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Fashion Institute of Design and Merchandising

Fall 2022

BUMT 4200: Financial Management

A Case Study Research and Analysis of Microsoft Corporation

By: Elizabeth Manriquez, Josefina McKinnon, Najila Miles, Yen Pham & Melanie

Pesqueira

December 6, 2022

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Table of Contents:

1. Introduction- Pg. 3

2. Major Findings- Pg.4

3. Implications on the Five Elements of a Business Model- Pg. 6

4. Historical Performance of the Firm- Pg.10

5. Current Financial Issues and Factors of the Firm- Pg.15

6. Financial Ratio Analysis- Pg.18

7. Assessment of Risk and Return on Capital Budget- Pg.28

8. Sales Forecasts Analysis and Implications on Cash Inflows- Pg.29

9. Recommendations and Solutions- Pg.30

10.Conclusion- Pg.32

11.Works Cited- Pg. 34

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1. Introduction:

Microsoft Corporation is an American global technology corporation located in Redmond,

Washington. It is one of the largest software companies in the world and develops, manufactures,

licenses, supports, and sells computer software, consumer electronics, personal computers, and

related services. Bill Gates and Paul Allen launched the firm in 1975, and it is now one of the

world's largest software corporations, with over 13,000 employees and a market valuation of

more than $541 billion, with a market capitalization of more than $1 trillion as of June 2020.

Satya Nadella, Microsoft's current CEO, oversees the senior leadership team and is in

charge of the company's strategy and operations. He is supported by six other executive officers:

Amy Hood, Chief Financial Officer, Kevin Turner, Jean-Philippe Courtois, Chief Technology

Officer and Chief Strategy Officer, Chris Capossela, Chief Marketing Officer and Executive Vice

President Judson Althoff, and Kathleen Hogan, Chief Human Resources Officer. The Board of

Directors of Microsoft is made up of eleven individuals, nine of whom are independent of the

firm. The Board of Directors is comprised of the following individuals: John W. Thompson,

Chairman of the Board; Satya Nadella, Chief Executive Officer; Reid Hoffman, Partner at

Greylock Partners; Maria Klawe, President of Harvey Mudd College; Dina Dublon, Member of

the Board of Directors of JP Morgan Chase and Company; G. Mason Morfit, President of Value

Act Capital; Satya Nadella, Chief Executive Officer; Charles H. Noski, Former Vice Chairman

of Bank of America; Helmu Investors and experts have applauded Microsoft's corporate

governance, with the majority of the Board of Directors being independent of the corporation.

This is critical for the corporation in order to maintain a balance of power among the Directors

and to preserve shareholders' interests. The Board of Directors is in charge of determining the

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company's strategic goals, approving management choices, and supervising the company's

financial performance.

Microsoft's Board of Directors is responsible for providing oversight of the company's

operations and strategic direction, as well as monitoring and evaluating the performance of the

executive leadership team. The Board works closely with the CEO and other senior management

to ensure that the company's long-term interests are being served, and provides advice and

counsel on a variety of topics. The Board also reviews and approves major corporate

transactions, such as mergers and acquisitions, and has the power to issue new shares of capital

stock. In addition to providing oversight of the company's operations, the Board of Directors is

also responsible for approving the annual budget, setting the compensation of senior executives,

approving the company's dividend policy, and approving stock repurchases. The Board also

reviews and approves the company's financial statements and ensures that the company is in

compliance with applicable laws and regulations.

2. Major Findings:

● Between the years of 2018-2022 Microsoft has seen a steady growth in revenue due to

their new acquired systems like GitHub and ZeniMax Media. They have also seen

continued growth due to their server products and cloud services.

● Despite Microsoft's continued growth in the operating systems market they continue to be

second place to Android the operating systems market leader.

● In the year 2021 and 2022 Microsoft saw a 0.4 and a 0.3 decrease in their current ratio.

However, due to Microsoft's growing assets it is not predicted that this decrease will

affect them deeper in their finances.

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● Compared to their competitors Apple and Oracle Microsoft has better key factors with a

3.85 weighted score compared to Apple’s 3.65 and Oracle’s 3.22.

● Based on the Competitive Factor Analysis Matrix there aren't any huge gaps in the

computer software market. The competitor that has the biggest gap between the

competitors is Oracle.

● Microsoft's Gross Margin between the years 2020 to 2022 have remained pretty stagnant.

In the year 2020 it had a 68% gross profit and in 2021 Microsoft saw a 1% increase but it

decreased 1% in 2022.

● Microsoft's Net Profit Margin between the years 2020 to 2022 have increased steadily. In

the year 2020 Microsoft had a 31% net profit margin but in 2021 they saw a 5% growth

and 1% growth in 2022. This steady growth shows that Microsoft has remained very

profitable despite outside factors like competitors and the Covid-19 pandemic.

● Despite consistent growth in revenue Microsoft has a continued decrease in market share

percentage.

● Based on the Net Profit Margins Microsoft compared to competitors like Apple and

Oracle has a higher percentage of profitability than competitors. Using the 2022 data

Microsoft has a 37% net profit margin whereas Apple has 25% and Oracle has 26%. This

proves that Microsoft has a better advantage in the market.

● A negative impact that Microsoft has had to deal with is tax penalties and new tax laws

like the TCJA. The TCJA law forced them to pay a one time 15.5% fee and prevented

them from moving their finances overseas to avoid paying taxes.

