PACE UNIVERSITY- ACC-615 DR. FINN Financial Statement Analysis IBM and Microsoft Bill Jacoby 4/20/2010 Financial Statement analysis for two comparable companies; IBM and Microsoft ACC-615 Dr. Finn; William Jacoby Microsoft Corporation is the world’s largest software company. Microsoft has five operating segments; client, server and tools, online business services, Microsoft business division and entertainment and devices division. They develop personal computing software including the Windows operating system which runs 90% of all PC’s currently in use and the Office application suite and the XBOX video game system. International Business Machines Corporation was founded in 1911 and has grown and adopted over nearly a century. IBM is nick-named “big blue” by Wall Street in reference to it being a quintessential blue chip stock. IBM currently is an information technology company that has four business segments; hardware, financing (to facilitate clients acquisition of IBM systems, software and services), services, software. I thought these two dominant, global, large-cap technology companies would be interesting to compare. First let us review IBM. IBM has continued to deliver steady revenue over a long period of time. They offer a wide array of technology products. Since 2000 IBM has added $12 billion to pre-tax profit base, increased pre-tax margin 2. 5 times and quadrupled earnings per share and more than doubled free cash flow. They have achieved this by transforming over the last decade to emphasize software and services and reducing the hardware segment. IBM pursued this strategy a decade ago because they felt the global IT industry and broader world economies were changing to demand integration, computing architecture, data intelligence and innovation. IBM has successfully capitalized on recognizing the demand for products and services they had an advantage in. They exited some of their hardware business, selling the PC hardware business to Lenovo in 2005 for $1. 75 Billion. It is safe to say IBM has successfully evolved from a computer hardware vendor to a systems, services and software company. 1 ACC-615 Dr. Finn; William Jacoby The pre-tax income produced in each segment of business was; hardware accounted for 7% or $1. 4 billion in pre-tax revenue, financing 9% ($1. billion), services 42% (8. 1 billion), software 42% (8. 1 billion). IBM is the second largest vendor in software sales behind Microsoft. IBM’s hardware products are now only mainframe computers, data storage systems and microprocessors. Hewlett Packard and Dell are the main competition in this segment. The software business focuses on operating systems, infrastructure management for data centers, application middleware for software development and deployment. They compete with Oracle and Microsoft in this segment. The services organization offers contracts to maintain and manage operations of large data centers, business process outsourcing, and developing custom systems. These contracts are typically five to seven years for the engagement and are a good source of predictable recurring revenues. They compete with Hewlett Packard, Accenture, Computer Sciences and Infosys in this business. IBM is the most trusted brand and it has a strong product portfolio which results in an edge winning new service business contracts. The management of IBM describes the business strategy for the next decade as “the decade of smart”. Here they outline the four major growth opportunities they are focusing on. The first of these is growth markets. For IBM this is clients across 170 countries where infrastructure is being invested in or upgraded. IBM estimates that $2 trillion has been earmarked for infrastructure improvements by governments across the world and they have a great opportunity to capture a large portion of this spending. The second is “analytics”. IBM has seven analytics solution centers around the world that employ 4,000 consultants, 200 mathematicians and analytics experts that will work on ACC-615 Dr. Finn; William Jacoby service contracts. This seems to me as if it is not so much of a new idea but rather continuing to expand on their success in the services segment. Third is “cloud and nextgeneration data center”. The