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Microsoft PowerPoint PPT Presentation

Microsoft Hernan Vargas Josh Toppass Elena Maduro Jose Lara Russell Clark Anna Schinas Background Analysis Microsoft Corporation was founded as a partnership in 1975 and incorporated in 1981. Mission Statement Microsoft’s product line Background Information Bill Gates

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Microsoft

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Microsoft l.jpg

Microsoft

Hernan Vargas

Josh Toppass

Elena Maduro

Jose Lara

Russell Clark

Anna Schinas


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Background Analysis

  • Microsoft Corporation was founded as a partnership in 1975 and incorporated in 1981.

  • Mission Statement

  • Microsoft’s product line


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Background Information

Bill Gates

  • Born on October 28, 1955

  • In 1973, entered Harvard University

  • Dropped out of Harvard his Junior year to devote his energies to Microsoft believing that the computer would be a valuable tool for everyone.

  • Philanthropy is important to Gates. He and his wife have endowed a foundation with more than $24 billion in support.

  • There is no family orientation in Microsoft


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7 Segments of Microsoft


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Industry Share Percentage


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Financial Ratios

A quick analysis of financial ratios indicates that Microsoft is out performing its industry.

Financial Strength

  • Quick and Current ratios are used to display the liquidity of a firm and its ability to pay off short-term debt. (QR=current assets less inventory over current liabilities, CR= current assets over current liabilities.)

  • Microsoft Industry S&P 500

  • Quick ratio 3.82 3.11 1.1

  • Current ratio 4.15 3.38 1.5

  • Advantage: Microsoft


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Financial Ratios

Price Ratios

  • The P/E ratio shows whether or not you’re paying an inflated price for your stock. (Price over earnings)

  • Microsoft Industry S&P500

  • 28.27 31.48 37.5

  • Advantage: Microsoft


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Financial Ratio

Investment Returns

  • ROE and ROI compare profit to ownership and inventory respectively to help show which company is getting you the most for your investment. (ROE=Earning after taxes over stock holders equity, ROI=earnings after taxes over total assets)

    Microsoft Industry S&P 500

    ROE 17.51 15.50 8.2

  • ROI 22.18 14.24 12.1

  • Advantage: Microsoft


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Financial Ratio

Management Efficiency

  • Inventory and asset turnover show the speed in which a firm can sell its inventory and capitalize on its assets. (Inv turnover=cost of sales over average inventory, total asset turnover= sales over total assets)

    Microsoft Industry S&P 500

  • Inv turnover 10.08 12.23 5.8

  • Asset turnover .44 .58 .3

  • No advantage


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Financial Ratio

Growth Rates

  • EPS or Earnings per share is the breakdown of how much the stock will earn for each share you own the greater the EPS the greater the value. (total earnings/total # of shares outstanding) Microsoft Industry S&P 500

  • 28 41.21 30.3

  • Advantage: Industry


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Microsoft

  • Microsoft’s share price is $24.93 and the average daily volume is 59.29 million. The market capitalization rate is 267.7 billion. The number of shares outstanding is 10.74 billion. This shows that Microsoft is a largest in the industry and no other company compares.


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Free Cash Flow and Cost of Equity

2002 2001 2000

  • Net income 7829 7346 9421

  • (+)Depreciation 1084 1536 748

  • (-)Capital Expenditures -90,156 -1103 -879

  • (-)∆ in working capital 7327 7952 9038

  • (+)∆ in long-term debt 1886 -191 1027

  • FCFE(Mil) 93,628 1842 3037


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Nonspecific News

Market Efficiency


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Company Specific News

Market Efficiency


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Risk Analysis

2002

  • Beta 1.05507

  • Unlevered Beta 0.882444394

  • Equity 52,180

  • Debt 15,466

  • Tax rate 0.34

  • K (required return on equity) 0.1083042


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WACC or last 3 Years

  • Wacc = WeKe + WdKd(1-T)

  • 2000 (.7933)(.1340)+(.2067)(.1142)(.6310) = .1212 or 12.12%

  • 2001 (.7980)(.1299)+(.2020)(.1511)(.6550) = .1237 or 12.37%

  • 2002 (.7714)(.2967)+(.2286)(.1139)(.66) = .2461 or 24.61%


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Capital Structure of Microsoft

  • debt = 20.67% equity = 79.33% (2000)

  • debt =20.20% equity = 79.8% (2001)

  • debt = 22.86% equity = 77.14% (2002)

  • The capital structure for Microsoft has been relatively stable for the past three years.


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Conclusion

  • Microsoft is a well-established company and a leader in its industry. Financial ratios indicate that Microsoft is out performing its industry as well as the S&P 500. However on the down side a unstable WACC leave investors with concerns. But despite these problems I feel that the strong business savvy of Bill Gates and Microsoft will be enough to weather any storm. The final analysis Microsoft is a bargain at $25.22 per share.


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