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3. Implications on the Five Elements of a Business Model:

Who it Serves:

Microsoft has been serving individuals, businesses, students, gamers, and computer

owners of all ages since 1975. Its key markets are both the individual consumer and enterprises

globally. Microsoft products are available in over 190 countries across the world and stand by

their promise of achieving more together for all their customers and employees (LinkedIn,

Microsoft, 2022).

What it Provides:

Microsoft’s biggest focus is to create software and cloud services via their Microsoft apps

and their Office 365 Suite, as well as operating systems. Some of their most popular and widely

used programs include Word, Outlook, Excel and Teams. Secondly they provide hardware,

devices and third gaming, and gaming systems through Xbox (The Business Model Analyst,

2022). Through these outlets to provide a wide portfolio of services that connect people and

allow businesses all over the world to operate more efficiently.

How Microsoft Makes Money:

Microsoft has several different revenue streams including retail wholesale, e-commerce,

subscription services, and partnerships with app developers. Subscriptions are a huge part of

their revenue model and have changed the way they plan their business (The Business Model

Analyst, 2022). As part of these, they have a tremendous amount of proprietary software that

has allowed them to maintain a strong stake in the market and a reputation for reliability.

How it differentiates itself and sustains competitive advantage:

Microsoft Corporation differentiated themselves by the consistency and reliability of their

brands: Microsoft, Windows, Xbox, Skype, Bing, Azure and Office. Over 1.2 billion people

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globally use a Microsoft product regularly (Financial Post, 2021). They have also differentiated

themselves by being a reliable partner within the tech industry to other hardware providers and

app developers who use their products and vice versa.

Competitive Factor Analysis Matrix

Microsoft

Corporation

Apple Inc. Oracle

Corporation

Key Success

Factors

Weight Rating Weighted

Score

Rating Weighted

Score

Ratin

g

Weighted

Score

Low Price 0.15 4 0.6 3 0.30 4 0.60

Good Quality 0.15 4.5 0.675 4.5 0.675 4 0.60

Range of Products 0.10 4.5 0.45 4.5 0.45 3 0.30

Brand Equity 0.15 4 0.6 4.5 0.675 3.5 0.525

Variety of

Distribution

Channels

0.10 3.5 0.35 4 0.40 3 0.30

Market Share 0.15 3.5 0.525 4 0.6 2.5 0.375

International Market 0.10 3.5 0.35 4 0.40 2.5 0.25

E-commerce 0.10 4 0.4 4.5 0.45 3.5 0.35

Total 1.0 3.95 3.95 3.3

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Analysis:

Looking at the three companies there are a few things that stick out. Starting with the first

factor Pricing, Apple Inc. and Oracle Corporation have similar pricing on their cloud services,

Microsoft Corporation’s pricing has a wider range but comes with access to all of their apps and

services. From a hardware standpoint, Microsoft Corporation beats Apple significantly. All three

companies are known for quality and reliability, Oracle scores slightly lower just due to lower

recognition. Looking at their range of products, both Apple Inc. and Microsoft Corporation

score high as they play in multiple categories and offer a wide range of goods and services to

their customers. For brand equity, Apple wins for name recognition and overall strongest brand

awareness. Microsoft is still a strong brand name but their decline in market share is an

important factor here.

Looking into the variety of distribution channels Apple Inc. wins as they do, wholesale,

brick and mortar, e-commerce and apps. Microsoft is second here as they due have wide

distribution but no longer have brick and mortar stores. Oracle look sets here as they are all

wholesale and e-commerce. Apple wins in market share as they due have the strongest market

share from a device perspective, however Microsoft does have a stronger cloud presence as they

license to businesses at a much larger scale than Apple Inc. (The Verge, 2021). Internationally,

Apple Inc. wins, Microsoft is a close second and Oracle scores lowest as they do not have as

strong of an international presence in the consumer sector. In e-commerce all three firms have

strength, but Apple wins due to their App Store and variety of apps and services made just for

their products.

Overall in this analysis, Microsoft Corporation and Apple Inc. are neck in neck, birth

scoring 3.95. Oracle is a much lower 3.3 due to less diversity of products and lower brand

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awareness. As we dive into the historical analysis in section four, similarities will be drawn in

market share and understanding how these factors play into the analysis of the firm.

How it provides products and services:

Microsoft provides its products and services online and through wholesale partners. The

firm made the decision in 2020 to close all of their brick and mortar retail stores. They have

instead decided to focus on building strong partnerships with large retail chains both in their

selling Microsoft products or contracting Microsoft to help them streamline and improve their

internal technology through large contracts with Microsoft. Some of these include Gap Inc.,

Kroger, Walmart, and Walgreens (The Verge, 2021). Another way they are innovating how they

provide to their customers is through experience stores launched in 2021 in New York and

London. These stores are not so much meant to sell products as to create an experience with the

customer and allow the customer to interact with Microsoft products.

Vulnerabilities and Weaknesses:

Microsoft Corporation has had consistent growth in revenue but has continually

decreased in market share over the past five years. The brand has had to learn to balance their

reputation for being reliable with being relevant to younger generations (The Verge, 2021). As

Microsoft begins to make pivots in their business regarding how they show up to market, closing

retail stores, focussing on cloud services and corporate partnerships, they need to address their

stake as a household name for future generations. Younger customers are becoming more reliant

on Google and Apple cloud services, which is a threat to Microsoft’s total market share and long

term growth (Microsoft10-K, 2022).