advent of cloud computing could throttle demand for IBM’s high end powerful hardware and software. Oracle and Sun are attempting to compete with IBM on this new frontier. Naturally the management discussion in the annual report and financial statements indicates that IBM believes this will be a great growth area for IBM. However, it is not going to be without competition but IBM should be one of the beneficiaries if cloud computing grows. The fourth and final growth opportunity IBM management outlines is called, “smarter planet”. In this growth opportunity they describe and map out 300 clients across the globe IBM categorizes in this smarter planet description. They are things such as; integrated baggage control and check-in system at Amsterdam airport, gas and oil seismic imaging efficiency improvements in Venezuela, an intelligent medical records system at Guan Dong Hospital in China. Again this does not sound like a new idea to me but rather a catchy marketing name for increasing and capitalizing on their success in the services segment. Clearly IBM likes these five to seven year highly profitable contracts. This is understandable and a good strategy that should be in the sweet spot for IBM. Turning now to Microsoft I was surprised to learn that total revenue for Microsoft was 58. 4 billion compared to 95. 8 billion for IBM in 2009. This surprised me probably because Microsoft is more visible to the consumer such as me. Microsoft is the largest vendor of software in the world. Microsoft was founded in 1975 and they currently generate revenue from a wide range of software products, services, consulting and hardware. Microsoft divides their business into five segments; client, server and tools, 3 ACC-615 Dr. Finn; William Jacoby online services, business division, and entertainment and devices division. Microsoft recognizes there is a great deal of overlap and related business resulting from these segments and therefore they state that they should not be viewed of as easily separable businesses. The client segment is the segment that has the responsibility for Windows operating systems. Microsoft dominates the PC market in this regard, while Apple receives a good deal of press and is well known for its ipod and iphone, Microsoft is by far the dominant operating system used by computers. Other competitors are Red Hat and Sun Microsystems. The Windows operating system also faces competition from alternative platforms and new devices that may reduce consumer demand for traditional PC’s such as Google’s Android. The server and tools segment offers middleware software designed to support software applications built on the Windows Server operating system. The Windows Server based products include server platform, security software, development tools, database storage and also standalone software development lifecycle tools for software architects. Some of the products in this segment are; Microsoft SQL Server, Visual Studio, Silverlight and Microsoft Consulting Services. The competition for server products is Hewlett Packard, IBM and Sun Microsystems. In the enterprise computing solutions space IBM, Oracle and Sun are the main competitors. Numerous software vendors compete with the software in this segment for security, e-business servers, server management and server virtualization. Again, IBM and Hewlett Packard are the major competitors. The online services business consists of an online advertising platform with offerings for publishers and advertisers as well as online information offerings such as 4 ACC-615 Dr. Finn; William Jacoby Bing, MSN portals and channels, email and instant messaging. Microsoft earns revenue primarily from online advertising in this segment but also through subscriptions and transactions from online generated services. The competition in this segment is AOL, Google, and Yahoo. Google dominates this business but Microsoft has made big gains with the Bing search engine and has a new business venture with Yahoo as Yahoo seems to be shrinking fast. Microsoft Business Division consists of the Microsoft Office system and Microsoft Dynamics business solution. The Office products account for 90% of this segment’s revenue of which 80% are business customers. Microsoft continues