Vous êtes sur la page 1sur 29

MBA

(Master in Business Administration)

FI612: Financial Environment


Instructor: Dr. Loukia Evripidou

FINAL PROJECT: COMPREHENSIVE ANALYSIS OF MICROSOFT

Group Members:
Sheena Mayadas S20091307
Benny H Najarian F20081852
Evangelos Andreou F20081960
Kyriacos Tengeris S20091300
Ganesh Uprety F2006758

Fall Semester 2009

1
Table of Contents
1.About Microsoft.............................................................................................3
1.1.History ............................................................................................................ 3
1.2.Core Activities................................................................................................. 3
1.3.Microsoft Mission and Values...........................................................................4
1.4.Strengths and Weaknesses.............................................................................4
2.Strategy and Performance of Microsoft........................................................5
2.1.Fiscal year 2008.............................................................................................. 6
2.2.First quarter 2009............................................................................................ 7
3.Clients...........................................................................................................7
4.Competitors ................................................................................................8
5.Performance Analysis - Microsoft Vs Competitors.........................................9
5.1.Industry Performance...................................................................................... 9
5.2.Financial Strength .......................................................................................... 9
5.3.Liquidity ratios:.............................................................................................. 12
6.Regulators ..................................................................................................12
6.1.US SECURITIES AND EXCHANGE COMMISSION .............................................13
6.2.UNITED STATES FEDERAL EXECUTIVE DEPARTMENT ....................................13
6.3.EUROPEAN COMMISSION............................................................................... 14
7.Short and Long Term Perspectives.............................................................14
7.1.Microsoft Expands Virtualization Initiatives with HP......................................15
7.2.The worldwide launches of Windows 7 Operating System.............................15
7.3.EBay Teams Up With Microsoft to Offer Daily Deals......................................17
7.4.Microsoft buys data Centre software firm Opalis...........................................18
8.Conclusion .................................................................................................19
9.References..................................................................................................21
10. APPENDIX.................................................................................................24

2
1. About Microsoft

1.1. History

Microsoft Corporation was founded in the early 1970’s by William Henry


Gates III with the intention to develop and sell BASIC interpreters for the
Altair 8800. Microsoft rose to dominate the home computer operating system
market with MS-DOS in the mid-1980s, followed by the introduction of
Windows line of operating systems. Microsoft’s products have managed to
achieve achieved great success in the desktop computer market.

Throughout its history, Microsoft has however been the target of criticism
against certain ‘mal’ practices, including accusation for monopolistic
business practices and anti-competitive strategies including refusal to deal
and various tying arrangements. The U.S. Justice Department and the
European Commission, among others, have ruled against Microsoft for
various antitrust violations.

Microsoft possesses footholds in other markets; with assets such as the


MSNBC cable television network, the MSN Internet portal, and Microsoft
Encarta multimedia encyclopaedia. The company also markets both
computer hardware products such as the Microsoft mouse as well as home
entertainment products such as the Xbox, Xbox 360, Zune and MSN TV
which are also major success stories for the company. Microsoft's initial
public stock offering (IPO) was in 1986 and the ensuing rise of the company's
stock price led to the creation of four billionaires and an estimated 12,000
millionaires amongst Microsoft employees.

1.2. Core Activities

Microsoft Corporation is a United States multinational computer technology


corporation that develops, manufactures, licenses and supports a wide range
of software products for computing devices. Headquartered in Redmond,
Washington, USA, its most profitable products are the Microsoft Windows
operating system and the Microsoft Office suite of productivity software.

3
1.3. Microsoft Mission and Values

"A computer on every desk and in every home around the world, running
Microsoft software." – Microsoft’s mission statement (3).

Microsoft is committed in its long term mission of helping its customers


realize their full potential. The company constantly updates and improves its
products, continually evolving with the market so as to be in the best
position to accelerate new technologies as and when they emerge, and to be
in a better position to serve their own customers. (12)

At the heart of Microsoft’s success is their commitment to innovation and


their devotion to investing more in research and development combined with
the use of talented researchers, scientists and engineers working across the
globe to create new technology breakthroughs.