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4. Historical Performance:

Analysis

2017-2018- Although not depicted above in the chart, in the year 2017 Microsoft had a revenue

of $95,571 and in the year 2018 they saw a 14% increase in revenue. This increase was due to

their Commercial Cloud revenue,which included Microsoft Office 365 Commercial, Microsoft

Azure, the commercial portion of LinkedIn, Microsoft Dynamics 365, and other commercial

cloud properties, increased by 56% to $23.2 billion. 2017 was also the second year that

Microsoft included their LinkedIn acquisition in their financials, which contributed to $5.3

billion of the company’s revenue. Windows commercial revenue also increased by 12% due to

increased volume of multi-year agreements(Microsoft,2018). In 2017 the United States enacted a

law called the Tax Cuts and Jobs Act (“TCJA”) . This law got rid of certain deductions related to

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preparing taxes such as tax preparation fees (Fontinelle, 2022). During the year 2018, Microsoft

recorded a $13.7 billion net charge due to the TCJA law.(Microsoft,2018)

2018-2019- The chart above illustrates that from 2018 to 2019 Microsoft had a net revenue

increase of 14%. This increase was due to their Commercial Cloud revenue; these properties

increased Microsoft’s commercial cloud revenue by 43% to $38.1 billion. The LinkedIn revenue

also increased by 15%, driven by the Dynamics 365 growth of 47%. Their Office consumer

subscribers increased to 34.8 billion which caused an increased revenue of 7%(Microsoft,2019).

During the fiscal year of 2018 in a $7.5 billion transaction Microsoft acquired GitHub inc. a code

hosting platform for version control and collaboration which lets users to work together on

projects from anywhere(Github.com,2022,pg.1). GitHub and Microsoft's server products and

cloud services revenue increased 25%, which was driven by the Azure growth of 72%. Also in

the fiscal year 2018 Microsoft recorded a $13.7 billion provisional net charge related to the

enactment of the TCJA law. In the second quarter of the fiscal year 2019 Microsoft adjusted their

net charge by recording an additional tax expense of $157 million and in the fourth quarter

transferred certain intangible properties held by foreign subsidiaries to the U.S. and Ireland,

which resulted in a $2.6 billion net income tax benefit(Microsoft,2019).

2019-2020- From the year 2019-2020 Microsoft also had a 14% increase in revenue despite the

beginning of the Covid-19 pandemic.In the fiscal year of 2020, the Covid-pandemic affected

Microsoft’s business operations like their employees, customers, partners, and communities.

However they were able to increase their revenues due to an increased demand in the

productivity, business processes and intelligent cloud segments.Microsoft's server products and

cloud services revenue increased 14% which was driven by the growth of the Dynamics 365 of

42%. Office Consumer products and cloud services revenue increased $458 million(11%) due in

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particular to an increase in subscription revenue and transactional strength from Japan. Also the

Office 365 consumer subscribers increased 23% to 42.7 million because of the increased demand

for remote work and learn scenarios amidst the Covid-19 pandemic(Microsoft,2020).

2020-2021-From the year 2020 to the year 2021 Microsoft saw an even bigger increase in

revenue than previous years with an 18% increase from the year 2020 to the year 2021. In the

fiscal year of 2021 Microsoft continued to deal with the impact of the Covid-19 pandemic which

benefited them in Cloud usage and demand as well as the consumer businesses. The Office

commercial products and cloud services increased 13% and the Office consumer products and

cloud services increased 10%. Also their Xbox content and services increased by 23%

(Microsoft,2021). In the fiscal year of 2021 Microsoft acquired ZeniMax Media which creates

and publishes original interactive entertainment content for consoles, the PC, and mobile

devices.(ZeniMax.com,2022) With this acquisition Microsoft acquired $768 million of cash and

cash equivalents.

2021-2022- From the year 2021 to the year 2022 Microsoft had the same percentage increase of

18% as the previous years. This continued increase is due to the Windows, LinkedIn, Dynamic

products and Microsoft Cloud. In the fiscal year of 2021 Windows personal computing increased

their revenue by $2.3 billion in Windows OEM and Windows commercial. This increase was

driven by the strength of the commercial PC market. In 2022 LinkedIn had more than 850

million members and also saw a revenue increase of 34%. The Dynamic products and cloud

services increased by 25%, driven by the Dynamic 365 growth of 39%(Microsoft,2022).

Microsoft introduced new Dynamic 365 connected spaces which helped organizations across

diverse industries manage their physical operations(Microsoft.com, 2022). As for Microsoft

Cloud, Microsoft introduced a new Microsoft Cloud for Sustainability which helped customers

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record, report, and reduce their environmental impact. The Microsoft Cloud revenue increased

by 32% to $91.2 billion. In the fiscal year 2022, Microsoft also acquired Nuance

Communications which is a cloud and artificial intelligence (“AI”) software provider with

healthcare and enterprise AI experience(Microsoft.com, 2022). This acquisition helped

Microsoft's revenue drive by 18%.