to dominate this space and has a large number of business people that are loyal and dedicated users of these software products. There are many software competitors such as Apple, Google, IBM, Oracle, Red Hat. There are quite a few other smaller ones Microsoft mentions in the management discussion of the annual report. Microsoft has a very strong and stable business in this space but it is a fiercely competitive arena. The Entertainment and Devices Division is responsible for developing, producing and marketing the XBOX video game system, accessories and games. This division also offers the Zune digital music and entertainment device. This business is highly competitive, those of us that are old enough remember that Atari was the first dominant video game maker, and they no longer exist. Nintendo and Sony are the competition in the game business with Apple being the dominant player in the music device space. Microsoft and makers of cell phones have been hard at work trying to make a dent in Apples strangle hold on the music device business but the ipod and iphone continue to dominate. 5 ACC-615 Dr. Finn; William Jacoby Microsoft has been shifting its strategy from a PC centric computing environment to a computing platform in which diverse devices will access information on the web. Similar to IBM, Microsoft predicts that cloud computing grow and transform the computer and software business. Microsoft plans to capitalize on this by creating a seamless user experience across multiple devices from PC’s to cell phones to home entertainment devices. Microsoft has a strategy that plans on delivering services, devices, advertising and of course, software to run it all. Microsoft would like to get its software running a network for the user, that way they have an advantage to getting into some of the segments they have struggled to gain business. Let us now compare the financial statements for both companies (see Appendix 1 and Appendix 2 for the table of supporting calculations discussed). These are two of the best companies in the world not just as technology companies but overall success. Both companies have navigated through the economic down turn admirably. Revenue for Microsoft declined by approximately $2 Billion from 2008 to 2009 from 60. 4B to 58. 4B. However, both figures are significantly higher from the 51. 1B in revenue they generated in 2007. Operating income, net income, operating margin, follow a similar pattern. Similarly, IBM saw a decline in revenue in 2009. Revenue for IBM tracked from 2007 shows; 98. 8B (2007), 103. 6B (2008), 95. 8B (2009). IBM however was able to increase operating income over this period from 13. 5B (2007), 15. 9B (2008) and up to 18. 2B (2009). They achieved this through improving their product mix as discussed previously. As a result of increasing higher margin business IBM achieved lower expenses and significantly improved profit margin. Microsoft did not show this change and this is 6 ACC-615 Dr. Finn; William Jacoby because they already have a very high profit margin business and did not change their product mix significantly (illustration 1). 7 illustration 1: Microsoft IBM Revenue and Income in Billions on left scale Revenue and Income in Billions on left scale While IBM has significantly higher revenue, Microsoft achieved better net income (14. 6B vs. 13. 4B). This comparison does substantiate the strategy articulated by IBM’s management where they have been on a 10 year mission to transform their business away from a PC, laptop builder to more of a service and software provider. In order to achieve this transformation IBM made a breathtaking 108 strategic acquisitions of smaller firms since the year 2000. This is evident in the gigantic amount of goodwill they carry on the balance sheet ($20. Billion). IBM did also sell, divest or discontinue a significant number of business operations as well. IBM has been able to purchase all these businesses with cash thanks to a long history of generating good amounts of free cash. IBM also received 4,900 patents in 2009 which is the 17th straight year they had received the most patents in the U. S. IBM carries $2. 