1.4. Strengths and Weaknesses

A SWOT analysis helps to classify the internal strengths and weaknesses of


the company versus external situational factors such as opportunities and
threats. Strengths serve as a foundation for building competitive advantage,
and weaknesses may hinder it. By understanding these four aspects of an
environmental situation, a firm can better leverage its strengths, correct its
weaknesses, capitalize on golden opportunities, and deter potential threats.

1.4.1. Strengths

• A Multinational Corporation that operates through regional subsidiaries


to minimize cultural differences in more than 60 countries.
• Global recognition of the ‘Microsoft’ name and the company’s ability
for rapid product development.
• Microsoft’s product’ interfaces are considerably ‘user friendly’
• Proliferation of Microsoft Office productivity suite (Word, Excel,
Outlook, etc.) throughout the business community

4
• Flexible, Loyal, hardworking, and diverse workforce (20% minority,
26% women) who, in addition to good compensation, have an
opportunity to do well financially through stock purchases.
• Windows 95, 98, 2000 series, Windows NT, Windows XP and Widows
Vista are globally known as the PC desktop operating system with a
market share of about 88%.

1.4.2. Weaknesses

• Between 1990-1995, Microsoft leadership failed to correctly anticipate


the growth and popularity of the Internet. This left room for Google to
grab a foothold in the search engine arena
• Dependency on hardware manufacturers to pre-install Microsoft's PC
operating system.
• The company has experience increases in employee turnover from 6%
for a ten year period to 7.4%
• Falling sales in their operating systems and server software sectors
• Little or no significant presence in the wireless market and Windows CE
has been disappointing
• Perceived by many as a cut-throat competitor that uses its dominant
market position to marginalize competition by stealing/destroying the
competition's products, stifling product innovation, and decreasing the
availability of competitor products.
• Products have a single application focus and do not work well with or
on-top of other products (18) & (19)

2. Strategy and Performance of Microsoft

As mentioned, Microsoft’s corporate strategy is highly customer oriented


focusing on ways to deliver new and innovative means of addressing how
customers use their software, and to offer solutions to business problems.

5
2.1. Fiscal year 2008

Fiscal year 2008 was a successful year for Microsoft and saw the company
deliver outstanding financial results and introduce significant innovations
across the breadth of their product portfolio, further making key investments
to position the company for strong future growth. Thanks to the continued
success of their core Windows and Office businesses, and positive growth in
all of the Company’s business groups, revenue jumped to $60.4 billion in
fiscal 2008, an increase of 18 percent compared with the previous fiscal year
and a positive indicator for existing shareholders (1). Additionally, earnings
per share reached $1.87 and Microsoft returned $16.5 billion to shareholders
through stock buybacks and dividends (1).

A number of key announcements were made throughout the year concerning


important changes to their technology and business practices and so as to
increase openness of their products and drive greater interoperability and
choice for developers, partners, customers, and competitors. The company
further announced important strategic acquisitions to strengthen their
offerings in key markets and add to their broad innovation portfolio. Some
examples included the acquisitions of AdECN, Rapt and YaData, which
brought leading-edge capabilities for advertisers and publishers to
Microsoft’s advertising platform. Furthermore, the acquisition of Calista
Technologies and Kidaro, enabled the company to continue to position
themselves as a leader in the critical market for virtualization (1). Another
important event which took place in February 2008, was Microsoft’s proposal
to acquire Yahoo!. The proposed transaction was designed to accelerate the
company’s strategy in online search and advertising. However, after careful
consideration, Microsoft determined that the economics of the deal terms
demanded by Yahoo! and the need to move forward quickly in partnership
on regulatory review and to integrate the two companies meant that the deal
was no longer in the best interest of Microsoft shareholders. Nonetheless,
despite the deal being dropped, Microsoft remains committed to being a
leader in online search and advertising and make investments that will
enable them to succeed.

