Microsoft Corp. (NASDAQ:MSFT)

Current Taxes

The current tax expense shows a consistent upward trend over the six-year period. Starting at 8,744 million USD in mid-2020, the amount increases steadily each year, reaching 28,851 million USD by mid-2025. The most significant increases occur between 2021 and 2023, with the expense more than doubling from approximately 9,981 million USD to 23,009 million USD. This upward trajectory suggests growing taxable income or changes in tax rates or laws affecting the company's current tax liabilities.

Deferred Taxes

Deferred tax expenses exhibit more variability and predominantly negative values from 2021 onwards. In mid-2020, the expense is minimal at 11 million USD, but it turns negative in mid-2021 (-150 million USD) and continues declining sharply to -6,059 million USD in mid-2023. Although there is some fluctuation, with a slight improvement to -4,738 million USD in mid-2024, the figure drops again to -7,056 million USD by mid-2025. These negative deferred tax amounts indicate the recognition of deferred tax benefits or liabilities reducing the overall tax expense in these periods, potentially due to timing differences between accounting and tax treatments.

Provision for Income Taxes

The provision for income taxes, which aggregates current and deferred tax expenses, rises consistently from 8,755 million USD in mid-2020 to 21,795 million USD by mid-2025. The growth rate is somewhat moderate compared to current taxes, reflecting the counteracting effect of negative deferred taxes. The provision increases gradually at first, then a more pronounced rise occurs between 2022 and 2024. Overall, this reflects a growing total tax burden, driven predominantly by current tax expenses, moderated by the deferred tax impacts.

The analysis of the tax-related financial metrics over the examined periods reveals several noteworthy patterns and shifts in the company's effective tax rate and its components.

U.S. Federal Statutory Tax Rate

The statutory tax rate remained constant at 21% throughout all periods, providing a stable baseline against which the other tax adjustments can be assessed.

Foreign Earnings Taxation

The percentage of foreign earnings taxed at lower rates showed a decreasing negative impact from -3.7% in 2020 to -1.3% in 2022, before fluctuating slightly to -1.8% in 2023 and stabilizing around -1.4% to -1.5% afterwards. This suggests a reduction in tax benefit from foreign earnings over time, indicating potential changes in foreign income composition or tax policy impacts.

Impact of Intangible Property Transfers

This factor was reported only in 2022 with a -3.9% effect, indicating a significant one-time impact that lowered the effective tax rate substantially for that year. Its absence in other years suggests either a unique event or revised accounting treatment around this date.

Foreign-Derived Intangible Income Deduction

This deduction has remained fairly stable, fluctuating mildly between -1.1% and -1.3%, and slightly reducing to -1% by 2025. This stability implies consistent utilization of this tax benefit across the entire period.

State Income Taxes, Net of Federal Benefit

State income taxes have increased slightly from 1.3% in 2020 to a peak of 1.6% in 2023, then slightly moderating to 1.5% in the last two reported years. This trend reflects modestly rising state tax burdens affecting the overall effective tax rate.

Research and Development Credit

The R&D credit contributing a reduction between -0.9% and -1.1% has remained fairly steady throughout the period, indicating ongoing, consistent benefits derived from this credit.

Excess Tax Benefits from Stock-Based Compensation

This component showed a decreasing negative impact from -2.4% in 2021 to -0.7% in 2023, before slightly increasing again but remaining below earlier levels. The lessening benefit suggests changes in stock-based compensation or related tax treatments affecting the tax rate favorably to a declining extent.

Interest, Net

The net interest impact remained low but showed a gradual increase from 0.5% in 2021 and 2022 to 1.1% in 2024, before slightly reducing to 1.0% in 2025. This positive effect on the tax rate indicates fluctuating but modest net interest expenses or income.

Other Reconciling Items, Net

This category fluctuated considerably, moving from a positive 1.3% in 2020 to negative values as low as -1.8% in 2021, then varying between -0.7% and 0.5% in subsequent years, ending at -1.4% in 2025. The volatility here indicates a variety of minor or non-recurring tax effects influencing the effective tax rate inconsistently.

Effective Tax Rate

The overall effective tax rate exhibits a downward trend from 16.5% in 2020 to a low of 13.1% in 2022, corresponding with notable tax benefits during that period, including intangible property transfers and foreign earnings effects. Subsequently, the rate surged to 19.0% in 2023 before declining gradually to 17.6% in 2025. This pattern reflects the interplay of various tax credits, deductions, and changes in foreign and state tax impacts, resulting in moderate fluctuations in the aggregate tax burden over time.

The financial data shows distinct trends in various expense categories, asset evaluations, and tax-related items over the analyzed periods.