(Chart is based on Operating Systems Market Share)

Analysis

2017-2018- The graph above illustrates the market share for Microsoft in the operating systems

market. In this market Microsoft faces competitors like Android and IOS with Android being the

leader in the operating systems market.During the fiscal year 2018, Microsoft had one of the

highest percentage of market share in the years ranging from 2018-2022 with a 36.1%. The

success of Microsoft was mainly due to the release of an updated line of products in both the

hardware and software categories. They updated their existing line of Surface products by

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introducing the Surface Pro and the Surface Book 2 which offered higher clock speeds and

significant boosts in GPU. Microsoft also updated their Windows 10 software, which offered

new features like Windows Defender Exploit Guard and Files On-Demand(Vigo,2018).

2018-2019-From the year 2018 to the year 2019 Microsoft saw a decrease of 1.9% in market

share percentage. This decrease was due to some issues with the Windows 10 software deleting

customers' photos and files.Also in the fiscal year of 2018 stopped supporting Windows 7 which

had still retained 35% of Windows users. Despite these hardships, Microsoft was able to still

maintain a high market share and remain in second place following Androids 40.5% market

share. They were able to maintain this spot by acquiring new softwares like GitHub. They also

released Azure Sphere which is “a software/hardware stack designed to secure edge computing

devices”(Vigliarolo,2022). This acquisition showed that Microsoft is focused on building their

“Microsoft Cloud”.

2019-2020- From the year 2019 to the year 2020 Microsoft had the biggest drop in market share

percentage in the years ranging from 2018-2022. Microsoft had a market share percentage

decrease of 2.5%.During this time the Covid-19 pandemic was rising and despite Microsoft's

decreased market share percentage their cloud services were used to help fight the coronavirus

pandemic. Adaptive Biotechnologies Corp. and Microsoft used Azure, one of Microsoft’s cloud

systems “to map the immune system's response to threats, including COVID-19”. They also

created a bot “that asks users health questions to assess possible COVID-19 infections,which are

based on Microsoft's Healthcare Bot service and it uses artificial intelligence in the screening

process.” (Mackie,2020). During the fiscal year of 2020, Microsoft's priority was offering its

services to help combat and treat this pandemic that everyone dealt with. Using their cloud

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systems helped them maintain a high number in the operating systems market share percentage

despite competitors rising.

2020-2021- From the year 2020 to the year 2021 Microsoft saw a small decrease of 0.3% but it

wasn't the only one who saw a decrease. In the fiscal year of 2021 Android, Microsoft's biggest

operating software competitor also saw a decrease in Market Share. Android had a 2.1%

decrease in market share percentage. iOS (Apple) had an increase of 0.8% in market share

percentage. The increase in iOS operating software was mainly due to the Covid-19 pandemic

and people working from home.The use of Mac laptops increased by 63% with the demand for

Apple products being 42% whereas other devices are at 11%(Evans,2021).

2021-2022- From the year 2021 to the year 2022 Microsoft saw a decrease of 2.4% and the

lowest percentage of market share in the past five years due to a continued decrease of users. In

early 2021 Microsoft introduced Windows 11 which is the newest operating system from

Microsoft that promised “Intuitive navigation, easy organization, and faster performance”

however, it has failed to make any users switch to it. The main issue that Microsoft is facing is

that many of their customers are unable to download the new operating system. Also, Microsoft

dropped some features that users enjoyed(Whitwam,2022). During the fiscal year of 2022,

Android, one of Microsoft’s biggest competitors in the operating system market, had the highest

market share percentage for the year.

5. Current Financial Issues:

Microsoft Corporation is a Multinational technology company in America that produces

consumer and computer electronics, among others. Microsoft Corporation provides product and

consulting support services and certifies and trains computer system developers and integrators.

Currently, Microsoft Corporation has faced various financial issues, which include the following;

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● Division of Securities

● Tax penalty

Competitive factors of Microsoft Corporation

● Strong Moat

● Intellectual Property

● Brand name

● Cloud business growth

● Innovation and artificial intelligence

● Partnerships and acquisitions

● Cost leadership strategy

Microsoft Cloud delivered its 2022 first quarter financial report on October 25th, 2022,

for the quarter ended September 30th 2022. The report as compared to last fiscal year's report,

was as follows. The Corporation had a revenue of 50.1 Billion Dollars which was an 11%

increase compared to the last report (Steinbaum & Marshall, 598). The operating income was

21.5 Billion Dollars which was a 6% increase to 15% constant currency. The net income of

Microsoft Corporation for the first quarter of the 2022 financial year was 17.6 Billion Dollars

which was a 14% decrease compared to the last financial report. The individual shares of the

financial earnings were 2.35 Billion Dollars which saw a 13% decrease.

The following is a deeper description of Microsoft's competitive factors and their

implication for the Company.

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● The strong moat is a source of competitive advantage for Microsoft corporation because

it protects the company from its rivals, enabling it to earn huge profits

● Intellectual Property, which includes Microsoft Corporations' proprietary software and

patents, also contributes to the depth of the Company's strong moat.

● The Brand name is a source of competitive advantage because it also plays a big part in

strengthening the moat.

● Artificial and innovation intelligence; Microsoft Corporation is a good example of a

multinational company with a great opportunity over its competitors to have many

innovative areas, for example, game technology. The Company has constantly invested in

such areas, which has been a source of its competitive advantage.