6
2.2. First quarter 2009

First quarter of 2009 further saw Microsoft benefit from strong performance
as a result of strong Windows and Xbox demand and execution, thus
resulting in strong revenue inflow. The Company continued with its cost
discipline strategy and saw its business segments stabilize. The company
further benefited from adjusted EPS growth of 8% compared with 2008 and
an operating cash flow of $6.1 billion (2) & (16).

3. Clients

Microsoft strives to provide products and service which cater to the needs of
serve Individual consumers, small and medium-sized organizations,
enterprises, governmental institutions, educational institutions, Internet
service providers, application developers, and Original Equipment
Manufacturers (OEMs). Consumers as well as small to medium sized
organizations obtain Microsoft products primarily through resellers and
OEMs. No sales to any individual customer accounted for more than 10% of
fiscal year 2009, 2008, or 2007 revenue (6).

Microsoft believes their five business segments offer the greatest potential to
serve customers:

• Client : Includes the Windows product family and is responsible for


their relationship with personal computer manufacturers. (21)
• Server and Tools : Software server products, services and solutions,
including- Windows Server operating system, Microsoft SQL Server,
Microsoft Enterprise Services, Visual Studio, System Center products,
Forefront security products and Biz Talk Server. (22)
• Online Services Business : Consists of an online advertising platform
with offerings for publishers and advertisers, personal communications
services such as e-mail and instant messaging, and online information
offerings such as Live Search and the MSN portals and channels. (23)

7
• Microsoft Business Division : Includes the Microsoft Office suites,
desktop programs, servers, and services and solutions; Microsoft
Dynamics; and Unified Communications business solutions. (24)
• Entertainment and Devices Division : Consists of the Xbox video
game system, including consoles and accessories, Xbox Live
operations, Zune digital music and entertainment device; Media room,
mobile and embedded device platforms, Surface computing platform,
and Windows Automotive. (25)

4. Competitors

Microsoft’s prime competitors in the software industry are:


Google Inc. (GOOG)
An American public corporation, earning revenue from advertising related to
its Internet search, e-mail, online mapping, office productivity, social
networking, and video sharing services as well as selling advertising-free
versions of the same technologies. Google is well known for its open
source web browser and is today one of the most popular search engines
used globally. Its initial public stock offering (IPO) took place on the 19th
August 2004 at $85 per share. Today its shares are priced at $590.51.

IBM
International Business Machines (IBM) is a multinational computer
technology and IT corporation headquartered in New York. IBM manufactures
and sells computer hardware and software (with a focus on the latter), and
offers infrastructure services, hosting services, and consulting services in
areas ranging from mainframe computers to nanotechnology.
Today IBM shares are selling at $ 129.68 per share.

Oracle Corporation (ORCL)


A multinational computer technology corporation that specializes in
developing and marketing enterprise software products,
particularly database management systems. Oracle has managed to enlarge
its share of the software market through organic growth and through a

8
number of high-profile acquisitions. In 2007 Oracle had the third-largest
software revenue, after Microsoft and IBM. The corporation has arguably
become best-known due to association with its flagship product, the Oracle
database. Today, ORCL shares are selling at $ 22.78 per share.

5. Performance Analysis - Microsoft Vs Competitors

Microsoft competes in the Software Industry and is listed on the stock


exchange under MSFT which is a major component of the S&P 500, Dow
Industrials and Nasdaq 100 indexes. For the purpose of this report we have
carried out our analysis of MSFT performance against competitor
performance for Google (GOOG), Oracle (ORCL) and IBM, for which we will
compare annual and quarterly financial results.

5.1. Industry Performance

Here we attempt to provide some insight into the financial performance of


MSFT next to its competitors (all data referred to is found in the Appendix).

5.1.1. Return on Assets (ROA)

ROA provides an indication of MSFT’s profitability relative to its total assets


and is indicative of how efficient management is, at using its assets to
generate earnings. Calculated by dividing a company's annual earnings by
its total assets, ROA is displayed as a percentage. Sometimes this is referred
to as "return on investment". As is evident in Fig 7, MSFT’s performance next
to competitors is average and as can be seen, the company has benefited
from strong annual earnings since 2004, thus increasing ROA.

