In an earlier post, we examined
Microsoft's
(NASDAQ: MSFT) Income Statement for
the June quarter and compared the figures to our
"look-ahead" estimates. Earnings fell from
$0.46 per share to $0.34 in this fourth quarter of Microsoft's fiscal year 2009.
We have since mined the financial statements in Microsoft's
earnings announcement to update the metrics we use to assess
Cash Management,
Growth,
Profitability and
Value. This post reports on these metrics and the
Financial Gauge scores.
If necessary, we will update the analysis results after Microsoft files its 10-K report for the year with more detailed information.
In summary, Microsoft's latest GCFR
gauge scores are as follows:
The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.
In its
first bond offering, Microsoft sold
debt securities worth $3.75 billion in May 2009. Since the company has over $31 billion in Cash and
Short-term investments on its
Balance Sheet, and since
Cash Flow from Operations averaged $4.76 billion per quarter in fiscal 2009, the debt is not especially significant. Microsoft has, however, exercised a means of raising larger amounts of cash should management, for example, decide to pursue a large acquisition.
Microsoft
joined the elite ranks of non-financial entities with
AAA rating bond ratings, which is the highest
S&P grade, last September.
We're curious if there is an issue involving
Accounts Receivable, which is reflected in the
Days of Sales Outstanding metric. Shorted periods are preferred because it indicates the company is getting paid faster. The increase shown in the table above got our attention, but the bigger concern might be that the
Allowance for Doubtful Receivables spiked unprecedentedly in the last quarter from
$242 million to $451 million. Is a big customer slowing payments?
Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.
The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.
The 3.3-percent drop in Revenue during the last four quarters was
the first time Micro
soft's Revenue fell from one fiscal year to the next.
Fiscal 2009 was also the first year since 2002 in which Net Income declined.
The Operating Expense ratio above was negatively affected by the lower margins on software for inexpensive
netbooks and the decline in Revenue. However, Microsoft's
cost-cutting actions announced at the beginning of the year have gained traction and should help reduce the expense ratio in the future.
Although the ROIC and FCF/IC ratios are still impressive, their significant declines in the last year should be considered.
Microsoft's stock price rebounded 29 percent during the April-June quarter, from $18.37 to $23.77, and this, coupled with the last quarter's weak results, ended Microsoft's time with a perfect 25-point Value gauge score. Nevertheless, 18 points is still a very good result.
These ratios for Microsoft can be compared with other companies in the
Application Software industry.
| Overall | Jun 2009 | Mar 2009 | Jun 2008 | 5-Yr Avg |
| Gauge Score (0 to 100) | 61 | 69 | 65 | 64 |
We will conclude with one more ratio. At the end of June, Microsoft's Market Value was about $212 billion. Cash Flow from Operations in fiscal 2009, a challenging year for the company, was $19 billion. Therefore, the
Price/Cash Flow ratio was about 11. The inverse of this number indicates that each dollar to purchase a share of Microsoft returns 9 cents in annual cash flow.
Full disclosure: Long MSFT at time of writing.
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