● Cloud business; Microsoft Corporation has incorporated cloud business over the last

years, which has seen vast growth. Thus, cloud business growth is a competitive

advantage of Microsoft Corporation because other companies do not have the skills to

venture into such an opportunity (Ahn & Sang, 120). Microsoft Corporation announced

in May 2020 that it would roll out a new version of its cloud software, aiming to cater to

the requirements of healthcare institutions.

● Acquisitions and partnerships are competitive advantages to Microsoft Corporation

because the Company can focus on venturing into new partnerships and strategic

alliances. Acquisitions and partnerships enable Microsoft Corporation to achieve a high

market share (Ahn & Sang, 120). Acquiring high-technology organizations by Microsoft

Corporation is a source of competitive advantage because it will enable it to grow its

profits. For example, Microsoft Corporation 2020 won a five year deal with Coca-cola

Company which entailed supplying Business related software.

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● The smartphone industry, another source of competitive advantage for Microsoft

Corporation, enables it to experience fast growth and maximize its profits (Ahn & Sang,

120). The tablet and smartphone market is growing fast, which has been a competitive

advantage for the Company since it can now capitalize on the rising demands of the

above products

6. Financial Ratio Analysis:

Current Ratio Formula:

Current Ratio = Current Assets / Current Liabilities

Current Ratio 2020 2021 2022

Microsoft Corporation 2.5 2.1↓ 0.4 1.8 ↓ 0.3

Apple, Inc. 1.4 1.1 ↓ 0.3 0.9 ↓ 0.2

Oracle Corporation 3.0 2.5 ↓ 0.5 3.0 ↑ 0.5

Analysis

Microsoft Corporation has seen a decrease in their current ratio over the past three years.

Their strongest was in 2020 at 2.5, as of 2022 it has decreased 0.7 to 1.8. This is still considered

positive from a financial perspective, although their liquidity has decreased, they are not in

danger of not being able to pay their bills presently, this is an important ratio to monitor in the

future.

Apple Inc. has also seen a decrease in liquidity over the past three years. Their strongest

in 2020 at 1.4 has now decreased by 0.5 to 0.9 in 2022. This is concerning for Apple Inc. as this

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can create a concern with their ability to pay their bills. Compared to Apple IncMicrosoft

Corporation, even with their decrease in liquidity is showing a much stronger current ratio by

almost a whole point.

Oracle Corporation has overall maintained their liquidity over this three year period.

They had a drop of 0.5 in 2021 but were able to bring their liquidity back up to the same amount

in 2022 as 2020. At 3.0, Oracle has the strongest liquidity of the three companies (Oracle 10-K,

2022).

Gross Profit Margin Formula:

Gross Profit= (Revenue – COGS) / Revenue

Gross Profit Margin 2020 2021 2022

Microsoft Corporation 68% 69% ↑ 1% 68% ↓ 1%

Apple, Inc. 38% 42% ↑ 4% 43% ↓ 1%

Oracle Corporation 80% 81% ↑ 1% 79% ↓ 2%

Analysis:

Over the last 3 fiscal years, Microsoft Corporation has been able to keep their profit

margins nearly flat. Although revenue has steadily increased, up 55 billion since 2020, their cost

of goods have gone up as well (Microsoft10-K, 2022). It is impressive given massive inflation

that they have been able to continue to grow sales and mitigate their cost increases. Although

they had a slight uptick in 2021 at 69%, they are back at 68% in 2022.

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Apple Inc. 's Business model, clearly being very different from Microsoft Corporation's,

lends them a much lower profit margin. What is interesting though, is that both companies saw

an uptick in their profit margin in 2021, and a decline in 2022. Apple however, has a better

overall improvement from 2020 to 2022 of 3% whereas Microsoft ends up technically flat to

2020. From a revenue standpoint Apple brings in far more revenue than Microsoft, Microsoft

has significantly higher profit margins.

Oracle Corporation has the strongest profit margins of all three competitors, but also

significantly lower revenues. They, like the other two firms, had an uptick in their gross profit

margin in 2021, and a decrease in 2022. They however have the biggest net loss of the three

firms, as they are the only firm that fell below their 2020 profit margin in 2022, declining 2%.

Net profit margin Formula:

Net Profit Margin= Net Profit after Taxes / Sales

Net Profit Margin 2020 2021 2022

Microsoft Corporation 31% 36% ↑ 5% 37% ↑ 1%

Apple, Inc. 21% 26% ↑ 5% 25% ↓ 1%

Oracle Corporation 19% 28% ↑ 19% 26% ↓2%

Analysis:

Microsoft Corporation in the last three years has been able to increase their net profit

margins by a total of 6%. The biggest increase was 5% in 2021. This is positive because their

gross margins stayed about flat but net they are doing much better. This shows that their

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operational spending is not outpacing their spend on product and giving them more cushion in

their bottom line, this is an area the company has paid specific attention to in recent years

(Microsoft10-K, 2022).

For Apple Inc. they have had an overall increase in net profit, even with a slight decrease

in 2022. They are still up 4% from 2020. At a net margin in 2022 their margins similar to that of

their gross margin is significantly below Microsoft Corporation. Apple leans heavily into the

wholesale market through their phones and computers. Their music and streaming services also

are low profit businesses affecting their overall margin (Apple 10-K, 2022). Microsoft on the

other hand has proprietary advantage through their subscriptions and cloud services. This helps

their overall bottom line.

