Microsoft Corporation (MSFT)
Microsoft Corporation (MSFT) is a multinational technology firm best known for its
software, which includes the widely used Windows operating system. Microsoft's extensive
portfolio includes products ranging from productivity software to cloud computing services.
Because of its strong position in the technology business, the corporation has become one of the
world's largest by market capitalization. Microsoft continues to innovate and expand its solutions
in order to meet the changing demands of businesses and people throughout the world (Microsoft
Corporation 2012 Annual report).
Microsoft Balance Sheet
Item
Fiscal Year 2022
Fiscal Year 2021
Total assets
$364.840 billion
$333.779 billion
Cash and cash equivalents
$13.931 billion
$14.224 billion
Accounts receivable
$44.261 billion
$38.043 billion
Inventory
$3.742 billion
$2.636 billion
Total liabilities
$198.298 billion
$191.791 billion
Long-term debt
$47.032 billion
$50.074 billion
Item
Fiscal Year 2022
Fiscal Year 2021
Total assets
100%
100%
Cash and cash equivalents
3.81%
4.26%
Accounts receivable
12.08%
10.73%
Inventory
1.02%
0.83%
Vertical Analysis:
Total liabilities
53.84%
51.42%
Long-term debt
12.60%
14.86%
Shareholders' equity
45.62%
49.58%
Source: https://www.microsoft.com/en-us/Investor/earnings/FY-2022-Q4/balance-sheets
The biggest slice of the pie for the total assets in fiscal years 2022 and 2021 was the total
liabilities, which made up around 54% and 51% of the assets respectively. This suggests that a
substantial chunk of the assets was funded by liabilities.
The percentage of cash and cash equivalents to total assets fell from 4.26% to 3.81% in 2022.
This shows a lower proportion of cash and cash equivalents in the entire asset base.
The percentage of accounts receivable was 10.76% in 2021 and it went to 12.11% in 2022. This
increase shows that there are more assets held in outstanding client debts, which might indicate
that credit conditions or collection efficacy have been adjusted.
Inventory: The inventory share remained relatively stable, growing from 0.82% in 2021 to 1.02%
in 2022. This indicates that inventory management receives a consistent allocation of assets.
Long-term debt appears to have decreased from 14.96% in 2021 to 12.60% in 2022 as compared
to total assets. This reflects a decrease in the share of long-term debt. On the other hand, the
percentage of shareholders' equity increased, rising from 48.57% in 2021 to 45.77% in 2022.
This implies that a greater proportion of assets were backed by shareholder equity.
Horizontal Analysis
Item
Fiscal Year 2022
Fiscal Year 2021
Net sales
$198,270
$168,088
Gross profit
$135,620
$115,856
Cost of goods sold
$62,650
$52,232
Operating expenses
$83,383
$69,916
Net income
$72,738
$61,271
Source: https://www.microsoft.com/en-us/Investor/earnings/FY-2022-Q4/segment-revenues
Item
Fiscal Year 2022
Fiscal Year 2021
% Change
Net sales
$198,270
$168,088
17.97% Increase
Gross profit
$135,620
$115,856
17.05% Increase
Cost of goods sold
$62,650
$52,232
19.98% Increase
Operating expenses
$83,383
$69,916
19.28% Increase
Net income
$72,738
$61,271
18.74% Increase
The horizontal analysis shows the percentage change in each item between fiscal years 2022 and
2021. When compared to the previous year, net sales, gross profit, cost of goods sold, operating
costs, and net income all increased significantly.
Ratio Analysis
Ratio
Fiscal Year 2022
Fiscal Year 2021
Current ratio
1.7846
1.7216
Quick ratio
1.9
2.21
Debt-to-equity ratio
0.2202
0.2607
Return on equity
68.4017%
68.9258%
Source: https://www.macrotrends.net/stocks/charts/MSFT/microsoft/quick-ratio
The enhanced short-term liquidity can be seen in the slight improvement of the current ratio.
However, there is a reduced ability to cover short-term obligations without relying on inventory
as indicated by the decrease in the quick ratio. The decrease in the debt-to-equity ratio suggests a
lower level of debt in comparison to equity. Shareholders' investments continue to generate high
profits, as shown by the high return on equity. The company's financial position is relatively
stable with adequate liquidity and favorable returns. However, a comprehensive assessment of
the company's performance necessitates further examination of other financial indicators.
Conclusion
Vertical analysis: Over the years, the firm has consistently increased important financial
measures such as net sales, gross profit, and net income. This shows that revenue creation and
profitability are on the rise.
Horizontal analysis: The company's net sales, gross profit, operational expenditures, and net
income have all increased year over year. These enhancements point to more effective cost
management and overall financial progress.
Ratio analysis: The current and quick ratios suggest solid short-term liquidity, whilst the debt-toequity ratio indicates a declining amount of debt relative to equity. The company's return on
equity is also excellent, suggesting its capacity to create returns for shareholders.
Considering these characteristics, the firm looks to be financially sound. Investment decisions,
however, should not be made only on the basis of financial data. Investors must perform
extensive research, study market trends, weigh the company's competitive position, and assess
possible hazards. Seeking financial counsel is suggested in order to make educated investment
decisions that are matched with individual goals and risk tolerance.
References:
Microsoft Corporation 2012 Annual report. Business Description. (n.d.).
https://www.microsoft.com/investor/reports/ar12/financial-review/businessdescription/index.html