Gozali_Microsoft Case Study_5823

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1 Microsoft Corporation Case Study Trine University Finance 5823 Dr. Arlene Goodman January 16, 2023

2 Microsoft Corporation Case Study In this paper, we will be discussing what components are included in Microsoft’s financial statement in the second quarter of 2012 and the related findings regarding the included company metric, and what we can recommend for future forecasting regarding company profit, liabilities, assets, deficiencies, and so on. By the end of this paper, we will have a better understanding of the components of a financial statement and the variety of insights that can be extracted from these data to make our own analysis and recommendation. An income statement, known as a profit and loss statement, is part of the financial statement of a company that highlights the performance of a firm over a certain time period. It mainly displays key metrics that are related to sales, costs, and consequent profit or loss for a business. From Microsoft’s analysis we can interpret the data to see the changes for Year to Date (YTD) data ranging from revenue, Cost of Goods Sold (COGS), other income, and net income. Something that can be noted from the Income Statement is an increase of 6% YTD when comparing 2010 with 2011 from $36.1 Billion to $38.2 Billion and an increase in operating expenses of 11% from $20.8 Billion to $23 Billion. This indicated that the company is growing its sales and operating expenses went up as a healthy company would. A balance sheet is part of a financial statement that reports a company's assets, liabilities, and equity. It is used to understand the financial position of a company and can be useful in evaluating a company’s financial health. When looking at Microsoft’s Q2 Balance sheet, one could note the increase of goodwill by 56% from $12.5 Billion to $19.6 Billion from June to December 2011 respectively, and the increase of Intangible assets of 247% from $0.744 Billion to $2.5 Billion from June to December 2011 respectively. A cash flow statement is a financial document that reports the inflow and outflow of cash for a specific period of time. It shows the sources and uses of cash and helps investors and analysts understand a company's liquidity and financial flexibility. In Microsoft’s Q2 Financial statement, we can see the

3 increase of Net cash from the operation that increased by 16% from $ 12.8 billion to $14.4 Billion in 2010 YTD to 2011 YTD respectively. Cash and cash equivalents have also grown by 164% from $4 Billion to $10 Billion from 2010 YTD to 2011 YTD respectively. This can indicate that operations have generated more cash in comparison to the prior period and the company now has more cash in hand that can be used in future planning. Segment revenue refers to the revenue generated by a specific segment or division of a company. It is often used to evaluate the performance of different parts of the business. Operating income, also known as operating profit or operating earnings, is a financial metric that measures the profitability of a company's core business operations. When looking at Microsoft’s Q2 Balance sheet, consolidated segment revenue for Q2 YTD for 2010 to 2011 has increased by 6% from $36.1 Billion to $38.2 Billion, and operating income from those segments stayed the same within 1% differences from $15.28 Billion to $15.197 Billion. This indicated that while revenue from the segment has increased year over year, their income is still relatively the same, not growing at the same rate as their revenue. A historical income statement is a financial document that reports a company's financial performance over a period of time in the past. It is useful for analyzing trends and comparing performance to previous periods. Microsoft’s Financial statement contains income statements from 1992 to 2011 which can be used in forecasting revenue, expense, and every other aspect of the balance sheet. The historical data shows us that the average growth in the past 18 years is around 5% per year for total revenue and operating income has a growth rate of 18% in the last 18 years. With the data that we obtained from the Financial Statement, there are multiple ways that we can utilize that information to forecast the company’s profit, liabilities, assets, and deficiencies. As a starting point, consider financial statements and ratios from prior quarters. MacMorran, Jason (n.d.) explained in one of his presentations that trend analysis can be a powerful tool that can be coupled with a ratio analysis and industry trends. Ratio analysis can help understand and project Growth, cost control, asset turnover,

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4 profitability, and expose underlying risks, MacMorran, Jason (n.d.). Some examples of these ratios are growth ratios, cost control ratios, turnover ratios profitability ratios, and risk ratios. Including a sensitivity analysis to see how the company would respond to different changes in a certain variable in the projection model. Lastly, incorporating the Monte Carlo simulation to test the projection against certain random influences that can affect the outcome can be a useful tool in forecasting. In essence, forecasting can help companies anticipate future financial events and allow them to make informed decisions for long-term company success.

5 References Powell & Baker (2013). Chapter 5 PowerPoint, Financial Statement Modeling[PowerPoint slides], Wiley MacMorran, Jason (n.d.). Financial Modeling & Forecasting [PowerPoint slides], PNCPA