5 billion intangible assets from all the patents they hold. ACC-615 Dr. Finn; William Jacoby Microsoft and IBM today are much more similar than they were a decade ago because of this transformation IBM has undergone. However, there are still significant differences. Microsoft also is quite active in acquisitions and research and development which results in many patents. Microsoft is a very cash rich company as well and has paid cash for many strategic acquisitions as well. Microsoft carries $12. 5 billion in goodwill on their balance sheet. I feel sorry for the accountants at both Microsoft and IBM at the end of each year. I can only imagine the nightmare it must be to go through all the various testing of acquired businesses to see if any of the goodwill is impaired. For IBM this is a big number because it represents nearly 1/5th of the total assets so it is not unreasonable to see that over time a significant hit to the goodwill could unexpectedly damage profits in a given year. Microsoft also has this but to a lesser extent with goodwill representing 15% of total assets. Microsoft spent more on R&D but has a lower number of patents and carries $1. 8 Billion in intangible assets for these. Overall Microsoft has a staggering amount of cash and short term investments ($31. 3 Billion) with an additional $6. 5 Billion in other long term investments (various bonds and equity). IBM has $13. 9 Billion in cash and short term investments with $5. 3 Billion in long term investments. One can see that Microsoft is in a powerful position to put money to work if they see the need to transform their business like IBM has done over the past decade. IBM has a decent balance sheet from a debt standpoint and the three year change shows it remains stable in spite of the recent credit difficulties with a current ratio of 1. 36 and a debt to asset ratio of 79. 1%. Microsoft is stronger in this regard with a current ratio of 1. 82 and a debt to asset ratio of 49. %. It is clear from looking at the balance sheets of these companies that they have staying power (illustration 2). Both the current ratios and 8 ACC-615 Dr. Finn; William Jacoby debt to asset ratios show that assets exceed liabilities. IBM is not as strong as Microsoft although. I compared them to Oracle (cr= 2. 06, d/a% =46. 8%), Hewlett Packard (cr=1. 22, d/a% = 64. 7%), Apple (cr=2. 74, d/a% = 33. 3%), Dell (cr=1. 28, d/a% = 83. 3%), Novell (cr=1. 75, d. a% = 50. 9%). This shows IBM has a lower current ratio than most and the average of these was 1. 66. So while IBM is in line with Dell and HP the rest are stronger. As for total liabilities, IBM is second worst to Dell only and that average of the sample was 55. 8%. This industry is strong and recovered well from the current recession and it does not appear that IBM is in a very risky position as a result of debt. Illustration 2 IBM Balance Sheet 1. 6 1. 4 1. 2 1 0. 8 0. 6 0. 4 0. 2 0 2007 IBM-Current Ratio 2008 2009 2 1. 8 1. 6 1. 4 1. 2 1 0. 8 0. 6 0. 4 0. 2 0 2007 2008 2009 9 Microsoft Balance Sheet IBM-Debt to Asset Ratio MSFT-Current Ratio MSFT-Debt to Asset Ratio The return on assets for Microsoft is quite high and consistent for the past three years 21. 2% in 2007, 26% in 2008 and then a dip to 19. 3% in 2009. I am sure Microsoft felt the 2009 dip was terrible but when you look at it in this perspective, it is really very impressive. IBM has an interesting difference from Microsoft in this regard. The return on assets for IBM in 2007 was 9. 3%, 10. 7% (2008) and then up again in 2009 to 12. 3%. IBM’s average total assets are very high but trended slightly lower while income has increased resulting in this upward return on assets trend. While the return on assets is ACC-615 Dr. Finn; William Jacoby lower than Microsoft, this is a good sign for IBM particularly through the stock market crash and economic recession. Return on equity for the past three years for Microsoft was 39. 5%, 52. 5% and 38. 4% in 2009. For IBM it was 36. 6%, 58. 8% and 74. 4%. Both companies have been buying back stock significantly. In 2009 IBM repurchased 69 million shares of its common stock. Microsoft repurchased 318 million common shares in 2009. This amounts to approximately $9 billion in shares repurchased respectively for each company. Looking at the dividends there does show a very significant difference. Illustration 3 IBM-Dividends per share IBM-Dividends IBM-Net Income IBM-Payout Ratio (Div/NI) MSFT-Dividends per share MSFT-Dividends MSFT-Net Income MSFT-Payout Ratio (Div/NI) 2. 