Microsoft

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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
• Microsofts 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. (QRcurrent assets less
  inventory over current liabilities, CR current
  assets over current liabilities.)
• Microsoft
  Industry SP 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 youre paying
  an inflated price for your stock. (Price over
  earnings)
• Microsoft Industry SP500
• 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.
  (ROEEarning after taxes over stock holders
  equity, ROIearnings after taxes over total
  assets)
• Microsoft Industry
  SP 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 turnovercost of
  sales over average inventory, total asset
  turnover sales over total assets)
• Microsoft Industry
  SP 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 SP 500
• 28 41.21
  30.3
• Advantage Industry

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Microsoft

• Microsofts 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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Market Efficiency

• Nonspecific News

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Market Efficiency

• Company Specific News

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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 SP 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.