5.2. Financial Strength

The following ratios are of interest to existing and potential shareholders.

5.2.1. Return on Equity

ROE is useful in comparing the profitability of a company to that of other


firms in the same industry and is of interest to potential shareholders when
deciding which company to invest their money. Higher return on equity
implies more efficient use of shareholders equity towards the total income

9
generated by the company. Referring to Fig 3 we can see MSFT’s ROE has
decreased from a high in 1999 at 36% to 12% in 2003, before recovering
strongly to over 50% in 2008. This positive increase in ROE from 2004 was
associated with stronger growth in Net Income compared with growth in
shareholder equity. It is not as efficient compared with industry competitors
but MSFT does show less fluctuation (volatility) over the years (14).

5.2.2. Gearing ratio

Gearing ratio of a company shows the dependence on borrowed funds as


compared to its own funds. Debt usually includes long term borrowings
which include long term bank loans, debentures and preference shares.
Equity on the other hand is the same as shareholders own funds and usually
includes share capital + reserves. Gearing is a measure of financial leverage,
demonstrating the degree to which a firm's activities are funded by owner's
funds versus creditor's funds. The higher a company's degree of leverage,
the more the company is considered risky. A company with high gearing
(high leverage) is more vulnerable to downturns in the business cycle
because the company must continue to service its debt regardless of how
bad sales are. A greater proportion of equity provides a cushion and is seen
as a measure of financial strength.
When comparing Microsoft's gearing ratio with the industry, we can see it is
considerably low. Historical data shows no record of long term debt thus
telling us that Microsoft is low -geared with a low proportion of loans. It can
be inferred that - based on its low gearing ratio - investing in Microsoft is a
potentially low risk investment compared with competitors.

5.2.3. Earnings per Share

Earnings per share (EPS) are the earnings returned on the initial investment
amount. Additionally, it is the portion of a company's profit allocated to each
outstanding share of common stock. EPS serves as an indicator of a
company's profitability (the higher the P/E the more the market is willing to
pay for the company’s earnings).
EPS is the way to calculate how much 1 share earns from the organization.
Based on September 2009 quarter results, Microsoft spent 20.49% of gross

10
profits on R&D and 35.04% on selling, general and administrative (SGA)
expenses. Revenues fell 14.22% year on year to $12.92B. The company in
2009 is trading at 19.20 times earnings (PE) and 4.69 times revenue (PSR).
At the end of September 2009, Microsoft had $36.73B in cash in hand and
$3.75B in long-term debt. On 23rd October 2009, Microsoft reported net
income of $3.57B, with diluted earnings per share of $0.40. The company
has however managed to deliver an 11.30% average annual increase in its
EPS since 1999. (8)
It should be noted that Microsoft is very large organization with many shares,
and although it records good net profit, the higher figure of shares is the
reason why its EPS is lower in comparison with competitors (Refer to
Appendix figure 9).

5.2.4. P/E Ratio

The P/E ratio of a company is the most popular ratio among the investing
community. It brings together the market share price of the company with
the profitability of the company. It is in fact very important to the investing
community that is compulsory for public companies to disclose it in their
annual profit loss account. The higher the P/E ratio, the more the market is
willing to pay for each $ or € of annual earnings. Companies with high P/E
ratios are more likely to be considered "risky" investments than those with
low P/E ratios, since a high P/E ratio signifies high expectation. The PE ratio
gives an investor a better understanding of a company’s value. Basically with
the PE ratio we can calculate how many dollars we are paying for each dollar
of a company’s earnings. We can see in the PE ratio graph that Microsoft has
a PE of 11.35 which is a considerable low PE ratio (Refer Appendix figure 4)

5.2.5. Dividend yield

A financial ratio that shows how much a company pays out in dividends each
year relative to its share price. In the absence of any capital gains, the
dividend yield is the return on investment for a stock. Generally speaking,
there is no big difference between Microsoft’s dividend yields ratio compared
with the S&P 500. On the other hand, comparing with IBM and ORACLE it is
high. A high dividend yield can be considered to be evidence that a stock is

11
under priced or that the company has fallen on hard times and future
dividends will not be as high as previous ones. Similarly a low dividend yield
can be considered evidence that the stock is overpriced or that future
dividends might be higher. Microsoft has 2.57% dividend yield, higher than
competitors and maintains its position as market leader (Refer Appendix
figure 10).

