Microsoft Corporation Research

Published: 2020-08-13 07:17:01
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Microsoft Corporation, universally known to as Microsoft is a multinational company and has its headquarters in Redmond, Washington. It is a technological firm that specializes in developing, manufacturing, licensing, supporting, as well as selling consumer electronics, software, PCs, as well as computer-related services. Having been founded by Bill gates and Paul Allen in 1975, the company has grown tremendously to become the largest software corporation internationally as per annual revenues generated, and thus, it is a valuable company on the world market scene. In 1975, the company developed and sold BASIC interpreters, but in subsequent years, the company rose to lead the PC OS market, specifically with MS-DOS, particularly in the mid 1980-s, which was followed by Microsoft Windows. Its ticker symbol is MSFT (Microsoft, 2015).

Being the dominant force in the manufacturing of PC OS, it has developed progressively developed the operating system from Windows Vista to most recently, windows 10. Microsoft products do not just stop at the OS market, the enterprise also supplies the technology market with variant products, which include Microsoft Office Software Suite, digital service market via msn, video game console Xbox, server and storage software, search engine Bing, CRM Applications, as well as digital music player, Zune. In 2012, the company started producing PCs with the launch of Microsoft Surface, which is a product line of tablets. Further, with Nokias acquisition move to form the Microsoft Mobile Oy, the company entered the smartphone hardware market, after Microsoft kin was acquired by Danger Inc (Microsoft).

Microsoft is the largest OS enterprise in the world. According to the 2014 annual report, the company had an approximate of 128,000 employees on full time basis as of June 30, 2014. 62,000 of these were based in the US and the remaining 68,000 were based internationally. Of the employed, 44,000 specialized in R&D, 30,000 in sales and marketing, 20,000 in manufacturing and distribution, 23,000 in product support and consulting services, and 11,000 in general and administration. Additionally, the common stock as traded on NASDAQ stock Market under the ticker symbol MSFT had 113,923 registered holders as at July 22, 2014. The Common Stock as NASDAQ (2015) purports reached a 52 week high of 50.045 and a low of 39.72. The dividend yield was 2.5855 while the annual dividends were $1.24. The P/E ratio was 36.21 while the outstanding shares was 7,997,980,969.

Industry

Microsofts technological industry is highly dynamic and competitive, and has frequent changes and upgrades both from a business and technological perspective. As a matter of fact, an industry shift provides an opportunity for the companies to develop new technologies, products, and even ideas that can be replicated in the service delivery and product innovativeness, and thus, it further transforms the industry, thus Microsofts business. According to IBIS, the Software Publishing Industry is labor intensive for it spends an approximately 0.06$ on capital investments for every $1.00 spent on labor. As the IBIS database reports, most companies dealing with software products require limited capital goods, including office space and computers. This is because software is not tangible, and for this reason, it requires skilled employees with the technical knowhow of operating the software products, as well as a significant investment of time. The primary opportunity that companies in this industry, such as Apple and Microsoft have is that companies do not develop or encode their own software products, but instead prefer to outsource these services from companies that specialize in software development. The industry as IBIS reports, utilizes 32.9% of the revenues generated on employee remuneration, including salaries and wages. Being a highly intensive industry based on labor, the largest companies in this industry employ thousands of employees. As aforementioned, Microsoft in the 2014 annual report asserts that it employed around 128,000 employees on full-time basis. Combined with part-time employees, this figure could double, meaning that the industry is very labor intensive. However, smaller companies do employ fewer employees. As such, the number of workers employed depends on the market share of the company. The key opportunities present for future leveraging are digital work and life experiences, investing in cloud computing, as well as advancing the hardware and operating systems already in place.

Ratio Analysis

Ratio analysis mainly deals with quantitative analysis of a companys financial information, which usually comes from the enterprises financial statements or via share prices. As such, ratio analysis is important, and integral to financial analysis because they are important in providing input for comparing and evaluating a firm to its competitors or peers, and also, to an industry benchmark. They are crucial in providing vital signs that can be utilized in predicting and measuring the health of a corporation, and thus providing insight to investors, as well as enabling them to drill down to a companys operational aspects. For instance, some of the ratios may show that the company is largely profitable, but closer look to other ratios reveals that it does not use its inventory effectively, or even showing that the cash flows are not consistent as expected. Therefore, this allows the investors to make decisions pertaining to whether they can invest in a certain enterprise or not, usually based on analysis of these ratios. Microsofts ratios have been analyzed as follows:

Growth Rate Ratios

These are the ratios that typically represent the amount of increase of financial variables as gained over a specific timespan, for example, a year or in five-year period. In the context of investors, it is representative to compound annualized rate of growth of an enterprises earnings, revenues, macro concepts, as well as its dividends.

