Microsoft Analysis

Microsoft… where to begin.  Tunaman and I first bought Microsoft after the correction in December 2018.  The stock was then priced at $100.  We thought we were nuts for buying a couple of shares for this price.  Now looking back, I wish I put all of my money into MSFT.  The company is currently trading at over $140.  Some reasons we chose to buy shares of Microsoft and why we will continue to buy are as follows. First is Windows 10, and all the windows to support it. At both Tuna and my internships this summer, all of the computers in the office were running on Windows 10.  I worked for a construction company in Manhattan, where we would bid on contracts worth several hundred million dollars. Tunaman worked for an international multi-billion dollar financial solutions company that made deals through bartering commercial blocks on your favorite TV channels. Both of our internships relied on Windows 10. Similarly, my college asks all freshmen to purchase a laptop through the school, and guess what… they run on Windows 10.  Microsoft also creates the Xbox, video games, and several other gaming appliances like headsets, these factors are just a couple reasons why Microsoft is so highly valued.  Also, Microsoft has just landed a $10 billion deal with the government for creating their cloud services, another factor that will boost their shares.  Finally, Mr. Bill Gates, even though he is not the CEO anymore, has built one of the most well-known companies in the world.  Mark my words, Microsoft isn’t going anyway for the next 15-20 years.

Enough words and bragging about how great Microsoft is.  Everyone knows Microsoft, that’s why it’s shares are a great buy.  It is also a great buy because of its numbers.  Year after year after year, Microsoft is bringing in money.  In fact, Microsoft has been paying dividends since 2011 and has been increasing every year.  Below you can see our ratios applied towards Microsoft’s balance sheet and income statement from 2018 and 2019.  If you need a refresher on what these ratios are, please check out the drop-down menu, and you will find links to our descriptions.

Solvency Ratios 2018 2019
>1 Current Ratio 2.29 1.9
>1 Quick Ratio 2.24 1.9
high % Current Liabilities to Net Worth % 70.7% 67.8%
>100% Total Liabilities to Net Worth % 133.4% 64.6%
<.75 Fixed Assets to Net Worth  1.08 1.08
Efficiency Ratios
Normal Period is 30 days Collection Period (days) 87.6 163.1
Higher is good Sales to Inventory (Inventory Turnover) % 4145.8% 3202.6%
HIgher is good Assets to Sales % 234.5% 433.7%
Compare to the industry norm Accounts Payable to Sales (days) 28.5 51.8
Profitability Ratios
Looking for growth Return on Sales % 15% 59%
Higher than the industry norm Return on Assets % 6.4% 13.7%
>10% Return on Net Worth % 20% 38.3%

What you can see here is that Mircosoft has high liquidity from its current and quick ratio. Microsoft has low debt, it rapidly sells its merchandise, it shows a healthy level of profit, good growth in its profitability, and a stable “final measure” of return relative to investments in the company.

Lastly, one of the more important ratios,  the P/E Ratio.  This creates a baseline for all compares to compare themselves to the market average.  The current average P/E Ratio of the market is between 20 and 25.  High P/E Ratios show that investors believe in large amounts of future growth.  A low P/E Ratio is still solid, you are getting more earnings per your investment.  Although it also means investors are concerned for the stocks future growth

Current P/E Ratio (11/1/2019)

MSFT Current Price $143

MSFT EPS $1.38

MSFT P/E Ratio = 103.6



Categories: Analysis

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