Most growth stocks (companies in a rapidly expanding market) don't pay


dividends. Such is the case for GOOG and YAHOO who instead turn the
money back into the company in order to fund growth. This enables them to
withhold from borrowing (helping stockholders by not requiring them to pay
more interest) or issue more stock (helping stockholders by not diluting
ownership). Companies in more stable industries are the ones more likely to
pay dividends.

5.3. Liquidity ratios:

5.3.1. Current ratio

The current Ratio is one of the tests of an organization’s financial strength. It


calculates how many assets are likely to be converted to cash within one
year in order to cover debts that fall due during the same year. A Current
ratio of 1.5 is normally acceptable as it indicates a company can pay its
debts from its current assets. Microsoft’s current ratio of 1.59 enables us to
conclude it is in a relatively good financial position (see figure 5 & 6).

6. Regulators

These are key bodies that establish, monitor, reform and enforce regulations
for companies. A regulators main function is to protect current and potential
investors and to maintain fair, orderly, and efficient markets that facilitate
capital formation. The Influence of regulators is of extreme importance in the
case of Microsoft due to the fact that regulators tend to pay more attention
to larger corporations than small companies and this invariably affects the
primary activities at Microsoft.

12
The U.S. Securities and Exchange Commission, the United States
Department of Justice and the European Commission place a lot of pressure
on companies like Microsoft to police and control pricing policies, set pricing
ceilings, patents, profit ceiling per product, market share etc.

6.1. US SECURITIES AND EXCHANGE COMMISSION

Commonly known as the (SEC), is an independent agency of the United


States government that holds primary responsibility for enforcing the federal
securities laws and for regulating the securities industry, the nation's stock
and options exchanges, and other electronic securities markets. The laws
and rules that govern the securities industry in the United States derive from
a simple and straightforward concept: ‘all investors, whether large
institutions or private individuals, should have access to certain basic facts
about an investment prior to buying it, and for the duration they hold it’. To
achieve this, the SEC requires public companies to disclose meaningful
financial and other information to the public (4).
Because Microsoft headquarters are located in the U.S, this body has a
powerful impact on the company’s stocks and pricing policy and recent
announcements of the SEC have influenced many of Microsoft’s decisions.

6.2. UNITED STATES FEDERAL EXECUTIVE DEPARTMENT

The United States Department of Justice (DOJ) is the United States federal
executive department responsible for the enforcement of the law and
administration of justice, equivalent to the justice or interior ministries of
other countries.
Recent laws, (for example that monopolistic strategies should be strictly
forbidden) have forced Microsoft to change pricing of software products for
computing devices. The United States Department of Justice enforces laws
that big multinational companies must follow. Microsoft cannot charge
products at any price, because potential customers are protected. By setting
a product ceiling, Microsoft limits its profits, resulting in a lower distribution
of profits to shareholders.
An important factor that affects the operations of Microsoft is the prohibition
of a monopoly. Microsoft Corporation prides itself in having a presence in

13
more than 90% of locations where there is a need for computer system.
Their market share might be in line with the presence of customers
demanding computer systems and accessories, but a market share of this
figure (90%) is strictly prohibited in the US.

