Microsoft

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Feb 20, 2024

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Microsoft Emily Stewart, Rajit Singh, Danny Smajlaj, and Jake Teto 12/14/2023 Corp Financial Strategy FIN675

Given Description: Microsoft was founded in 1975. Our mission is to enable people and businesses throughout the world to realize their full potential by creating technology that transforms the way people work, play, and communicate. We develop and market software, services, and hardware that deliver new opportunities, greater convenience, and enhanced value to people's lives. We do business worldwide and have offices in more than 100 countries. We generate revenue by developing, licensing, and supporting a wide range of software products and services, by designing and selling hardware, and by delivering relevant online advertising to a global customer audience. In addition to selling individual products and services, we offer suites of products and services. Our products include operating systems for personal computers ("PCs"), servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. We also design and sell hardware including the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 accessories, and Microsoft PC hardware products. We provide consulting and product and solution support services, and we train and certify computer system integrators and developers. We also offer cloud-based solutions that provide customers with software, services, and content over the Internet by way of shared computing resources located in centralized data centers. Cloud revenue is earned primarily from usage fees and advertising.

Description: Microsoft Corporation is a market leader in technology and one of the world’s largest corporations that was established by Bill Gates and Paul Allen in 1975. Microsoft, which has its headquarters in Redmond, Washington, has been instrumental in influencing the development of technology around the world. Microsoft is well known by everyone for its hardware, software, cloud, and innovation focused offerings. The history of Microsoft began with the development of Altair BASIC, a programming language based on the microcomputer that was intended for Altair 80. This endeavor was remarkably successful, which inspired Bill Gates and Paul Allen to establish the company Microsoft. Five decades since then, Microsoft is still one of the leaders in technical innovations responding quickly to the developments in the market and moving technology forward. Microsoft is a pioneer in innovation and has continued to invest in R&D. In fields such as mixed reality, artificial intelligence, and quantum computer science the company has become a forerunner. Microsoft therefore maintains its frontier in innovation, specifically through programs such as Microsoft Research that focus on outward bounding technology limits. In addition to the company's innovativeness in technology, Microsoft regularly takes part in CSR programs. The organization’s priorities include sustainability, accessibility, diversity, and inclusion. Corporate social responsibility (CSR) at Microsoft goes beyond IT. Microsoft uses technological means to address social problems. Carbon neutral, Microsoft is a company that puts a premium on sustainability. Concurrently, it aspires to motivate while reducing its impact on the environment. Microsoft is committed to promoting diversity and inclusion. Using technology, the organization aims to empower all individuals. Microsoft uses inclusive design

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and assistive technology to reach a diverse audience all around the globe. One of Microsoft Philanthropies' primary goals is to help underprivileged areas become digitally inclusive through educational and technological means. The culture at Microsoft values diversity and tolerance because different viewpoints enhance problem-solving. The company treasures the many strengths of its employees and maintains a diverse workplace. One of the ways in which Microsoft’s AI for Accessibility initiative contributes to helping people with disabilities is by improving access to technology. To humanize the technology, Microsoft promotes innovation. It is evident from several of the company’s strategies like strong data protection and ethical practices. Microsoft strengthens its standing as a global leader in technology and corporate responsibility by participating in policy debates, leveraging lobbying. In conclusion, Microsoft has made a name for itself in the technology industry by consistently pursuing innovation and paying attention to how decisions will affect society. Its capacity to remain true to its core values in the face of constantly changing conditions is what drives its success. Microsoft has accepted its responsibility for shaping the future by implementing programs that promote inclusion, accessibility, and sustainability. The company understands that technology has the potential to be a powerful force. The company is committed to using technology to improve the world, as seen by its ambitious ambitions to address environmental issues and promote a diverse and inclusive workplace.

Financial analysis for Microsoft: Table for the Ratios Test 2022 2023 Current Ratio 1.78 1.77 Quick Ratio 1.57 1.54 Debt to Equity Ratio 0.35 0.27 Receivable Turnover 4.82 4.56 Inventory Turnover 19.65 21.10 Net Profit Margin 36.69 34.15 Return on Assets 20.82 18.63 Price/Sales ratio 8.88 12.86 Dividends Payout Ratio 26.70 25.23

Figure 1: Graph for Microsoft ratios for 2014, 2017, and 2020

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Figure 2: Graph for Microsoft ratios for 2022 and 2023

Figure 3: Graph for ratios of Microsoft and Google comparison

Figure 4: Graph for the ratios of Microsoft and Apple comparison

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Liquidity Ratios: Microsoft's 2022 current ratio of 1.78 dropped only slightly to 1.77 in 2023, showing that the company is still in a good liquidity position. It is anticipated that Microsoft will be in this position for some years to come. The ratio shows that Microsoft has enough short-term assets to meet its short-term liabilities if it stays above one. Then there are the quick ratios, which were 1.57 in 2022 and dropped to 1.54 in 2023 (without including inventories). This shows that Microsoft can meet its immediate financial obligations without selling inventory, highlighting the importance of having cash or near-cash assets on hand. Financial Leverage Ratios: Regarding the company's debt-to-equity ratio, it decreased from 0.35 in 2022 to 0.27 in 2023. Even though there was a decrease, Microsoft's ratio is still considered excellent because the company is maintaining a stable financial structure without increasing its level of debt. This indicates that Microsoft may be choosing a more cautious approach to dealing with its finances. With this financial risk can be decreased, and stability can be improved with less reliance on debt funding. Additionally, it is clear that the funding leverage is being effectively managed when the ratio changes slightly. Because of this, analysts and investors typically view a constant debt-to- equity ratio as an indication of sound financial management. Asset Management Ratios: Since receivables are collected less frequently, the turnover rate of accounts receivable is shown to decrease from 4.82 in 2022 to 4.56 in 2023, indicating a larger delay before accounts receivable are turned into cash. If this keeps happening, circumstances will only become worse since cash flow may be affected since money that could have been paid sooner will now be