Expenses related to personnel and provisions

Stock-based compensation expense exhibits a steady increase each year, rising from 461 million USD in 2020 to 909 million USD in 2025, indicating growing compensation costs possibly linked to employee incentives or expansions. Accruals, reserves, and other expenses have a generally upward trend with some fluctuations, notably a significant jump from 3,131 million USD in 2023 to 5,050 million USD in 2025, suggesting increased provisions or contingent liabilities. Loss and credit carryforwards grow consistently from 865 million USD in 2020 to 2,114 million USD in 2025, implying an accumulation of tax loss benefits or credits available for offsetting future taxable income.

Amortization and depreciation

Amortization values peak sharply in 2022 at 10,183 million USD, then dramatically decrease to approximately 4,118 million USD by 2025, reflecting changes in intangible assets or write-offs. Depreciation shows a continuous increase starting data from 2021 at -1,010 million USD to -5,699 million USD in 2025, indicating accelerated asset depreciation or increased capital expenditures on depreciable assets.

Leasing-related items

Leasing liabilities steadily increase from 3,025 million USD in 2020 to a substantial 12,874 million USD in 2025, more than tripling over the period. Correspondingly, leasing assets grow in magnitude on the negative side from -2,817 million USD to -12,696 million USD, reflecting the recognition of right-of-use assets and related obligations under lease accounting standards. These consistent rises demonstrate an expanding leasing portfolio or longer lease commitments.

Revenue recognition

Unearned revenue shows a steady accumulation, rising from 1,553 million USD in 2020 to 4,324 million USD in 2025, indicating an increase in advance payments or deferred contract revenues, possibly reflecting growth in subscription or service-based revenue streams.

Capitalized research and development

This category emerges as a significant line item starting in 2022 with 473 million USD and escalating dramatically to 16,891 million USD by 2025, signaling intensified investment in R&D activities with capitalization of related costs, which may enhance future product development and innovation potential.

Deferred income tax assets and liabilities

Deferred income tax assets consistently increase from 15,340 million USD in 2020 to 47,112 million USD in 2025, reflecting growing future tax benefits. The valuation allowance against these assets increases moderately in absolute value (negative) from -755 million USD to -1,169 million USD, indicating cautious recognition of realizable benefits. Net deferred income tax assets (assets minus liabilities) show a robust growth trend from 6,201 million USD to 26,273 million USD over the period, indicating an improving deferred tax position overall.

Other tax-related items

Book/tax basis differences in investments and debt display inconsistent values, starting negative, becoming positive in 2023, and then reducing again. Deferred tax on foreign earnings shows a decreasing negative balance from -2,581 million USD in 2020 to -1,148 million USD in 2025, which may reflect changes in foreign earnings or tax planning effects. Deferred income tax liabilities fluctuate but increase significantly toward 2025, reaching -19,670 million USD, highlighting growing future tax obligations. Other minor tax-related items show minor fluctuations without clear trend direction.

Overall, the data indicates expanding compensation costs, notable increases in leasing and deferred revenue related to business scale, substantial investment in research capitalized as assets, and evolving deferred tax positions with an improving net asset outlook. Amortization and depreciation trends suggest shifts in intangible and tangible asset bases, implying dynamic asset management and investment strategies over the assessed periods.

The analysis of long-term deferred income tax assets and liabilities over the six-year period reveals significant trends in their values.

Long-term Deferred Income Tax Assets

There is a consistent upward trend from 6,405 million USD in mid-2020 to 29,108 million USD in mid-2025. This indicates a substantial increase, more than quadrupling the initial value within five years. The rise is particularly notable between 2021 and 2023, where the asset value nearly tripled from 7,181 million USD to 20,163 million USD. Growth continues steadily through 2024 and 2025, albeit at a slightly slower rate.

Long-term Deferred Income Tax Liabilities

The liabilities exhibit relative stability at the start of the period, maintaining values around 200 million USD from 2020 to 2021, with a slight increase to 230 million USD in 2022. However, a pronounced escalation occurs from 2023 onward, jumping from 433 million USD to 2,618 million USD in 2024, and further to 2,835 million USD in 2025. This sharp increase indicates growing deferred tax obligations.

Comparative Insights

While both deferred tax assets and liabilities increased over the period, the assets grew at a much faster rate and to a larger absolute value. The widening gap between assets and liabilities suggests a net positive deferred tax position strengthening over time, which could enhance future tax benefit realization. The rapid rise in liabilities starting in 2023 merits attention, as it signals increasing deferred tax burdens that partially offset the growth in assets.