Net Income

According to MSN (2015), Microsofts net income in 2015 was -44.80, while that of the industry was -7.84. However, the quarterly net income for the same year was 1.80 while that for the industry was -127.97. This means that the company experienced a positive quarterly growth but a negative yearly growth. For this reason, it experienced growth over the year but as compared to the previous year, 2014, the company plunged significantly. As Morningstar (2015) reported, in the financial year 2o14, Microsoft reported a net income of 0.97. This shows how volatile the industry is. A simple change can dictate a substantial growth or loss to a company.

The net income, which is also referred to as the net profit, is a calculation which is useful in measuring the quantity of total revenues that have exceeded the total expenses for a certain period. As such, the net income has the capability of showing investors of the amount of revenues that Microsoft has been left with after all the expenses have been paid up. As such, it shows the amount of money that Microsoft has saved to pay off debt, as well as investing in new projects or distributing to shareholders, it is a bottom line measure primarily it appears at the bottom of Microsofts income statement.

As MSN and Morningstar showcase, the ration plunged between 2014 and 2015. This means that the company is not doing well, and thus, the growth rate reduced. It can be attributed to volatility of the market, as well as fierce competition in the market for computer related technologies. It is not advantageous for an investor to invest in a company experiencing decreasing net income because the dividends will be very little owing to less profits.

Sales Revenue

According to MSN, the quarterly sales revenue for Microsoft was -12.20% while that of the industry was -5.12%. On a 5-year annual average, this ratio improves to 8.41% while that of the industry improved to 22.60%. From this, it is clear that on a quarterly basis, the revenues are reducing significantly. On a five-year basis, the company is not doing well as the industrys average benchmark.

Microsoft generates its revenues from its operating activities, which entail software and product sales, as well as IT related services. These exists in a companys income statement. As such, when the sales revenue are calculated, an investor can know whether a company is incurring losses or making profits. As such, from Microsofts revenues, it is clear that the company has done badly in terms of profits over the 2014-2015 quarterly period. It has done worse compared to the industrys average revenue benchmark, and thus, the company is making losses. As such, it is recommended that investors should look for alternative investors who are experiencing profits and not losses.

Price Ratios

These are ratios that value a companys current share price as compared to the per-share earnings. As such, it is important in determining how shares will yield profits in the future when an investor decides to invest in a specified time period.

Current P/E Ratio

According to MSN, the current P/E ratio for Microsoft is 35.21 while that for the industry is 27.70. As such, Microsoft is doing better compared to the industrys current P/E ratio. It is calculated on the basis of 12 months. It is acquired by dividing the market value per share with the earnings per share. The P/E ratio shows the dollar amount that an investor can expect when investing at Microsoft in order to obtain a dollar from its earnings. Therefore, as the P/E ratio for the company is higher compared to the industrys benchmark, this shows that Microsoft is highly valued and exceptionally well in relation to its past trends. As such, it is worthwhile for investors to buy stock from Microsoft compared to the other companies, because the company is well valued in the stock market.

Price/Sales Ratio

In accordance with MSN, Microsofts price/sales ratio is 4.77 while that of the industry benchmark is 4.19. This means that the company is doing well as compared to other firms in the industry.

The price/sales ratio compares a firms stock to the revenues it has amassed, and therefore, it is an indicator of each dollars value as placed on each dollar generated by its revenues or sales, usually based on a 12-month period. It is obtained by dividing the market capitalization of the firm to the total sales or per share by dividing the corporates stock price by the sales per share. As such, it would be wise for an investor to invest at Microsoft as it is doing better compared to its peers.

Profit margin

These ratios measure the profitability of a company, which is basically the capacity to make profits.

Pretax Margin

This refers to a firms earnings before tax as a percentage of the total revenues or sales. According to MSN, Microsofts pre-tax margin for 2014-2015 was 19.97 while that of the industrys average benchmark was 21.67. This means that the company is making huge amounts of profits, but not as compared to the other firms in the industry, who are doing significantly better. As such, it is wise that an investor invests at Microsoft, but wiser, if he chooses a company doing much better than Microsoft.

Net profit margin

It refers to the ratio of net profits to that of revenues for the company, which is achieved by dividing the firms net profit by its revenue. As MSN reports, Microsofts net profit margin is 13.52%, while that of the industrys benchmark is 14.82. As such, it can be deduced that some few companies are having better profit margins compared to Microsoft. However, the company is doing well in terms of profit generation. For investors, it is a good indicator that the company is worth the investment because it shows that the company has higher capital reserves, an...

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