Accounting Policy on Goodwill and Intangible Assets
Goodwill and Intangible Assets Disclosure
Adjustments to Financial Statements: Removal of Goodwill
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Goodwill

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

Intangible Assets

Microsoft’s intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from one to 20 years. Microsoft evaluates the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

Source: 10-K (filing date: 2019-08-01).

Microsoft Corp., balance sheet: goodwill and intangible assets

US$ in millions

		Jun 30, 2019		Jun 30, 2018		Jun 30, 2017		Jun 30, 2016		Jun 30, 2015		Jun 30, 2014
	Technology-based
	Customer-related
	Marketing-related
	Contract-based
	Finite-lived intangible assets, gross carrying amount
	Accumulated amortization
	Finite-lived intangible assets, net carrying amount
	Goodwill
	Intangible assets and goodwill

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

Item	Description	The company
Finite-lived intangible assets, net carrying amount	Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Microsoft Corp.’s finite-lived intangible assets, net carrying amount declined from 2017 to 2018 and from 2018 to 2019.
Goodwill	Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.	Microsoft Corp.’s goodwill increased from 2017 to 2018 and from 2018 to 2019.
Intangible assets and goodwill	Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Microsoft Corp.’s intangible assets and goodwill declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Microsoft Corp., adjustments to financial statements

US$ in millions

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Stockholders’ Equity
	Stockholders’ equity (as reported)
	Less: Goodwill
	Stockholders’ equity (adjusted)
	Adjustment to Net Income
	Net income (as reported)
	Add: Goodwill impairment
	Net income (adjusted)

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

Microsoft Corp., Financial Data: Reported vs. Adjusted

Microsoft Corp., adjusted financial ratios

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

Financial ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Microsoft Corp.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Microsoft Corp.’s adjusted total asset turnover ratio improved from 2017 to 2018 and from 2018 to 2019.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Microsoft Corp.’s adjusted financial leverage ratio declined from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Microsoft Corp.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Microsoft Corp.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Microsoft Corp., Financial Ratios: Reported vs. Adjusted

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income
	Revenue
	Profitability Ratio
	Net profit margin¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net income
	Revenue
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

2019 Calculations

¹ Net profit margin = 100 × Net income ÷ Revenue
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net income ÷ Revenue
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Microsoft Corp.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Revenue
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Revenue
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

2019 Calculations

¹ Total asset turnover = Revenue ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Microsoft Corp.’s adjusted total asset turnover ratio improved from 2017 to 2018 and from 2018 to 2019.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Stockholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted stockholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

2019 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= hidden ÷ hidden = hidden

Solvency ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Microsoft Corp.’s adjusted financial leverage ratio declined from 2017 to 2018 and from 2018 to 2019.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income
	Stockholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net income
	Adjusted stockholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

2019 Calculations

¹ ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Microsoft Corp.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net income
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-08-01), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31).

2019 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Microsoft Corp.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

	Microsoft Corp.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Microsoft Corp. (MSFT)

Analysis of Goodwill and Intangible Assets

Accounting Policy on Goodwill and Intangible Assets

Goodwill

Intangible Assets

Goodwill and Intangible Assets Disclosure

Adjustments to Financial Statements: Removal of Goodwill

Microsoft Corp., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

Microsoft Corp., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)