The financial data presents a clear evolution of key balance sheet and income statement items over a six-year period. Both reported and adjusted figures generally exhibit consistent upward trends, indicative of growth in financial size and profitability.

Total Assets

Reported total assets increased steadily from US$301,311 million in June 2020 to US$619,003 million in June 2025, more than doubling over the period. Adjusted total assets follow a similar upward trajectory, starting at US$294,906 million and reaching US$589,895 million by 2025. The gap between reported and adjusted assets narrows slightly over time, suggesting that adjustments for deferred income taxes have a consistent, though minor, impact on asset valuation.

Total Liabilities

Reported total liabilities rose from US$183,007 million in 2020 to US$275,524 million in 2025, marking an overall increase of approximately 50%. Adjusted total liabilities display a nearly identical pattern and level, moving from US$182,803 million to US$272,689 million during the same period. The minimal difference between reported and adjusted liabilities implies that deferred tax effects have limited influence on the classification or measurement of liabilities.

Stockholders’ Equity

Stockholders’ equity demonstrates a pronounced growth trend, with reported equity increasing from US$118,304 million in 2020 to US$343,479 million in 2025, nearly tripling in value. Adjusted equity consistently remains lower than reported equity but follows the same growth pattern, rising from US$112,103 million to US$317,206 million. This persistent difference could be attributed to deferred tax adjustments reducing equity balances. The strong growth in equity reflects retained earnings accumulation and possibly capital contributions.

Net Income

Reported net income exhibits steady growth from US$44,281 million in 2020 to US$101,832 million in 2025, more than doubling over the period. Adjusted net income remains very close to reported values but generally trends slightly lower, starting at US$44,292 million and reaching US$94,776 million in 2025. The relatively small deviation suggests that deferred income tax adjustments slightly reduce recognized profits but do not substantially alter the overall profitability trend.

In summary, the data reveal sustained growth in asset base, liabilities, equity, and profitability. Adjustments for deferred income taxes consistently reduce asset, equity, and net income values marginally, while liabilities remain largely unaffected. The robust increase in equity alongside growing assets and liabilities suggests effective capital management and earnings retention. Profitability growth, evidenced by rising net income, supports the financial strength and expansion capacity over the observed timeframe.

Net Profit Margin

The reported net profit margin exhibited an overall increasing trend from 30.96% in mid-2020, peaking at 36.69% in mid-2022, followed by a slight decline and stabilization around 36.15% by mid-2025. The adjusted net profit margin showed a similar trajectory but with more fluctuation: rising from 30.97% to 36.36% in mid-2021, then dipping to 31.29% by mid-2023 before partially recovering to 33.64% in mid-2025. This suggests that adjustments, likely related to non-recurring tax items, decreased profitability in recent periods compared to the reported figures.

Total Asset Turnover

Reported total asset turnover increased from 0.47 in mid-2020 to a peak of 0.54 in mid-2022, then steadily declined to 0.46 by mid-2025. Adjusted total asset turnover consistently exceeded the reported figures and followed a similar pattern, rising from 0.48 to 0.56 by mid-2022 before decreasing to 0.48 by mid-2025. This indicates that asset utilization efficiency improved until 2022 but weakened thereafter, though adjusted data consistently reflects a slightly higher turnover.

Financial Leverage

Both reported and adjusted financial leverage ratios show a clear downward trend over the period. Reported leverage declined from 2.55 in mid-2020 to 1.80 in mid-2025, while adjusted leverage decreased more moderately from 2.63 to 1.86. This reduction implies a gradual reduction in reliance on debt or other liabilities to finance assets, enhancing the company's financial stability over time.

Return on Equity (ROE)

Reported ROE rose sharply early in the period from 37.43% in mid-2020 to a peak of 43.68% by mid-2022, then dropped significantly to 29.65% by mid-2025. Adjusted ROE exhibited a similar trend, peaking at 45.27% in mid-2021, then decreasing more gradually to 29.88% by the latest period. The decline in ROE signals reduced profitability relative to shareholders’ equity, perhaps due to reduced profit margins, asset turnover, and financial leverage.

Return on Assets (ROA)

Reported ROA increased steadily from 14.7% in mid-2020 to 19.94% in mid-2022, before declining to 16.45% by mid-2025. Adjusted ROA followed a comparable pattern, peaking slightly earlier at 19.08% in mid-2022 and reaching 16.07% in mid-2025. The trends suggest that asset profitability improved through 2022 but has since diminished slightly, with adjusted figures reflecting a marginally lower but consistent performance compared to reported values.

