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Microsoft 2012 2Q financial analysis

Microsoft first time ever announced quarter loss at 2012 2Q. That was due to 6,2 bn.$ Goodwill write-off. Such Goodwill comes from acquisitions, were company is bought for higher then its balance value. Companies with large Goodwill in their balance are at risk of such write-offs. This is basically including purchase expenses into companies Income statement from balance sheet. If excluded companies results does not look that bad. Revenue 18,1 bn.$ show slight increase by 5% an if excluded Goodwill write off Net income before depreciation would be 6,5 bn.$ also increased a bit if compared both to Q1 – 5,9 bn.$ and previous year Q2 – 6,4 bn.$. and that is a good sign.

Income structure shows that companies main product Windows Revenue has decreased from 4,7 bn.$ to 4,1 bn.$, this is defiantly not a good sign, but hopes are in newly launching Windows8. Net income has also drooped from this vital segment from 2,9 bn.$ to 2,4 bn.$. This could signal that company is losing its market to net Apple iPad and other tablets, but company is launching its own tablet at the end of this year, so things could turn. Growth came from companies Business and server segments, this segment is the one that keeps companies small growth. Also surprisingly Entertainment segment is also increased its sales, but still remains a loss segments for Microsofts. Online services is very tiny – 0,7 bn.$ so Microsoft goal to compete with Google is far from reach also 6.2 bn.$ write-off was from this segment

According to http://www.netmarketshare.com Windows share in desktop computers remain hard 92% and almost remain unchanged. But Desktop computers are losing ground to mobile technologies as Mobile device market is dubbing each year.  In general companies results are average.

Major change in balance is a decrease of Goodwill, other remain mainly unchanged. Equity level has decreased to 54% and is in good level. Return on asset was negative this quarter.

Liquidity ratio remains good 2,6 due to large Cash and short term investment reserve – 63 bn.$ (~1/2 of total asset) which has increased from ~59 bn.$ since last quarter.

Last 4 quarter Divident payments was 6,4 bn.$, share repurchase for 3,1 bn.$ in total Capital spending were 9,5 bn.$, that’s 37% of 26 bn.$  generated Net income before depreciation and goodwill write-off, which is a good level.  In general balance structure is acceptable.

Share value: 

Equity / share 65,8 bn.$  8,381 bn. 7,8 $/sh.
Market value 31$ +23,2$ 7,5 years
Year Net income before Depreciation 26,0 bn.$* +3,1 $/sh. 10,0%

Companies share basic value has decreased to ~7,8$ (Δ-5%/8,2$ compared with Q1) due to write-offs.  Current market price is~31$  (Δ-3,1%/32$) which shows that market is paying 23,2$ more or 7,5 years (7,7 years) of Net income before Depreciation earnings which is 26 bn.$, excluding 6,2 bn.$ write-off. Share evaluation remains quite high. Share profitability (Share market price/Net income before Depreciation) is 10,0% (Δ+0,1%/9,7%) which is a bit better then average and has increased a little bit due to reduced share number.

Company announced that it will remain paying 0,2$/share a quarter dividend. Dividend yield is ~2,6% (2,5%) dividend yield which is a bit low. Dividend growth is not projected as companies generated profit is not growing and even decreasing a little bit. In general companies share value is a bit pricey and company further growth is questionable. 

Analysis source: Microsoft  2012 2Q Financial Results

Previous analysis: Microsoft 2012 1Q financial analysis

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