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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

Microsoft

Hernan Vargas

Josh Toppass

Elena Maduro

Jose Lara

Russell Clark

Anna Schinas

background analysis
Background Analysis
  • Microsoft Corporation was founded as a partnership in 1975 and incorporated in 1981.
  • Mission Statement
  • Microsoft’s product line
background information
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
financial ratios
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
financial ratios7
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
financial ratio
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
financial ratio9
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
financial ratio10
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
microsoft11
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.
free cash flow and cost of equity
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
risk analysis
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
wacc or last 3 years
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%
capital structure of microsoft
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.
conclusion
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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