Reported Net Income

The reported net income exhibits a consistent upward trend from June 30, 2020, to June 30, 2025. Starting at $44,281 million in 2020, it increased substantially to $101,832 million by 2025. The growth appears steady, with the most notable increases occurring between 2023 and 2025.

Adjusted Net Income

The adjusted net income also shows an increasing trajectory over the examined period, rising from $44,292 million in 2020 to $94,776 million in 2025. However, the pace of growth is generally slower compared to the reported net income, especially visible from 2021 onward, where the adjusted figures lag behind the reported net income margins indicating adjustments have a dampening effect on reported profitability.

Reported Net Profit Margin

The reported net profit margin ranges from a low of 30.96% in 2020 to a high near 36.69% in 2022, followed by a slight decline and then stability around 36% in 2024 and 2025. This pattern suggests fluctuations in profitability efficiency, with strong margins maintained overall but subtle declines observed in the mid-period before recovering.

Adjusted Net Profit Margin

The adjusted net profit margin shows greater variability compared to the reported margin. Starting close to the reported figure at 30.97% in 2020, it peaks at 36.36% in 2021, then declines to approximately 31.29% in 2023 before partially recovering to 33.64% in 2025. This indicates that adjustments for deferred and income taxes have a material impact on profitability trends, often reducing the margins relative to reported figures, especially in the mid-period years.

Overall Insights

The analysis reveals a consistent growth in both reported and adjusted net income over the five-year horizon, reflecting robust financial performance. The stronger growth in reported net income compared to adjusted figures suggests significant non-cash tax or timing adjustments affecting the latter. Profit margins, while generally stable, exhibit some divergence between reported and adjusted metrics, highlighting the impact of tax-related adjustments on effective profitability. This pattern points to the importance of considering both reported and adjusted figures for a comprehensive understanding of sustainable earnings and profitability trends.

Total Assets (Reported and Adjusted)

Over the six-year period ending in June 2025, the reported total assets show a consistent upward trend, increasing from 301,311 million US dollars in 2020 to 619,003 million US dollars in 2025. This represents more than a doubling of assets within the timeframe. Adjusted total assets follow a similar trajectory, rising steadily from 294,906 million US dollars in 2020 to 589,895 million US dollars in 2025. The difference between reported and adjusted assets remains fairly stable, suggesting consistent adjustments related to deferred taxes or other tax-related accounting factors.

Total Asset Turnover (Reported and Adjusted)

The reported total asset turnover shows a generally declining trend after initially increasing from 0.47 in 2020 to a peak of 0.54 in 2022. From 2022 onwards, it declines steadily to 0.46 by 2025. This indicates a decreasing efficiency in generating revenue from the asset base over the latter years. The adjusted total asset turnover exhibits a somewhat similar pattern, increasing from 0.48 in 2020 to 0.56 in 2022, followed by a decline to 0.48 in 2025. Throughout the period, adjusted asset turnover figures are slightly higher than the reported ones, implying that adjustments made have some impact on perceived efficiency.

Insights and Observations

The continuous increase in both reported and adjusted total assets highlights significant growth or capital investment within the company over the studied period. However, the declining trend in total asset turnover ratios after 2022 indicates that the company's efficiency in utilizing its asset base to generate revenue has diminished somewhat. This could warrant further investigation into operational efficiency, asset management, or revenue growth dynamics in relation to asset expansion. The closeness of reported and adjusted figures suggests that while tax-related adjustments affect asset values and turnover ratios, the overall financial trends remain consistent across both reported and adjusted data.

The analysis of financial data over the reported periods reveals several key trends. Both reported and adjusted total assets consistently increase each year, indicating ongoing asset growth. The reported total assets rose from 301,311 million US dollars in 2020 to 619,003 million US dollars in 2025, while adjusted total assets followed a similar upward trajectory, increasing from 294,906 million US dollars in 2020 to 589,895 million US dollars in 2025. This suggests steady expansion in asset base, albeit with slight adjustments related to income tax considerations.

Stockholders’ equity also shows a consistent upward trend for both reported and adjusted figures. Reported stockholders’ equity increased from 118,304 million US dollars in 2020 to 343,479 million US dollars in 2025. Adjusted stockholders’ equity similarly rose from 112,103 million US dollars to 317,206 million US dollars during the same period. The increases in equity reflect successful retention of earnings or capital infusion contributing to the company’s net worth.

Financial leverage, which measures the ratio of total assets to stockholders’ equity, shows a declining trend for both reported and adjusted values over the observation period. The reported financial leverage decreased from 2.55 in 2020 to 1.80 in 2025, while the adjusted financial leverage declined from 2.63 to 1.86. This reduction indicates a gradual move toward lower reliance on debt financing relative to equity, suggesting an improvement in the financial stability and lower financial risk over time.