6.3. EUROPEAN COMMISSION

The European Commission (formally the Commission of the European


Communities) acts as an executive of the European Union. The body is
responsible for proposing legislation, implementing decisions, upholding the
Union's treaties and the general day-to-day running of the Union. The
European Commission has ruled against Microsoft for various antitrust
violations and has enforced legislation, treaties, and decisions that have to
be respected by companies. Decisions and large bilateral contracts should be
followed by Microsoft when engaging with companies that operate in the
European Union. This is better explained by the fact that the EU and U.S are
each other’s main trading partners in goods and services and thus account
for the largest bilateral trade relationship in the , as well as providing each
other with the most important source of foreign direct investment (FDI).
Overall, regulators play a decisive role in terms of Microsoft’s strategies and
operations. Decisions by the U.S. Securities and Exchange Commission,
United States Department of Justice and European Commission have an
impact on Microsoft’s current and potential shareholders, and investors.
Pricing products is very important for large companies like Microsoft and
compliance with the laws and regulations of these bodies indirectly affects
the overall profitability and market share of Microsoft because establishing,
monitoring, reforming and enforcing regulations is a must for every
company.

7. Short and Long Term Perspectives

This last section highlights some important events, namely acquisitions and
new product developments by Microsoft that will help shape our final
conclusion.

14
7.1. Microsoft Expands Virtualization Initiatives with HP

In 2008, Microsoft announced expanded product, sales and services


initiatives with HP aimed at helping businesses more easily adopt and deploy
virtualization to help lower information technology costs and make IT more
efficient. Microsoft has expanded its work together with HP to sell and
market storage, server and networking consolidation solutions and desktop
virtualization solutions to small-, medium-sized- and large-business
customers worldwide. This was a strategic move on behalf of the two
companies who have been able to achieve a dynamic IT infrastructure that
can almost double computing capacity on demand across the enterprise,
which is huge. Furthermore, the deal enables them to consolidate their
infrastructure by 60 percent, reducing operational costs by 30 percent, which
maximizes value for their shareholders (17).

7.2. The worldwide launches of Windows 7 Operating System

Windows 7 has been set to break retail records and has become the biggest-
grossing pre-order in Amazon's history – worth even more than the most
recent JK Rowling book, Harry Potter and the Deathly Hallows. "The launch of
Windows 7 has superseded everyone's expectations," the managing director
of Amazon.co.uk, Brian McBride, said. "Demand is still going strong."

15
Source: Client Revenues (10)

Microsoft’s fourth quarter earnings for 2009 were better than expected, but
the software giant’s client (Windows) revenue skidded 29 percent compared
with 2008. For the three months ended June 30, Microsoft’s client revenue
was $3.1 billion, down from $4.36 billion a year ago. That slide in Windows
revenue led to a quarterly sales shortfall of more than $1 billion relative to
Wall Street estimates.

For the fourth quarter, Microsoft reported net income of $3.05 billion, or 34
cents a share, on revenue of $13.10 billion, down 17 percent from a year
ago. That fourth quarter statement includes $276 million of Windows 7
revenue deferred. That deferral ‘hurt ‘earnings by 2 cents a share.
Meanwhile, there were a few other moving write-offs. Microsoft’s fourth
quarter results included $193 million in charges, $108 million in bum
investments and $40 million in severance costs. Those items reduced
earnings by another 2 cents a share.

Client revenue decreased primarily as a result of PC market weakness,


especially PCs sold to businesses, and a 13 percentage point decline in the
OEM premium mix to 59%. Revenue growth from Windows operating
systems was also impacted by a $276 million deferral for the Windows 7
Upgrade Option program. OEM revenue decreased $1.1 billion or 31%, while
OEM license units decreased 10%. Based on our estimates, total worldwide
PC shipments from all sources declined approximately 5% to 7%, driven by
decreased demand in emerging and developed markets. See table below.

16
Source: Revenues Metrics (11)

7.3. EBay Teams Up With Microsoft to Offer Daily Deals

Internet Explorer 8 is considered to be the fastest way to all the best deals
on eBay and in In 2008, Microsoft and eBay Inc announced their partnership
to offer eBay Daily Deals through a new Internet Explorer 8 Web Slice for the
upcoming holidays.

With most holiday shoppers looking to save money, Microsoft and eBay
decided to present online Daily Deals through a new Windows Internet

17
Explorer 8 Web Slice that showcases popular products selling at deep
discounts. Customers will receive continuing updates and detailed
information about these Daily Deals for eBay, all within the Favorites Bar in
Internet Explorer 8.

