settings in order to create/manage documents, spreadsheets and presentations.	Microsoft 365 Personal - £59.99/year Microsoft 365 Family - £79.99/year Microsoft 365 Student - Free using school email address
Cloud Services	Microsoft has a significant presence in cloud computing through its Azure platform. It offers a comprehensive suite of cloud services, including infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS).	Pricing based on usage. Can calculate personal usage on website.
Enterprise Software	Microsoft offers numerous enterprise software solutions. These include Microsoft Dynamics, an enterprise resource planning (ERP) and customer relationship management (CRM) software suite. Microsoft Dynamics helps organizations manage business processes and customer relationships efficiently.	Based on Sales. Business, Finance, Marketing, Supply Chain, Service, Project Management, Human Resources, Customer Data and Commerce
Developer Tools	Microsoft provides a range of developer tools and platforms, including Visual Studio, which is an integrated development environment (IDE) for building applications across different platforms and technologies.	Visual Studio - £29.99
Gaming	Microsoft's Xbox brand includes gaming consoles like Xbox Series X and Xbox Series S, as well as a vast amount of video games. The company also offers Xbox Live, an online gaming service that enables multiplayer gaming and provides access to digital content.	Series X - £449.99 (1TB) Series S - £299.99 (1TB)
Search Engines	Microsoft operates the Bing search engine, which competes with other search engines like Google, whilst also serving as a platform for search advertising.	Free
Internet Services	Microsoft provides various internet-related services, such as Outlook.com for web-based email, OneDrive for cloud storage, and MSN (Microsoft Network) for news and content.	Free
Devices	Although it is not the primary focus of the company, Microsoft has produced hardware devices like the Surface line of tablets and laptops, as well as accessories such as keyboards and mice.
Al & Research	Microsoft has heavily invested in artificial intelligence (AI) research and offers AI-related tools and services to developers and businesses to leverage AI capabilities.

From which place(s) are the offerings able to be purchased?

Offerings are available to be purchased though various channels, both in-store and online. This includes the Microsoft Store, Retail Stores and Online Retailers

What's the current strategy of the company?

Team

Chief Executive Officer: Satya Nadella

Executive Vice President/Chief Financial Officer: Amy Hood

Executive Vice President/Chief Commercial Officer: Judson Althoff

Executive Vice President/Chief Human Resources Officer: Kathleen Hogan

Executive Vice President/Chief Marketing Officer (Marketing and Consumer Business): Chris Capossela

Executive Vice President (Business Development, Strategy and Ventures): Christopher Young

President/Vice Chair: Brad Smith

Financials

Key Stats

Particulars	2020	2021	2022
Total Revenue	1,43,015	1,68,088	1,98,270
Growth Over Prior Year	13.65%	17.53%	17.96%
Gross Profit	96,937	1,15,856	1,35,620
Margin %	67.78%	68.93%	68.40%
EBITDA	65,259	80,816	97,983
Margin %	45.63%	48.08%	49.42%
EBIT	52,959	69,916	83,383
Margin %	37.03%	41.59%	42.06%
Earnings from Cont. Ops.	44,281	61,271	72,738
Margin %	30.96%	36.45%	36.69%
Net Income	44,281	61,271	72,738
Margin %	30.96%	36.45%	36.69%
Diluted EPS Excl. Extra Items	5.76	8.05	9.65
Growth Over Prior Year	13.83%	39.76%	19.88%

Income Statement

Particulars	2020	2021	2022
Revenue	1,43,015	1,68,088	1,98,270
Other Revenue	-	-	-
Total Revenue	1,43,015	1,68,088	1,98,270
Cost Of Goods Sold	46,078	52,232	62,650
Gross Profit	96,937	1,15,856	1,35,620
Selling General & Admin Exp.	24,709	25,224	27,725
R & D Exp.	19,269	20,716	24,512
Other Operating Exp., Total	43,978	45,940	52,237
Operating Income	52,959	69,916	83,383
Net Interest Exp.	89	(199)	47
EBT Incl. Unusual Items	53,036	71,102	83,716
Income Tax Expense	8,755	9,831	10,978
Net Income	44,281	61,271	72,738
Per Share Items	2020	2021	2022
Basic EPS	5.82	8.12	9.7
Weighted Avg. Basic Shares Out.	7610	7547	7496
Diluted EPS	5.76	8.05	9.65
Weighted Avg. Diluted Shares Out.	7683	7608	7540