Oracle Corporation has made a major comeback in their net profit. In 2020 they took

major hits to their net profit margin and have steadily increased it back up to 26%. What is

interesting about Oracle Corporation is that, of the three firms they had the highest gross margin

but comparatively the lowest net margins. A big reason for this is that they have very high

operating expenses. This eats away at their bottom line. Overall Microsoft Corporation is

winning in this category.

Return on Investment Formula:

Return on Investment= Net profit after taxes / total assets

Return on Investment 2020 2021 2022

Microsoft Corporation 15% 18% ↑ 3% 20% ↑ 2%

Apple, Inc. 18% 27% ↑ 9% 28% ↑ 1%

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Oracle Corporation 9% 10% ↑ 0.1 9% ↓ 1%

Analysis:

Microsoft Corporation has seen a slight increase in their ROI over the last three fiscal

years. In 2022 they are at 20% compared to 15% in 2020. This shows that they are investing

better into their business and creating stronger returns. A contributing factor for this is the

investment in cloud services and closing their brick and mortar operation. These things have

allowed Microsoft to focus on higher margin products and services and allowed them to cut their

operating expenses (The Verge, 2021).

Apple Inc. had a huge increase in ROI between years 2020 and 2021 of 9%. This has led

them to a total increase of 10% in this three year period. Compared to Microsoft Corporation,

Apple Inc. has a stronger ROI percentage. In other categories such as margin, Microsoft has a

stronger showing than Apple, but this shows that Apple has done a good job of investing in

things that add value to the business.

Oracle Corporation has a much lower ROI than the other two firms. Although they have

been able to keep this number close to flat, with only a slight uptick in 2021, then a return in

2022 to their 2021 numbers, they are still 11-17% lower than the other two firms. Meaning they

are not getting the same level of returns in what they are investing into the business.

Days of inventory Formula:

Days of Inventory= Inventory / (cost of goods sold / 365 days)

Days of Inventory 2020 2021 2022

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Microsoft Corporation 43 days 52 days ↑ 9 days 72 days ↑ 20 days

Apple, Inc. 9 days 11 days ↑ 2 days 8 days ↓ 3 days

Oracle Corporation xxx xxx xxx

Analysis:

For the days of inventory model, these three firms have very different strategies for how

much inventory they hold. Starting with Microsoft Corporation, they have increased their days of

inventory by nearly 30 days within the three year period. Because of this they are not turning as

quickly and averaging higher than the industry. This is probably making Microsoft less liquid

than they could be because they have too much inventory on hand.

For Apple Inc. they seem to be in a good place regarding the amount of inventory they

have on hand. Because their business is so wholesale focused, they are likely sending inventory

to their retail partners directly from their factories to help keep this number down. Although they

had a slight uptick in this number in 2021, this follows the retail industry as most firms had

inventory issues in 2021.They are now averaging 8 days inventory which is the lowest within the

3 year period.

Oracle has a very different type of product then the other two firms as they do not hold

actual product inventory. Due to the fact that they are a technology services company, this ratio

was not relevant to them as they do not sell physical products like the other two firms who sell

computers, phones and gaming systems.

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Average Collection Period Formula:

Average Collection Period = Accounts Receivable / (Total Net Sales/365)

Average Collection Period 2020 2021 2022

Microsoft Corporation 264 days 226 days ↓ 38 days 222 days ↓ 4 days

Apple, Inc. 21 days 26 days ↑ 5 days 26 days

Oracle Corporation 280 days 135 ↓ 145 days 185 days ↑ 80 days

Analysis:

For Microsoft Corporation, their average collection period average is showing very high.

They have made some progress in the last three years bringing this number down from 264 days

in 2020 to 222 days in 2022, this is still much higher than what is preferable. This is a concern

as it is affecting how liquid Microsoft is. If they were collecting on their receivables more

quickly it would improve their cash flow overall.

Apple Inc. is doing very well in their average collection period. Compared to Microsoft,

Apple is averaging 26 days in 2022. This is up from 2020 by 5 days but still very strong as they

are collecting their receivables on average in less than a month. Microsoft should look to

improve their terms in order to shorten their window and better compete with Apple Inc.

Oracle Corporation similar to Microsoft Corporation is not doing as well collecting their

receivables. They have made a lot of progress from 2020, down almost 100 days, but these

numbers are still much higher than they should be. They like Microsoft would benefit from

improving their collection terms to help improve these numbers.

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Fixed Asset Turnover Formula:

Fixed asset turnover = sales / fixed assets

Fixed Asset Turnover 2020 2021 2022

Microsoft Corporation 1.2 1.1↓ 0.1 1.0 ↓ 0.1

Apple, Inc. 1.5 1.7 ↑ 0.2 1.8 ↑ 0.1

Oracle Corporation 0.6 0.6 0.6

Analysis:

For all three companies asset turnover is a bit low, this could be in part because they

provide many services in addition to tangible products. For Microsoft Corporation, their asset

turnover has gradually decreased over the last three fiscal years to 1.0 in 2022. This points to

that Microsoft is not efficiently using their assets to generate sales.

For Apple Inc. they have made steady increases in their asset turnover. This means

although they are still a little low, they are taking steps in the right direction regarding their sales

versus fixed assets. As Microsoft’s competitor, this is not positive because Microsoft is trending

in the opposite direction.

