Analysis of Investments
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Microsoft Corp., adjustment to net income
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
An analysis of the financial results from June 30, 2021, to June 30, 2026, reveals a sustained upward trajectory in both reported and adjusted net income. While both metrics demonstrate significant long-term growth, the relationship between them fluctuates, indicating varying impacts from the mark-to-market valuation of available-for-sale securities.
- Net Income Growth Trends
- Reported net income grew from 61,271 million US dollars in 2021 to 133,749 million US dollars in 2026. This growth pattern was marked by a period of relative stability between 2022 and 2023, followed by a sharp acceleration in earnings from 2024 onward. Adjusted net income followed a nearly identical growth curve, rising from 59,005 million US dollars to 133,964 million US dollars over the same period.
- Evaluation of Mark-to-Market Adjustments
- A divergence in the relationship between reported and adjusted figures is observed across two distinct phases. From 2021 to 2023, reported net income consistently exceeded adjusted net income, suggesting that positive mark-to-market adjustments contributed to the reported totals. The most significant gap occurred in 2022, where reported income was 5,360 million US dollars higher than adjusted income. Starting in 2024, this trend reversed; adjusted net income began to exceed reported net income, indicating that unrealized losses on available-for-sale securities weighed down reported earnings, requiring a positive adjustment to reach the adjusted figure.
- Convergence and Volatility
- The volatility of the adjustments decreased toward the end of the observed period. While the variance between reported and adjusted figures was substantial in 2022, the gap narrowed significantly by 2026, where the difference was reduced to 215 million US dollars. This convergence suggests a reduction in the relative impact of available-for-sale security valuations on the overall net income profile as the scale of total earnings increased.
Adjusted Profitability Ratios: Mark to Market Available-for-sale Securities (Summary)
Microsoft Corp., adjusted profitability ratios
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
The analysis of profitability ratios from 2021 to 2026 reveals a divergent trend between margin expansion and returns on invested capital. While net profit margins demonstrate an upward trajectory in the latter half of the period, both Return on Equity (ROE) and Return on Assets (ROA) show overall compression or stabilization.
- Net Profit Margin
- Reported net profit margins remained relatively stable between 2021 and 2025, fluctuating between 34.15% and 36.69%, before experiencing a substantial increase to 40.31% in 2026. Adjusted net profit margins followed a nearly identical pattern, though they remained lower than reported figures until 2024, after which the adjusted and reported values converged almost entirely.
- Return on Equity (ROE)
- A consistent downward trend is observed in ROE. Reported ROE declined from a peak of 43.68% in 2022 to 30.23% in 2026. Adjusted ROE mirrored this trajectory, moving from 41.56% in 2021 to 30.28% in 2026. This significant reduction suggests a potential increase in the equity base or a decrease in the efficiency of equity utilization relative to net income over the six-year period.
- Return on Assets (ROA)
- ROA exhibited the lowest volatility among the analyzed ratios. Reported ROA peaked at 19.94% in 2022 and reached a low of 16.45% in 2025, before recovering to 17.64% in 2026. Adjusted ROA remained closely aligned with reported values, consistently staying within a narrow range between 16.71% and 18.47%.
The variance between reported and adjusted ratios highlights the impact of mark-to-market adjustments on available-for-sale securities. In the earlier years of the period, these adjustments created a visible gap, particularly within the ROE and net profit margin metrics. By 2026, the delta between reported and adjusted figures effectively vanished, suggesting that the volatility associated with these securities has diminished or their relative impact on the overall financial structure has become negligible.
Microsoft Corp., Profitability Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
2026 Calculations
1 Net profit margin = 100 × Net income ÷ Revenue
= 100 × 133,749 ÷ 331,839 = 40.31%
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenue
= 100 × 133,964 ÷ 331,839 = 40.37%
Analysis of profitability metrics reveals a sustained growth trajectory in net income accompanied by a fluctuating but ultimately expanding adjusted net profit margin over the observed six-year period.
- Net Income Performance
- A consistent upward trend is observed in both reported and adjusted net income. Adjusted net income grew from 59,005 million USD in 2021 to 133,964 million USD by 2026. This represents a substantial increase in absolute earnings, with the most significant acceleration occurring between 2025 and 2026.
