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Microsoft

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  1. Microsoft Hernan Vargas Josh Toppass Elena Maduro Jose Lara Russell Clark Anna Schinas

  2. Background Analysis • Microsoft Corporation was founded as a partnership in 1975 and incorporated in 1981. • Mission Statement • Microsoft’s product line

  3. 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

  4. 7 Segments of Microsoft

  5. Industry Share Percentage

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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.

  12. 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

  13. Nonspecific News Market Efficiency

  14. Company Specific News Market Efficiency

  15. 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

  16. 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%

  17. 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.

  18. 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.