Oracle Corporation has the lowest asset turnover of all three firms. This makes sense due

to the type of business they have however it is still low. Although their numbers are not the best,

they have stayed consistent over the three year period at 0.6. This means they have their asset

turnover under control and are not dealing with a lot of volatility.

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Debt to Asset Ratio Formula:

Debt to asset ratio = total debt (liabilities) / total asset

Debt to Asset Ratio 2020 2021 2022

Microsoft Corporation 60% 57% ↓ 3% 54% ↓ 3%

Apple, Inc. 80% 82% ↑ 2% 86% ↑ 4%

Oracle Corporation 89% 79% ↓ 10% 89% ↑10%

Analysis:

Microsoft Corporation has made good strides to reduce their debt to asset ratio, dropping

a total of 6% since 2020 to 54%. This is positive as it means the firm is doing a better job

balancing their debt and assets. Their debt is still a bit high, but if they continue to decrease the

percentage that will be overall positive for their business.

Apple Inc. has had the opposite happen and their debt to assets has increased by 6% since

2020. This is not positive, additionally their ending percentage is much higher than Microsoft

Corporation at 86%. This means Apple’s debt is very high compared to their total assets and

they need to do better to lower their debt or hold assets that bring more value.

Similar to Apple Inc., Oracle Corporation has a very high debt to asset ratio ending at

89% in 2022. They are the highest of the three firms, and based on the 10% decrease in 2021,

they do not have a good handle on maintaining their assets or acquiring new debt (Oracle 10-k,

2022). This is a win for Microsoft corporation as they have the strongest showing in this area.

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Interest Coverage Ratio Formula:

Interest coverage ratio = earnings before interest and taxes (EBIT) / interest expenses

Interest Coverage Ratio 2020 2021 2022

Microsoft Corporation 6.1 7.2 ↑ 1.1 7.6 ↑ 0.4

Apple, Inc. 6.9 7.5 ↑ 0.6 6.2 ↓ 1.3

Oracle Corporation 6.1 5.9 ↓ 0.2 6.0 ↑ 0.1

Analysis:

Microsoft Corporation has seen a steady increase in their interest coverage over the last

three years. They are up 1.5 since 2020. Now at 7.6 this is positive for the firm as this is well

above what is considered good for businesses. This means their earnings are strong enough to be

able to cover their interest en pennes.

Apple Inc. has not been as steady in this vein, dropping by 0.7 since 2020. They had a

strong uptick in 2021 that looked very positive however, they had a sharp decrease in 2022.

They still overall have a good interest coverage ratio, so they are not in danger of being unable to

cover their bills, however it is something to monitor.

Oracle Corporation, has been close to consistent in their interest coverage. They have had

a slight drop since their 2020 numbers to 6.0 but have not been as volatile as Apple Inc. Looking

at all three firms, Microsoft has had the strongest growth and consistent upward trend in interest

coverage, therefore they are performing strongest in this category.

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7. Assessment of Risk and Return on CapitaL Budget:

Microsoft Corporation has implemented various projects which aid in its growth and

development. Some projects are fixed while others are intangible, for example, the 10-k Project

or, in other words, the annual report. 10-k is a form of Project by the Microsoft Corporation; it is

generally a form that contains the annual reports of the Business (Ahn & Sang, 120). 10-k

Project provides a comprehensive report of the Company's growth and development; in other

words, it offers the current state or financial condition, which helps the business plan for future

developments.

The 10-k value can add value to Microsoft organization by providing valuable

information regarding the state or financial condition of the Business. When a business is

provided with a clear report of its financial state, it can plan for changes (Zutter & Chad et al.,

13). For example, when the report shows a decrease in revenues and profit in the recent report,

the business owners can plan for changes; in other words, make changes where need be.

The 10-k Project poses a cyber-security and fraud risk. While preparing the report, the

high-profile officers can access sensitive information, which they can use to destroy the

Company (Zutter & Chad et al., 19). For example, they can use passwords to access more

sensitive information and steal huge amounts of money, which can be a loss to the Company.

Therefore, people should be extra keen when handling the 10-k Project.

Microsoft Corporation can mitigate the risks associated with the 10-k Project by ensuring

that the officials who handle the Project are trustworthy or, in other words, include only people

who can be trusted. Secondly, the Company should ensure the setting of strong passwords to

ensure that fraudsters do not access sensitive information (Zutter & Chad et al., 6). Another thing

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the Company can do to mitigate such risks is to ensure regular system check-ups. Systems should

always undergo regular check-ups to ensure they do not give room for fraud or cyber security.

8: Analysis of Sales Forecast for Current Year and Beyond:

Microsoft is expecting its financial performance to remain strong for the coming year,

driven partly by sustained demand for its established products such as Windows and Office, and

partly by increased adoption of its cloud services such as Azure and Office 365. This is

evidenced by the company's latest financial results, which show impressive growth in revenue

among many of its core offerings. In addition, Microsoft is also investing heavily in new

technology and services, such as artificial intelligence and machine learning, to further enhance

its customer experience. Microsoft has clearly demonstrated that it is well-positioned to

capitalize on the increasing demand for cloud-based solutions and services. In addition,

Microsoft expects to see growth from its gaming division, which recently acquired Ninja Theory

and Obsidian Entertainment, as well as its Dynamics 365 platform. This acquisition is part of the

company's strategy to expand into the gaming segment and capitalize on the growing demand for

interactive and immersive experiences. Microsoft is investing in new technology and services to

improve the customer experience, as well as creating partnerships with leading industry partners

to ensure that its solutions are well-supported. In addition, the company is continuously

innovating by investing heavily in research and development to ensure that its products are at the

cutting edge of technology.The company's latest financial results show impressive growth in

revenue among many of its core offerings, including Azure and Office 365. In addition,

Microsoft is also investing heavily in new technology and services, such as artificial intelligence

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and machine learning, to further enhance its customer experience. These new market openings,

coupled with Microsoft's continued focus on customer satisfaction, position the company for

continued success in the coming year.