15 2,860 13,425 21. 3% 0. 50 4,516 14,569 31. 0% 1. 90 2,585 12,334 21. 0% 0. 43 4,067 17,681 23. 0% 1. 50 2,188 10,418 21. 0% 0. 39 3,798 14,065 27. 0% 10 As this table shows, Microsoft has a higher payout ratio. However, with Microsoft trading at a stock price of about 30 and IBM at a price of 129 the yield on both stocks is coincidentally 1. 1% even though Microsoft has a higher payout ratio. Microsoft spends slightly more on research and development than IBM. The past three years Microsoft spent (in billions); 7. 1, 8. 2, 9. 0 compared to IBM; 6. 1, 6. 3, 5. 8 as a percentage of sales this is a much higher number for Microsoft (13. 9%, 13. 5%, 15. 4%) compared to IBM (6. 2%, 6. 1%, 6. 1%). I don’t think this is a negative for IBM because their high number patents show they are producing great results and high sales figures. A significant difference is revealed on the balance sheet comparison. IBM has a liability of $15. billion for retirement and non-pension postretirement benefit obligations in 2009 ACC-615 Dr. Finn; William Jacoby which is a decrease from a $19. 5 billion figure the previous year. This explains why IBM’s debt to asset ratio is higher than most of the competitors in the industry. IBM discusses this in the annual report briefly but only to point out that they continue to work this liability down and in fact it decreased by $3. 5 billion from 2008 to 2009. It seems IBM has recognized they need to address this retirement liability before it becomes a bigger problem. Union benefits and obligations were a significant factor that killed GM. Microsoft has nothing like this, only 6 billion in “other long term liabilities”. Microsoft carries $13 billion in short-term unearned revenue from software subscriptions. They discuss this in the management discussion of annual report and it is a result of multi-year licensing arrangements paid upfront or annually at the beginning of a coverage period. The turnover statistics for IBM has been consistent over the past 3 years. Inventory turnover for the past three years has been 20. 83 (’07), 21. 9 (’08), 20. 01 (’09). Receivable turnover has been 2. 78, 3. 21, 3. 52 and asset turnover has been 0. 88, 0. 90, and 0. 88. The turnover statistics for Microsoft are slightly different. Inventory turnover for 2007 through 2009 was; 8. 21, 10. 98, 14. 28, receivable turnover was 4. 95, 4. 85, 4. 72 and asset turnover was 0. 77, 0. 89, 0. 78. This is a reflection of the difference is product mix. While both have gigantic software components to their business, IBM has a much larger component of big ticket products and services that carry multi-million dollar price tags. Microsoft has a lower price product mix and higher volume business overall. Free cash flow is good for both of these companies (illustration 4). Once again we see that Microsoft experienced a slight decline in the most recent year while IBM increased all of the past three years. 11 ACC-615 Dr. Finn; William Jacoby illustration 4 (in billions) IBM-Free Cash flow (adj) IBM-Free Cash flow (unadj) MSFT-Free Cash flow 2007 12. 4 17. 4 15. 5 2008 14. 3 18. 8 19. 6 2009 15. 1 18. 8 17. 1 12 Free Cash Flow 25. 0 20. 0 15. 0 10. 0 5. 0 0. 2007 IBM-Free Cash flow (adj) IBM-Free Cash flow (unadj) 2008 2009 MSFT-Free Cash flow There is an important discussion and footnote in the IBM annual report and financial statements. IBM management explains that they prefer to remove the Global Financing business from the free cash flow analysis. This is due to the nature of the business of Global Financing where receivables are a profit generating investment, not capital that should be minimized for efficiency. By removing the Global Financing receivables IBM shows a more conservative free cash flow number than if we did it strictly as GAAP defined. Therefore, I have shown the unadjusted number using the cash from continuing operations and then also the adjusted number provided by IBM in the footnotes and management discussion. Interestingly the unadjusted free cash flow actually exceeded Microsoft in the current year. IBM