- Adjusted Net Profit Margin Dynamics
- The adjusted net profit margin exhibited a U-shaped trajectory. An initial decline occurred between 2021 and 2023, where the margin dropped from 35.10% to a minimum of 33.46%. This downward trend reversed in 2024, initiating a period of expansion that culminated in a peak of 40.37% by 2026.
- Comparative Margin Analysis
- Between 2021 and 2025, the reported net profit margin generally remained higher than the adjusted net profit margin. However, this gap narrowed significantly over time. By 2026, both the reported (40.31%) and adjusted (40.37%) margins converged, indicating a high level of alignment between reported results and adjusted performance metrics during the final period.
- Operational Efficiency Insights
- The expansion of the adjusted net profit margin from 33.46% in 2023 to 40.37% in 2026 suggests a significant improvement in cost management or a shift toward higher-margin revenue streams, as the rate of profit growth outpaced the growth of overall revenue.
Adjusted Return on Equity (ROE)
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
2026 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × 133,749 ÷ 442,387 = 30.23%
2 Adjusted ROE = 100 × Adjusted net income ÷ Stockholders’ equity
= 100 × 133,964 ÷ 442,387 = 30.28%
An analysis of the financial performance from June 30, 2021, to June 30, 2026, reveals a divergent trend between absolute profitability and the efficiency of equity utilization. While net income has experienced substantial growth, the return on equity has undergone a consistent decline over the period.
- Net Income Growth
- Adjusted net income demonstrates a strong upward trajectory, increasing from US$ 59,005 million in 2021 to US$ 133,964 million by 2026. This growth is characterized by a steady rise through 2024, followed by an acceleration in the final two years, with the 2026 figure representing more than double the earnings recorded in 2021.
- Adjusted Return on Equity (ROE) Trends
- Despite the increase in net income, the adjusted ROE exhibits a downward trend, falling from 41.56% in 2021 to 30.11% in 2025. A period of stabilization is observed between 2025 and 2026, where the ratio remains nearly flat at approximately 30.2%. The decrease in ROE amidst rising profits suggests that the growth in shareholders' equity has outpaced the growth in adjusted net income.
- Comparative Analysis of Reported vs. Adjusted Metrics
- A high degree of correlation exists between reported and adjusted figures. The variance between reported ROE and adjusted ROE remains narrow throughout the six-year period, indicating that non-recurring items or adjustments have a marginal impact on the overall return profile. Both metrics follow the same trajectory of contraction, moving from the 40% range in 2021-2022 to the 30% range by 2026.
The data indicates a transition in the capital structure or investment phase, where significant increases in the equity base have diluted the return percentage, even as the absolute scale of profitability expanded considerably.
Adjusted Return on Assets (ROA)
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
2026 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × 133,749 ÷ 758,376 = 17.64%
2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × 133,964 ÷ 758,376 = 17.66%
A significant upward trajectory is observed in both reported and adjusted net income over the six-year period ending June 30, 2026. Adjusted net income grew from US$ 59,005 million in 2021 to US$ 133,964 million in 2026, indicating a substantial increase in absolute profitability.
- Net Income Trends
- Reported net income exhibits consistent growth, with a notable acceleration between 2024 and 2026, during which values rose from US$ 88,136 million to US$ 133,749 million. Adjusted net income follows a nearly identical pattern, suggesting that non-recurring items have had a minimal impact on the long-term earnings trajectory.
- Adjusted Return on Assets (ROA)
- The Adjusted ROA displays greater volatility than net income. Following a peak of 18.47% in 2022, the ratio declined to a low of 16.71% in 2025 before recovering to 17.66% in 2026. This pattern indicates that while profitability is increasing, the growth of the asset base has periodically outpaced the growth of net earnings.
- Comparison of Reported vs. Adjusted ROA
- Reported ROA remained generally higher than Adjusted ROA in the early years of the period but converged with the adjusted figure by 2026. The narrow gap between these two metrics suggests high consistency between reported accounting figures and adjusted performance metrics regarding asset efficiency.
The divergence between the rapid increase in net income and the relatively stable or slightly declining ROA suggests a strategic expansion of the balance sheet. The trend indicates that heavy investments in assets are being deployed, which initially pressured the return ratio before showing signs of stabilization and recovery toward the end of the period.