Global Financial Statement Analysis of Microsoft

Global Financial Statement Analysis, Microsoft
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Global Financial Statement Analysis, Microsoft
This discussion is on the financial analysis of Microsoft that will be evaluated through the common size statements, financial ratios, ten accounting issues, the difference between IFRS and GAAP concerning Microsoft, current events or news about Microsoft, and the technology industry-specific issues.
Common Size- Vertical Analysis
Below is the analysis that was carried out on the income statement, balance sheet, and cash flow statement.
Income Statement
Table 1.0 below is an excerpt of the common size income statement, as per the attached spreadsheet.
Table 1.0


Common size


Common size


Common size


2021


2020


2019


Total Revenue

168,088,000

100%

143,015,000

100%

125,843,000

100%

Cost of Revenue

52,232,000

31%

46,078,000

32%

42,910,000

34%

Gross Profit

115,856,000

69%

96,937,000

68%

82,933,000

66%

Operating Income

69,916,000

42%

52,959,000

37%

42,959,000

34%

Pre-tax Income

71,102,000

42%

53,036,000

37%

43,688,000

35%

Each item is expressed as a percentage of total revenue. For the fiscal years 2021, 2020, and 2019, the cost of revenue was 31%, 32%, and 34%. These consistent reductions imply that Microsoft has improved in terms of cost management for the three years. Gross profit was 69%, 68%, and 66%. Operating income was 42%, 37%, and 34%. Pretax income was 42%, 37%, and 35%. The company has exhibited consistent growth in its profitability for the three years in focus.
Balance Sheet
Table 1.1 below is an excerpt of the common size balance sheet, as per the attached spreadsheet.
Table 1.1
Each item is expressed as a percentage of total assets. For the fiscal years 2021, 2020, and 2019, total Cash, cash Equivalents & short-term investments were 39%, 45%, and 47%. The decreasing percentages over the years are a result of a decrease in short-term investments. Total Current Assets were 55%, 60%, and 61%. The reduction in 2021 resulted from the decrease in short-term investments. Total non-current Assets were 45%, 40%, and 39%. The increase in 2021 is attributed to the increased Properties and equipment and Long-Term Equity Investment. Total Current Liabilities were 27% (2021) and 24% for both 2020 and 2019. The increase in 2021 is attributable to the increases in Accounts Payable and current debt. Total liabilities were 57%, 61%, and 64%, the decreases in 2021 and 2020 are attributed to the decreases in Long Term Debt and Trade & Other Payables (Non-Current). Stockholder’s Equity was 43%, 39%, and 36%, with the increase in 2021 and 2020 resulting from increases in retained earnings and Gains Losses Not Affecting Retained Earnings.
Cash Flow Statement
Table 1.2 below shows the common-size Cash Flow Statement (see attached spreadsheet).
Table 1.2
Each item is expressed as a percentage of the total cash flow, in this case, the Net change in cash and cash equivalents. Operating Cash Flow contributed 11,843%, 2,733%, and 8,845% of the total cash flows in the fiscal years 2021, 2020, and 2019, respectively. Investing and Financing activities both had cash outflows in all three years.
Financial Ratios
Table 1.3 below shows the ...