7.4. Microsoft buys data Centre software firm Opalis

On December 11th 2009, Microsoft said that it had acquired Toronto-


based Opalis Software, a maker of data center management software.
Microsoft did not disclose financial details of the transaction, but said that
the move will augment its System Center line of management software. "I
believe this acquisition is a pivotal piece to deliver on our dynamic data
center initiative," Microsoft vice president Brad Anderson said in a blog
posting. "This deal brings together the deep data center automation
expertise of Opalis with the integrated physical and virtualized data center
management capabilities of Microsoft System Center" (23).

18
8. Conclusion

As Microsoft enters a new fiscal year, we believe the company is ideally


positioned to drive strong growth in 2010 and beyond. Despite certain
shortcomings in the final quarter of 2009, Microsoft displays strong
momentum and a great pipeline of products and technologies. Even more
important, the company has great people at every level, including strong
leaders who have the experience and strategic insight to turn the
opportunities that lie ahead into even greater success in the future.

For more than 30 years, Microsoft has enjoyed tremendous success by


delivering key innovations that have revolutionized the way people
communicate, share ideas, manage their businesses, and much more. Today,
they are in the midst of one of the most exciting periods in the history of the
software industry as computing continues to become more powerful, more
portable, and more affordable. Content, communications, and media are
shifting entirely to digital formats and the combination of software plus
services is transforming the way companies create and deliver computing
experiences.

Microsoft continues to produce products that are widely used throughout the
globe and the company has managed to combat to some extent the impact
of the global recession by strengthening its position through various
acquisitions and continuous product improvement.

Financial evaluation of Microsoft leads us to conclude that the company has


very good liquidity position, a healthy gearing ratio, a growing EPS and an
overall positive outlook within the industry. Microsoft operates in a promising
market with growing potential and profitability and is the dominant leader in
many dimensions; profitability, capital base, expertise, and know how.

Based on its low gearing ratio, investing in Microsoft is a potentially low risk
investment compared with competitors. Given the company’s objective to

19
continually meet customer needs, we fell that Microsoft will continue be a
successful company and an attractive investment for potential investors and
for existing shareholders. Figure 11 shows the current share prices for MSFT
and competitors as at 13 December 2009. (24)

20
9. References

1. MSFT Investor Relations. Available at: <


http://www.microsoft.com/msft/reports/ar08/10k_sl_eng.html > [Accessed
27th November 2009]

2. Microsoft Company Website. Available at: <


http://www.microsoft.com/msft/ic/CompanyOverview.aspx?
tab=Performance > [Accessed 28th November 2009].

3. Microsoft Company Website. Available at: <


http://www.microsoft.com/about/default.mspx> [Accessed 29th November
2009].
4. Securities and Exchange Commission. Available at:
<http://www.sec.gov/about/whatwedo.shtml> [Accessed 8th December
2009].
5. European Union. A Guide for Americans. Available at:
<http://eurunion.org/eu/images/PDF/euguide2009.pdf> [Accessed 8th
December 2009].
6. Microsoft Corporation. 2009 Annual Report. Available at:
<http://www.microsoft.com/msft/reports/ar09/10k_fr_bus_05.html>
[Accessed 8th December 2009].
7. YCharts. Microsoft. Available at: < http://ycharts.com/companies/MSFT >
[Accessed 10th December 2009].
8. Tech Crunch. WSJ Says Microsoft/Yahoo Deal Not Happening. Available at:
< http://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-
not-happening > [Accessed 10th December 2009].
9. Client Revenue. Q4 Summary. Available at: <
http://www.sevenforums.com/attachments/news/20276d1248796567-
microsoft-releases-q4-results-profits-down-29-msft072309a.jpg >
[Accessed 12th December 2009].
10. Seven Forums. Windows 7. Available at:
<http://www.sevenforums.com/news/18525-microsoft-releases-q4-results-
profits-down-29-a.html> [Accessed 12th December 2009].