has a good trend going. Microsoft has one additional point worth discussing and that is in Note 24 of the financial statements. Here Microsoft tells us of a subsequent event where Yahoo and ACC-615 Dr. Finn; William Jacoby Microsoft have entered into a 10-year agreement together. Under this agreement Microsoft will provide Yahoo with an algorithmic paid search platform for Yahoo web sites. They will have a revenue sharing agreement on traffic generated on the Yahoo network and Yahoo will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Microsoft also acquires a 10-year license to Yahoo’s core search technology and will integrate Yahoo with Bing. Finally we should look at stocks from an investment standpoint. IBM has 9. 4 earnings per share with a price to earnings ratio of 13. 1. Microsoft has 1. earnings per share with a price to earnings ratio of 18. 8. Looking at the stock price charts in illustration 5 it shows that IBM had a more severe sell off when the stock market crashed due to the banking credit crisis. This seems logical given we can see that Microsoft was in a stronger position of overall balance sheet strength to weather any prolonged credit contraction. However, it would appear that sell off to IBM was more severe than warranted. Also when we see that the P/E ratio for IBM is still quite low, at 13 it appears that the stock price is not overvalued. However, the P/E of Microsoft is not historically high at 18. 8 so that statistic does not represent a red flag for an investment in Microsoft. 13 ACC-615 Dr. Finn; William Jacoby Illustration 5 14 Overall it appears to me that IBM has a bit more upside potential in the stock over the next few years. The strong cash position for Microsoft along with the new partnership with Yahoo provides good potential for growth. Microsoft could use their cash in many strategic ways, like IBM did the past decade. One risk I see in Microsoft is the XBOX game system. That business is very exposed to trends and fads, not to mention fickleness of little boys’ preferences (my son prefers Playstation). Also, with 90% of all PC’s currently running on Microsoft software that fact does not leave them ACC-615 Dr. Finn; William Jacoby room to expand market share. If forced to pick one of the two, I would choose IBM to invest in after reviewing both companies. I think both are good companies so there is not a bad choice here. However, I like the way IBM has transformed into a more profitable business mix and has increased profits through the recession. I also like the potential they have to capitalize on global governments investing in infrastructure. Although IBM has a large liability for retirement benefits, it appears the management is successfully reducing it and they have a strong level of free cash flow. My choice of IBM as the better investment is the opposite of what I expected to find prior to beginning this research and analysis. It definitely shows me that one should never invest in a company without reading the annual report and financial statements. 15 ACC-615 Dr. Finn; William Jacoby Appendix 1 Stat Company Stat 2009 Current Assets IBM-Current Assets 48,935 Current Liabilities IBM-Current Liabilities 36,002 Current Ratio IBM-Current Ratio 1. 36 Cost of Goods Sold IBM-Cost of Goods Sold 51,973 Ave Inventory IBM-Ave Inventory 2,598 Inventory Turnover IBM-Inventory Turnover 20. 01 Net Sales IBM-Net Sales 95,758 Ave Net Recievable IBM-Ave Net Recievable 27,174 Recievable Turnover IBM-Recievable Turnover 3. 52 Net Sales IBM-Net Sales 95,758 Ave Tot Assets IBM-Ave Tot Assets 109,273 Asset Turnover IBM-Asset Turnover 0. 8 Revenue IBM-Revenue 95,758 Cost of Sales IBM-Cost of Sales 51,973 Gross Margin (rev-cost sales)/rev IBM-Gross Margin (rev-cost sales)/rev 45. 7% Revenue IBM-Revenue 95,758 Operating Income IBM-Operating Income 18,190 Operating Margin IBM-Operating Margin 19. 0% Net Income IBM-Net Income 13,425 Revenue IBM-Revenue 95,758 Net Profit Margin (net prof/rev) IBM-Net Profit Margin (net prof/rev) 14. 0% Net Inc IBM-Net Inc 13,425 Ave Tot Assets IBM-Ave Tot Assets 109,273 Return on assets IBM-Return on assets 12. 3% Net Inc IBM-Net Inc 13,425 Ave Shareholder Equity IBM-Ave Shareholder Equity 18,051 Return on Equity IBM-Return on Equity 74. % Dividends per share IBM-Dividends per share 2. 