CASH FLOW STATEMENT ANALYSISOver three years, net cash from operations has exceeded net income creating more than enough cash to cover reported depreciation amounts and normal common stock cash dividends. This indicates that Microsoft can support its cash needs with its operations and points to why the company does not rely on borrowing. Account receivables increased twofold each year, which indicates potential future growth. Also, deduction trends in current assets and liabilities demonstrate sustained increases in operating assets and decreases in operating liabilities.
Stock repurchase has been more than doubled since 2004. This could possibly be because of undervaluation issues or an effort to boost Microsoft's P/E ratio. The large net decrease in cash in 2005 can be entirely attributed to the abnormal jump in common stock cash dividends that year. In '05, Microsoft paid 1400% more in dividends than the yearly average. There is no other significant decrease in any other item for '05 on the cash flow statement.
Since '04, Microsoft has steadily increased acquisition of other companies, which is typical of companies as large as Microsoft. This is also a good indicator of future growth. Microsoft's purchase of investments has declined over the three years whereas the sale of investments has remained relatively stable. In '06, they sold more investments than they bought. This may mean the company has less cash to invest because of losses or the money is being used elsewhere, such as stock dividends.
COMPETITORSAdobe, Oracle, and CA, Inc. are Microsoft's main competitors. These companies are the biggest ones in the software application industry of technology sector.
1. Profitability RatiosProfit margin and ROIC are two ratios that relate the earnings of the company to capital that has been sacrificed for more than the company's operating cycle. Profit margin is a measurement that portrays the...