Analysis of Microsoft Financial Statements
Analysis of Financial Statements
Financial statements are frequently a key source of information for financial decisions and taking a look at Microsoft’s financial statements can help us decide certain things about the company. There are three different types of statements that will be discussed in this section. These include: the balance sheet, the income statement, and the statement of cash flows. They are discussed here in either the sense of quarterly or yearly statements and will be noted as so. All information has been derived from Yahoo Finance. (http://finance.yahoo.com) The first statement that will be analyzed for Microsoft is the balance sheet. The balance sheet is essentially a snapshot of what the firm owns (assets), what the firm owes (liabilities), and the difference between the two (equity) at a single moment in time. When we analyze a balance sheet, we must keep in mind that the values on this statement are the book values and are not necessarily what the company is worth at this exact moment in time, or the market values. Something we can see right away is an estimate of how much net working capital Microsoft has by analyzing the quarterly data of the period ending December 31, 2011. Net working capital shows how cash that will become available fairs with the cash that must be paid over the next twelve months by taking current assets and subtracting current liabilities. For Microsoft, this is $72,513,000,000-$25,373,000,000=$47,140,000,000 and is looked upon positively for a healthy firm. The use of debt in a firm’s capital structure is called financial leverage and the more debt a firm has (as a percentage of assets), the greater the financial leverage. If we take a look at the yearly balance sheets for 2009, 2010, and 2011 for Microsoft, we can see that each year debt becomes a bigger percentage of total assets. In 2009, debt is 4.8% of assets. In 2010, it is 5.7%. In 2011, it is 11%. This could be viewed at in either a
Financial statements are frequently a key source of information for financial decisions and taking a look at Microsoft’s financial statements can help us decide certain things about the company. There are three different types of statements that will be discussed in this section. These include: the balance sheet, the income statement, and the statement of cash flows. They are discussed here in either the sense of quarterly or yearly statements and will be noted as so. All information has been derived from Yahoo Finance. (http://finance.yahoo.com) The first statement that will be analyzed for Microsoft is the balance sheet. The balance sheet is essentially a snapshot of what the firm owns (assets), what the firm owes (liabilities), and the difference between the two (equity) at a single moment in time. When we analyze a balance sheet, we must keep in mind that the values on this statement are the book values and are not necessarily what the company is worth at this exact moment in time, or the market values. Something we can see right away is an estimate of how much net working capital Microsoft has by analyzing the quarterly data of the period ending December 31, 2011. Net working capital shows how cash that will become available fairs with the cash that must be paid over the next twelve months by taking current assets and subtracting current liabilities. For Microsoft, this is $72,513,000,000-$25,373,000,000=$47,140,000,000 and is looked upon positively for a healthy firm. The use of debt in a firm’s capital structure is called financial leverage and the more debt a firm has (as a percentage of assets), the greater the financial leverage. If we take a look at the yearly balance sheets for 2009, 2010, and 2011 for Microsoft, we can see that each year debt becomes a bigger percentage of total assets. In 2009, debt is 4.8% of assets. In 2010, it is 5.7%. In 2011, it is 11%. This could be viewed at in either a