Total Assets

Continuous growth observed in both reported and adjusted figures indicating expansion of asset base.

Adjustment differences are minor but indicate some impact from deferred income tax adjustments.

Stockholders’ Equity

Consistent increase over the years points to capital growth and accumulation of retained earnings.

The gap between reported and adjusted equity widens slightly, reflecting differential treatment of income tax effects.

Financial Leverage

Declining leverage ratios indicate reduced financial risk and less dependence on debt financing relative to equity.

Adjusted leverage maintains a slightly higher level than the reported leverage but follows the same downward pattern.

The financial data presents a multi-year perspective on net income, stockholders’ equity, and return on equity (ROE) both in reported terms and adjusted for annual reported and deferred income tax.

Net Income

Reported net income shows a general upward trend from 44,281 million USD in 2020 to 101,832 million USD in 2025. There was a marked increase from 2023 to 2025, with values rising from 72,361 to 101,832 million USD. Adjusted net income also follows an increasing pattern but remains slightly lower than reported figures after 2021, suggesting tax adjustments have a diminishing effect on income in recent years. The adjusted figures increase from 44,292 million USD in 2020 to 94,776 million USD in 2025, highlighting consistent growth but at a somewhat slower pace relative to the reported net income.

Stockholders’ Equity

Both reported and adjusted stockholders’ equity demonstrate strong growth throughout the observed period. Reported equity rises steadily from 118,304 million USD in 2020 to 343,479 million USD in 2025. Adjusted equity is lower than reported equity in all years, indicating the adjustments reduce the equity base, possibly due to deferred tax liabilities or other tax-related factors. Despite this, adjusted equity also grows significantly, from 112,103 million USD in 2020 to 317,206 million USD in 2025. The substantial increases suggest sustained capital accumulation and retained earnings contributing to equity.

Return on Equity (ROE)

Reported ROE peaks in 2022 at 43.68% and then trends downward, falling to 29.65% by 2025. This decline indicates that although net income and equity were increasing, the pace of growth in equity outstripped income growth in the later years, diluting returns. Adjusted ROE shows a similar trajectory, peaking at 45.27% in 2021 and declining to 29.88% by 2025. The consistently higher adjusted ROE compared to reported ROE in the early years suggests that adjusted net income provided a more favorable measure of profitability relative to equity, but this advantage shrinks over time.

Overall, the trends reveal strong growth in both net income and equity, with adjustments for deferred and reported income tax consistently lowering reported figures but not altering the upward trajectory. The declining ROE in the latter years highlights the importance of considering equity growth dynamics in assessing profitability performance.

Net Income Trends

Reported net income shows a consistent upward trend from 44,281 million USD in mid-2020 to 101,832 million USD in mid-2025, more than doubling over this five-year period. Adjusted net income follows a similar trajectory, increasing from 44,292 million USD to 94,776 million USD during the same periods, though it exhibits slightly more conservative growth than the reported figures. The divergence between reported and adjusted net income widens over time, indicating increasing adjustments possibly related to deferred taxes or other non-recurring items.

Total Assets Trends

Reported total assets demonstrate substantial growth, rising from 301,311 million USD in mid-2020 to 619,003 million USD in mid-2025, more than doubling in size. Adjusted total assets also increase steadily, but values are consistently lower than reported amounts, suggesting certain asset adjustments over time. The growth in adjusted assets from 294,906 million USD to 589,895 million USD highlights ongoing expansion in asset base, albeit with notable adjustments reducing the reported figures.

Return on Assets (ROA) Trends

Reported ROA reaches its peak at 19.94% in mid-2022 before experiencing a gradual decline to 16.45% by mid-2025. Adjusted ROA trends similarly, peaking slightly earlier at 19.08% in 2022 and declining to 16.07% by 2025. The difference between reported and adjusted ROA remains relatively small but consistent, reflecting the effect of tax and accounting adjustments on profitability relative to asset base. Overall, ROA indicates efficient asset utilization with a peak in 2022 followed by moderate decline, possibly due to the rapidly increasing asset base outpacing net income growth.

Overall Observations

Across all metrics, the company shows robust growth in profitability and asset accumulation over the five-year period. Adjusted figures consistently show lower magnitudes than reported figures, highlighting the impact of reclassifications or deferred tax considerations on the financials. The decline in ROA after 2022 despite rising net income suggests a strategy of significant asset expansion, which may have short-term dilution effects on asset efficiency ratios. These patterns imply a focus on scaling asset investments while maintaining strong net income increases, albeit with gradually reducing returns on assets.