Microsoft is expecting a strong performance throughout the first half of the year due to

the launch of its new products and services. These services are designed to meet customer

demands and provide solutions to everyday problems. With its innovative capabilities, Microsoft

is looking to set the standard in the tech space and become a leader in technology innovation.

The company is confident in these new products and services, as they have been thoroughly

tested and have received positive feedback from customers. However, the second half of the year

is expected to be somewhat slower due to the seasonal nature of the technology industry. Despite

this upcoming slower period, Microsoft is not worried. The company has implemented strategies

and plans to ensure their performance remains consistent throughout the year. With their robust

portfolio of products and services, along with the diligent efforts of their team, Microsoft is

confident that they will be able to weather any slow period and come out even stronger in the

second half of the year. Additionally, the company is relying on its research and development

teams to continue innovating new products and services that will drive more revenue and expand

their customer base.

9. Recommendations and Solutions:

According to the report, the firm should concentrate on raising profit margins, enhancing

liquidity, and reducing operational costs as part of its recommended directional approach. This

can be accomplished by making investments in cloud services, ceasing brick and mortar business

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activities, enhancing the terms of collection, and streamlining inventory management. To

increase their profit margins, Microsoft should invest in cloud services. With the use of cloud

services, businesses may store data and applications remotely, doing away with the need for

expensive hardware. In order to reduce their normal payment time and increase their liquidity,

Microsoft should work on improving their terms for payment. Microsoft could also improve

inventory management and cut down on the number of days that merchandise is kept on hand in

order to increase cash flow. The company should also concentrate on lowering its debt-to-asset

ratio, enhancing the turnover of its fixed assets, and raising its interest coverage ratio. To

improve their liquidity, Microsoft should work on reducing their debt-to-asset ratio. By reducing

their debt, Microsoft will be able to boost their cash flow and cut their interest expenses.

Additionally, Microsoft should focus on increasing their fixed asset turnover. By increasing their

turnover, Microsoft will be able to use its assets more efficiently and generate more revenue from

them. Microsoft should focus on increasing their interest coverage ratio. By increasing their

coverage ratio, Microsoft will be able to better manage their debt and ensure that their debt

payments are manageable. To reduce operating costs, Microsoft should concentrate on improving

their inventory management. By optimizing their inventory management, Microsoft will be able

to reduce the number of days that merchandise is on hand and improve cash flow. Microsoft

might focus on reducing their usual collection period. By reducing their collection time,

Microsoft will be able to lower their accounts receivable and boost their cash flow. Microsoft's

ultimate objective should be to increase fixed asset turnover. By increasing the turnover of their

fixed assets, Microsoft will be able to reduce costs and increase profitability. To ensure the

expected objectives are achieved, these strategies should be applied over a specific period of

time and monitored through key performance indicators (KPIs). KPIs including days of

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inventory, days of receivables, debt to asset ratio, fixed asset turnover, and interest coverage ratio

should be monitored to make sure the initiatives are having the desired results. Following the

deadline, the company should assess the success of the adopted tactics and make any necessary

adjustments. By focusing on increasing their profit margins, improving their liquidity, and

cutting their operational costs, Microsoft Corporation may be able to ensure their continued

success in the rapidly changing digital environment. Microsoft may ensure their competitiveness

and long-term viability by making strategic investments, eliminating physical facilities,

improving collecting procedures, and improving inventory management. The study's overall

conclusion is that Microsoft Corporation should develop a strategic strategy to ensure its success

in the quickly changing digital environment. By making strategic investments, closing brick and

mortar locations, enhancing collection terms, streamlining inventory management, lowering their

debt-to-asset ratio, increasing the turnover of their fixed assets, and raising their interest

coverage ratio, Microsoft can ensure that they stay profitable and competitive over the long term.

By correctly implementing and maintaining the proposed approaches, Microsoft can ensure that

they are in a good position to keep their position as a market leader in the technology field.

10. Conclusion

Microsoft is revolutionizing the technology world. From Windows to Android, gaming to

coding, cloud-based services to social media, Microsoft is enjoying success in each and every

field. As these Microsoft statistics prove, the tech giant continues to provide exceptional services

to customers all around the world, making it the majority of people’s go-to provider for software

solutions. Not only has Microsoft seen great evolution in terms of sales, the company has been

making better and better profits as well. In a time when the COVID-19 pandemic imposed social

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distancing and remote working practices onto businesses and individuals, technology companies

such as Microsoft provide the essential tools that make such practices possible. Microsoft's

overall financial strategy was very conservative with respect to revenues and cash balance. The

company kept its cash and short-term investment accounts large enough that the company could

easily pay its payrolls and other operating expenses. In this fast-competitive environment, the

management believes that innovation and quick improvement will lead toward increased

revenues, which is very essential for smooth growth.

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