Balance Sheet

Particulars	2020	2021	2022
ASSETS
Cash And Equivalents	13,576	14,224	13,931
Short Term Investments	1,22,916	1,16,032	90,818
Total Cash & ST Investments	1,36,492	1,30,256	1,04,749
Accounts Receivable	32,011	38,043	44,261
Other Receivables	-	-	-
Total Receivables	32,011	38,043	44,261
Inventory	1,895	2,636	3,742
Other Current Assets	11,517	13,471	16,932
Total Current Assets	1,81,915	1,84,406	1,69,684
Gross Property, Plant & Equipment	96,101	1,22,154	1,47,206
Accumulated Depreciation	(43,197)	(51,351)	(59,660)
Net Property, Plant & Equipment	52,904	70,803	87,546
Long-term Investments	2,965	5,984	6,891
Goodwill	43,351	49,711	67,524
Other Intangibles	7,038	7,800	11,298
Accounts Receivable Long-Term	2,700	3,400	3,800
Deferred Tax Assets, LT	6,405	7,181	13,515
Other Long-Term Assets	4,033	4,494	4,582
Total Assets	3,01,311	3,33,779	3,64,840
LIABILITIES
Accounts Payable	12,530	15,163	19,000
Accrued Exp.	7,874	10,057	10,661
Curr. Port. of LT Debt	3,749	8,072	2,749
Curr. Port. of Leases	2,156	2,753	3,288
Curr. Income Taxes Payable	2,130	2,174	4,067
Unearned Revenue, Current	36,000	41,525	45,538
Other Current Liabilities	7,871	8,913	9,779
Total Current Liabilities	72,310	88,657	95,082
Long-Term Debt	59,578	50,074	47,032
Long-Term Leases	16,627	21,379	25,331
Unearned Revenue, Non-Current	3,180	2,616	2,870
Def. Tax Liability, Non-Curr.	204	198	230
Other Non-Current Liabilities	31,108	28,867	27,753
Total Liabilities	1,83,007	1,91,791	1,98,298
Common Stock	80,552	83,111	86,939
Additional Paid In Capital	-	-	-
Retained Earnings	34,566	57,055	84,281
Treasury Stock	-	-	-
Comprehensive Inc. and Other	3,186	1,822	(4,678)
Total Common Equity	1,18,304	1,41,988	1,66,542
Total Equity	1,18,304	1,41,988	1,66,542
Total Liabilities And Equity	3,01,311	3,33,779	3,64,840

Cash Flow Statement

Particulars	2020	2021	2022
Net Income	44,281	61,271	72,738
Depreciation & Amort., Total	12,300	10,900	14,600
(Gain) Loss On Sale Of Invest.	(219)	(1,249)	(409)
Stock-Based Compensation	5,289	6,118	7,502
Other Operating Activities	507	636	(5,842)
Change in Acc. Receivable	(2,577)	(6,481)	(6,834)
Change In Inventories	168	(737)	(1,123)
Change in Acc. Payable	3,018	2,798	2,943
Change in Unearned Rev.	2,212	4,633	5,109
Change in Inc. Taxes	(3,631)	(2,309)	696
Change in Other Net Operating Assets	(673)	1,160	(345)
Cash from Ops.	60,675	76,740	89,035
Capital Expenditure	(15,441)	(20,622)	(23,886)
Cash Acquisitions	(2,521)	(8,909)	(22,038)
Divestitures	-	-	-
Invest. in Marketable & Equity Securt.	6,980	2,876	18,438
Other Investing Activities	(1,241)	(922)	(2,825)
Cash from Investing	(12,223)	(27,577)	(30,311)
Total Debt Repaid	(5,518)	(3,750)	(9,023)
Issuance of Common Stock	1,343	1,693	1,841
Repurchase of Common Stock	(22,968)	(27,385)	(32,696)
Common Dividends Paid	(15,137)	(16,521)	(18,135)
Other Financing Activities	(3,751)	(2,523)	(863)
Cash from Financing	(46,031)	(48,486)	(58,876)
Foreign Exchange Rate Adj.	(201)	(29)	(141)
Net Change in Cash	2,220	648	(293)

