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Microsoft Excel LibreOffice Calc

Microsoft Corp. (MSFT)


Analysis of Operating Leases

High level of difficulty


Accounting Policy on Operating Leases

Microsoft determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in Microsoft’s consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in Microsoft’s consolidated balance sheets.

ROU assets represent Microsoft’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, Microsoft generally uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that Microsoft will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Microsoft has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, Microsoft accounts for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, Microsoft applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

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


Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)

Microsoft Corp., future operating lease payments (before adoption of FASB Topic 842)

US$ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Total undiscounted future operating lease payments hidden hidden hidden hidden hidden hidden
Discount rate1 hidden hidden hidden hidden hidden hidden
 
Total present value of future operating lease payments hidden hidden hidden hidden hidden hidden

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).

1 Weighted-average interest rate for Microsoft Corp.’s debt

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at hidden
2018 hidden 2018 hidden hidden
2019 hidden 2019 hidden hidden
2020 hidden 2020 hidden hidden
2021 hidden 2021 hidden hidden
2022 hidden 2022 hidden hidden
2023 and thereafter hidden 2023 hidden hidden
2024 hidden hidden
2025 hidden hidden
2026 hidden hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2017-08-02).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at hidden
2017 hidden 2017 hidden hidden
2018 hidden 2018 hidden hidden
2019 hidden 2019 hidden hidden
2020 hidden 2020 hidden hidden
2021 hidden 2021 hidden hidden
2022 and thereafter hidden 2022 hidden hidden
2023 hidden hidden
2024 hidden hidden
2025 hidden hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2016-07-28).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at hidden
2016 hidden 2016 hidden hidden
2017 hidden 2017 hidden hidden
2018 hidden 2018 hidden hidden
2019 hidden 2019 hidden hidden
2020 hidden 2020 hidden hidden
2021 and thereafter hidden 2021 hidden hidden
2022 hidden hidden
2023 hidden hidden
2024 hidden hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2015-07-31).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at hidden
2015 hidden 2015 hidden hidden
2016 hidden 2016 hidden hidden
2017 hidden 2017 hidden hidden
2018 hidden 2018 hidden hidden
2019 hidden 2019 hidden hidden
2020 and thereafter hidden 2020 hidden hidden
2021 hidden hidden
2022 hidden hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2014-07-31).


Adjustments to Financial Statements for Operating Leases

Microsoft Corp., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Add: Operating lease right-of-use asset (before adoption of FASB Topic 842)1 hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Debt
Total debt (as reported) hidden hidden hidden hidden hidden hidden
Add: Operating lease liability (before adoption of FASB Topic 842)2 hidden hidden hidden hidden hidden hidden
Add: Operating lease liabilities (included in Other current liabilities) hidden hidden hidden hidden hidden hidden
Add: Long-term operating lease liabilities hidden hidden hidden hidden hidden hidden
Total debt (adjusted) hidden hidden hidden hidden hidden hidden

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).

1, 2 Equal to total present value of future operating lease payments.


Microsoft Corp., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios for Operating Leases (Summary)

Microsoft Corp., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Total Asset Turnover1
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Debt to Equity2
Reported debt to equity hidden hidden hidden hidden hidden hidden
Adjusted debt to equity hidden hidden hidden hidden hidden hidden
Return on Assets3 (ROA)
Reported ROA hidden hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden hidden

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 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 debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.
Adjusted ROA A profitability ratio calculated as 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


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
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 hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Activity Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Revenue hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Activity Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

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.

Adjusted Debt to Equity

Microsoft Excel LibreOffice Calc
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 debt hidden hidden hidden hidden hidden hidden
Stockholders’ equity hidden hidden hidden hidden hidden hidden
Solvency Ratio
Debt to equity1 hidden hidden hidden hidden hidden hidden
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Adjusted total debt hidden hidden hidden hidden hidden hidden
Stockholders’ equity hidden hidden hidden hidden hidden hidden
Solvency Ratio
Adjusted debt to equity2 hidden hidden hidden hidden hidden hidden

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 Debt to equity = Total debt ÷ Stockholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted debt to equity = Adjusted total debt ÷ Stockholders’ equity
= hidden ÷ hidden = hidden

Solvency ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
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 hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Profitability Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Net income hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Profitability Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

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 × Net income ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as 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.