21
11. Microsoft Press Pass. MSFT announces Chief Financial officer
Transition. Available at:
<http://www.microsoft.com/presspass/press/2009/nov09/11-
24corpnewsPR.mspx?rss_fdn=Press%20Releases> [Accessed 13th
December 2009].
12. Microsoft Press Pass. MSFT outlines growth agenda at Annual
shareholder meeting. [online]. Available at:
<http://www.microsoft.com/Presspass/press/2009/nov09/11-
19Nov09ShareholderPR.mspx?rss_fdn=Press%20Releases> [Accessed
13th December 2009].
13. Softpedia. MSFT deal fails to appease Yahoo. Available at:
<http://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-
Shareholders-120545.shtml > [Accessed 13th December 2009].
14. Microsoft website. MSFT announces FQ results. Available at:
<http://www.microsoft.com/msft/earnings/fy10/earn_rel_q1_10.mspx . >
[Accessed 13th December 2009].
15. Microsoft Press Pass. MSFT expands virtualization initiatives with HP.
Available at: <http://www.microsoft.com/presspass/press/2008/nov08/11-
17HPVirtPR.mspx > [Accessed 13th December 2009].
16. All Business. Microsoft strengths and Weaknesses. Initiatives with HP.
Available at: <http://www.allbusiness.com/europe/western-europe-ireland-
dublin/5247433-1.html> [Accessed 13th December 2009].
17. How stuff Works. Will Google destroy Microsoft. Initiatives with HP.
Available at: <http://computer.howstuffworks.com/google-
microsoft2.htm> [Accessed 10th December 2009].
18. Microsoft strengths and Weaknesses. Available at:
<http://www.slideshare.net/vinayak.nandi/microsoft-strength-and-
weakness> [Accessed 10th December 2009].
19. Microsoft Investor Relations. Windows and Windows live division.
Available at: <http://www.microsoft.com/msft/IC/segments_client.aspx>
[Accessed 9th December 2009].

22
20. Microsoft Investor Relations. Server and Tools. Available
at:<http://www.microsoft.com/msft/IC/segments_server.aspx> [Accessed
9th December 2009].
21. Microsoft Investor Relations. Online Services Division. Available
at:<http://www.microsoft.com/msft/IC/segments_osb.aspx> [Accessed 8th
December 2009].
22. Microsoft Investor Relations. Entertainment and Devices Division.
Available at :<http://www.microsoft.com/msft/IC/segments_edd.aspx>
[Accessed 8th December 2009].
23. CNet News. Microsoft Buys data centre software firm Opalis. Available
at: <http://news.cnet.com/8301-13860_3-10413836-56.html> [Accessed
13th December 2009].
24. Google Finance. Available at: < http://www.google.com/finance?
client=ob&q=NYSE:IBM > [Accessed 13th December 2009].

23
10. APPENDIX

Fig 1: Gross Profit Margin (%)

Source: Morning star website

Fig 2: Revenue ($Millions)

24
Fig 3: Return on Equity (%)

Fig 4: Historical P/E

25
Fig 5: Current Ratio

Fig 6: Current Ratio (Most Recent Quarter)

CURRENT RATIO(MRQ)

8,76

2,65
1,59 1,95 1,26
1,15
Y

0
R
G
L
T

50
M

ST
SF

O
R
IB

P
U
O
M

S&
D
IN

26
Fig 7: Return on Assets – ROA

Fig 8: Gearing Ratio

100,00%
MSFT
50,00% GOOG
0,00% IBM
3 ORCL
200 2005 007 Q Industry
2 MR
S&P500

27
Fig 9: Historical Earnings Per Share - EPS

HISTORICALEPS:1999/2008
14
12
10 MSFT

8 IBM
6 ORCL
4 GOOG
2
0
1999

2000

2006
2001

2002

2003

2004

2005

2007

2008

Fig 10: Dividend Yield

Fig. 11: Share prices at 13 December 2009

28
COMPANY PRICE OF SHARE IN US $
MSFT 29.85
IBM 129.68
ORCL 22.78
GOOG 590.51

29