Ratios

Particulars	2020	2021	2022
Profitability
ROA	11.3%	13.8%	14.9%
ROC	17.0%	20.6%	22.2%
ROE	40.1%	47.1%	47.2%
ROCE	40.1%	47.1%	47.2%
Margin Analysis
Gross Margin %	67.8%	68.9%	68.4%
EBITDA Margin %	45.6%	48.1%	49.4%
EBIT Margin %	37.0%	41.6%	42.1%
Net Income Margin %	31.0%	36.5%	36.7%
Asset Turnover
Total Asset Turnover	0.5	0.5	0.6
Fixed Asset Turnover	3.0	2.7	2.5
Accounts Receivable Turnover	4.6	4.8	4.8
Inventory Turnover	23.3	23.1	19.6
Short Term Liquidity
Current Ratio	2.5	2.1	1.8
Quick Ratio	2.3	1.9	1.6
Avg. Days Sales Out.	78.7	76.1	75.8
Avg. Days Inventory Out.	15.7	15.8	18.6
Avg. Days Payable Out.	87.3	95.4	97.8
Avg. Cash Conversion Cycle	7.1	-3.5	-3.5
Long Term Solvency
Total Debt/Equity	69.4%	57.9%	47.1%
Total Debt/Capital	41.0%	36.7%	32.0%
Total Liabilities/Total Assets	60.7%	57.5%	54.4%

Valuation

What is the expected return of an investment in the company?

The Stockhub users estimate that the expected return of an investment in the company over the next five years is 47%, which equates to an annual return of 8%. In other words, an £1,000 investment in the company is expected to return £1,470 in five years time. The assumptions used to estimate the return figure can be found in the table below.

What are the key assumptions used to estimate the return?

The key assumptions used to generate this prediction include the discount rate, revenue estimates and the perpetual growth rate. Considering that the company is at maturity we would typically use a lower discount rate to account for the fact we do not expect to see large scale growth in the company. Below we have detailed relevant discount rate values for companies in the varying growth stages.

Description	Value	Commentary
Which valuation model was used?	Discounted Cash Flow	Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that he Stockhub users suggest to use here. Microsoft does pays cash dividends, however the companies ability to pay these dividends is not a point of concern. Accordingly, the Stockhub users suggest using the free cash flow valuation method (rather than the dividend discount model).
Which Financial forecasts were used?	Avg. estimates taken from Yahoo Finance	We have used experts forecasts to predict revenue over the next two years.
Growth Stage 1 (Startup)
Discount Rate(%)	30%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of Success(%)	70%	Research suggests that for a company in this growth stage (i.e. stage 1), the rate is suitable 70% of the time.
Growth Stage 2 (Growth)
Discount Rate(%)	15%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of Success(%)	80%	Research suggests that for a company in this growth stage (i.e. stage 2), the rate is suitable 80% of the time.
Growth Stage 3 (Maturity)
Discount Rate(%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of Success(%)	100%	Research suggests that for a company in this growth stage (i.e. stage 3), the rate is suitable 100% of the time.
Growth Stage 4 (Renewal/Decline)
Discount Rate(%)	<10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of Success(%)	100%	Research suggests that for a company in this growth stage (i.e. stage 4), the rate is suitable 100% of the time.

Other Key Inputs

Description	Value	Commentary
Market Capitalisation
Current Market Capitalisation	2.593T	As at 27th July 2023, the current value of Microsoft Corporation is £2.593 Trillion.
Which time period do you want to use to estimate the expected return?	Between now and five years time	Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years. Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.
Perpetual Growth Rate
Perpetual Growth Rate used(%)	2.5%	The OECD suggests that the global economy is expected to grow by approximately 2.7% in 2023, to be conservative the StockHub user suggests a value of 2.5%.

References

https://www.organimi.com/organizational-structures/microsoft/#:~:text=Despite%20being%20such%20a%20huge%20organization%2C%20Microsoft%20has,Vice%20President%20for%20Business%20Development%2C%20Strategy%2C%20and%20Ventures.