received later. Despite this, inventory management and holding cost reduction have been successful, shown by the fact that the rate of inventory turnover increased from 19.65% in 2022 to 21.10% in 2023. This shows that Microsoft can increase its cash flow by reducing capital allocated to inventories. Regardless of how minor these changes are, working capital and cash flow may be greatly impacted. Microsoft therefore makes a coordinated effort to improve the ratio of inventory to accounts receivable in order to maintain a strong working capital and liquidity position. Profitability Ratios: Given that Microsoft's net profit margin ratio dropped from 36.69 in 2022 to 34.15 in 2023, it is obvious that the company is less efficient at turning a profit from its revenue and that its profitability has declined as a percentage of revenue. Furthermore, given the drop in asset return from 20.82% in 2022 to 18.63% in 2023, it is evident that asset utilization has decreased. Because these two ratios demonstrate the company's ability to produce a profit and manage its resources effectively, high net profit margins and return on assets are typically viewed as positive indicators by stakeholders and investors. However, the decline shown in both ratios implies that Microsoft's performance in both areas has declined, which could concern investors. Market Value Ratios: Microsoft's Price/Sale ratio grew from 8.88 in 2022 to 12.86 in 2023, indicating the increased amount of money investors are willing to spend for each dollar revenue that is made by the company. This is caused by several factors, such as increasing investor confidence, growth estimates, and other positive elements of the company, are responsible for this. Also, Microsoft's dividend payout ratio which accounts for strategic uses and reinvestment was 26.70% in 2022

and dropped to 25.23% in 2023. The dividend payout ratio's reduction suggests that Microsoft is maintaining its financial flexibility, reinvesting more of its income domestically, and pursuing strategic initiatives. This may be perceived as a positive indicator, especially if investors think there are chances for the company to reinvest profits efficiently or if it is pursuing strategic projects that could increase shareholder value over the long run. A discounted cash flow model using company's free cash: Weighted Average Cost of Capital (WACC): For 2022: = (86939/364840 * 0.2383) + (198298/364840 * 0.1289 * (1 - 0.1898)) = 0.0966 For 2023: = (108674/456050 * 0.2383) + (247873/456050 * 0.1289 * (1 – 0.1211)) = 0.0931 Discounted Future Cash flows PVt = FCFt/ (1 + WACC)t For 2022: = 65149/ (1+0.0966)1 = 59,278.60 million For 2023: = 81436.25/ (1+0.0931)2 = 68732.99 million

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Recommendations: We believe it would be advisable to purchase additional Microsoft stock if the market price does not match intrinsic value. In the event that the market price falls short of intrinsic value, this could indicate that the stock is undervalued and represents an excellent chance to purchase. Keep in mind that there are numerous other factors to consider, and that discounted cash flow is just one of many tools available for investing. It is estimated that the stock price will be 59278.60 million in 2022 and 68732.99 million in 2023. The financial data suggest that Microsoft is taking great care to maintain its financial position, which is reassuring. They are making sure they are not dependent on debt and that most of their earnings are being reinvested in the business, which is a great indicator to buy their stock. It's also critical to keep in mind that every business is vulnerable to the effects of outside economic, technological, and geopolitical influences on the way it operates. Discounted Cash flow is a useful tool, but a comprehensive strategy that considers both quantitative and qualitative elements is the ideal way to make stock market decisions. Evaluating a business's adaptability and dedication to innovation is crucial. One of those companies that innovate and can change with the market to become more robust is Microsoft. To decide if Microsoft would be a promising investment for your portfolio, you need to think about what kind of risk strategy is ideal for you and look at all the available ratios.

Works Cited “Microsoft Corp.” Morningstar, Inc., www.morningstar.com/stocks/xnas/msft/valuation . Accessed 23 Jan. 2024. “Financial Review.” Business Description, www.microsoft.com/investor/reports/ar13/financial- review/business-description/index.html#:~:text=We%20develop%20and%20market %20software,in%20more%20than%20100%20countries . Accessed 23 Jan. 2024. Sivakumar, Bharath, and Bharath SivakumarStarted out to become a developer but felt at home in the home of startups. The journey started from a single novel. Been an entrepreneur since schooling days. Interested in coding. “The History of Microsoft.” Feedough, 23 Feb. 2023, www.feedough.com/the-history-of-microsoft/ . Bashar, et al. “Microsoft SWOT 2024: SWOT Analysis of Microsoft.” Business Strategy Hub, 14 Jan. 2024, bstrategyhub.com/swot-analysis-of-microsoft/.