15 Dividends IBM-Dividends 2,860 Net Income IBM-Net Income 13,425 Payout Ratio (Div/NI) IBM-Payout Ratio (Div/NI) 21. 3% Total Liabilities IBM-Total Liabilities 86,267 Total Assets IBM-Total Assets 109,022 Debt to Asset Ratio (Lia/Assets) IBM-Debt to Asset Ratio (Lia/Assets) 79. 1% Net Inc IBM-Net Inc 13,425 Int exp IBM-Int exp 402 Taxes IBM-Taxes 4,713 Times int earned IBM-Times int earned 13,839 R&D IBM-R&D 5,820 Sales IBM-Sales 95,758 R&D / Sales % IBM-R&D / Sales % 6. 1% Cash from cont' ops IBM-Cash from cont' ops 20. Cash from cont' ops (excl IBM-Cash from cont' ops (excl fin rec) fin rec) 18. 9 Cap Expenditures IBM-Cap Expenditures (3. 7) Free Cash flow IBM-Free Cash flow 15. 1 Earnings per share IBM-Earnings per share 9. 4 Price/Earnings Ratio IBM-Price/Earnings Ratio 13. 1 2008 49,004 42,435 1. 15 57,969 2,685 21. 59 103,630 32,293 3. 21 103,630 114,978 0. 90 103,630 57,929 44. 1% 103,630 15,938 15. 4% 12,334 103,630 11. 9% 12,334 115,271 10. 7% 12,334 20,968 58. 8% 1. 90 2,585 12,334 21. 0% 95,939 109,524 87. 6% 12,334 673 4,381 13,014 6,337 103,630 6. 1% 18. 18. 8 (4. 5) 14. 3 6. 0 9. 4 2007 53,177 44,310 1. 20 57,057 2,739 20. 83 98,786 35,517 2. 78 98,786 111,833 0. 88 98,786 57,098 42. 2% 98,786 13,516 13. 7% 10,418 98,786 10. 5% 10,418 112,022 9. 3% 10,418 28,488 36. 6% 1. 50 2,188 10,418 21. 0% 91,962 120,431 76. 4% 10,418 611 4,071 11,036 6,153 98,786 6. 2% 16. 1 17. 4 (5. 0) 12. 4 6. 9 15. 1 billions mgmt adj ACC-615 Dr. Finn; William Jacoby Appendix 2 Stat Company Stat 2009 Current Assets MSFT-Current Assets 49,280 Current Liabilities MSFT-Current Liabilities 27,034 Current Ratio MSFT-Current Ratio 1. 2 Cost of Goods Sold MSFT-Cost of Goods Sold 12,155 Ave Inventory MSFT-Ave Inventory 851 Inventory Turnover MSFT-Inventory Turnover 14. 28 Net Sales MSFT-Net Sales 58,437 Ave Net Recievable MSFT-Ave Net Recievable 12,391 Recievable Turnover MSFT-Recievable Turnover 4. 72 Net Sales MSFT-Net Sales 58,437 Ave Tot Assets MSFT-Ave Tot Assets 75,341 Asset Turnover MSFT-Asset Turnover 0. 78 Revenue MSFT-Revenue 58,437 Cost of Sales MSFT-Cost of Sales 12,155 Gross Margin (rev-cost MSFT-Gross Margin (rev-cost sales)/rev sales)/rev 79. % Revenue MSFT-Revenue 58,437 Operating Income MSFT-Operating Income 20,363 Operating Margin MSFT-Operating Margin 34. 8% Net Income MSFT-Net Income 14,569 Revenue MSFT-Revenue 58,437 Net Profit Margin (net prof/rev) MSFT-Net Profit Margin (net prof/rev) 24. 9% Net Inc MSFT-Net Inc 14,569 Ave Tot Assets MSFT-Ave Tot Assets 75,341 Return on assets MSFT-Return on assets 19. 3% Net Inc MSFT-Net Inc 14,569 Ave Shareholder EquityMSFT-Ave Shareholder Equity 37,922 Return on Equity MSFT-Return on Equity 38. 4% Dividends per share MSFT-Dividends per share 0. 0 Dividends MSFT-Dividends 4,516 Net Income MSFT-Net Income 14,569 Payout Ratio (Div/NI) MSFT-Payout Ratio (Div/NI) 31. 0% Total Liabilities MSFT-Total Liabilities 38,330 Total Assets MSFT-Total Assets 77,888 Debt to Asset Ratio (Lia/Assets) MSFT-Debt to Asset Ratio (Lia/Assets) 49. 2% Net Inc MSFT-Net Inc 14,569 Int exp MSFT-Int exp 542 Taxes MSFT-Taxes 4,713 Times int earned MSFT-Times int earned 15,120 R&D MSFT-R&D 9,010 Sales MSFT-Sales 58,437 R&D / Sales % MSFT-R&D / Sales % 15. 4% Cash from cont' ops MSFT-Cash from cont' ops 20. 3 Cap Expenditures MSFT-Cap Expenditures (3. ) Free Cash flow MSFT-Free Cash flow 17. 1 Earnings per share MSFT-Earnings per share 1. 6 Price/Earnings Ratio MSFT-Price/Earnings Ratio 18. 8 2008 43,242 29,886 1. 45 11,598 1,056 10. 98 60,420 12,464 4. 85 60,420 67,982 0. 89 60,420 11,598 44. 1% 60,420 22,271 36. 9% 17,681 60,420 29. 3% 17,681 67,982 26. 0% 17,681 33,692 52. 5% 0. 43 4,067 17,681 23. 0% 36,507 72,793 50. 2% 17,681 (1,543) 4,381 16,135 8,164 60,420 13. 5% 22. 7 (3. 2) 19. 6 2. 0 10. 4 2007 40,168 23,754 1. 69 10,693 1,303 8. 21 51,122 10,327 4. 95 51,122 66,384 0. 77 51,122 10,693 42. 2% 51,122 18,438 36. 1% 14,065 51,122 27. % 14,065 66,384 21. 2% 14,065 35,601 39. 5% 0. 39 3,798 14,065 27. 0% 32,074 63,171 50. 8% 14,065 (1,663) 4,071 12,400 7,121 51,122 13. 9% 17. 8 (2. 3) 15. 5 1. 4 25. 0 billions ACC-615 Dr. Finn; William Jacoby Bibliography Gogia, Sunit. 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