Common-Size Income Statement

Microsoft Corp., common-size consolidated income statement

12 months ended:	Jun 30, 2026	Jun 30, 2025	Jun 30, 2024	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021
Product	19.50%	22.70%	26.42%	30.53%	36.68%	42.28%
Service and other	80.50%	77.30%	73.58%	69.47%	63.32%	57.72%
Revenue	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%
Product	-3.65%	-4.79%	-6.23%	-8.40%	-9.62%	-10.84%
Service and other	-28.41%	-26.38%	-24.01%	-22.68%	-21.98%	-20.24%
Cost of revenue	-32.06%	-31.18%	-30.24%	-31.08%	-31.60%	-31.07%
Gross margin	67.94%	68.82%	69.76%	68.92%	68.40%	68.93%
Research and development	-10.72%	-11.53%	-12.04%	-12.83%	-12.36%	-12.32%
Sales and marketing	-8.05%	-9.11%	-9.98%	-10.74%	-11.01%	-11.97%
General and administrative	-2.40%	-2.56%	-3.10%	-3.57%	-2.98%	-3.04%
Operating income	46.78%	45.62%	44.64%	41.77%	42.06%	41.59%
Interest and dividends income	0.99%	0.94%	1.29%	1.41%	1.06%	1.27%
Interest expense	-0.92%	-0.85%	-1.20%	-0.93%	-1.04%	-1.40%
Net recognized gains (losses) on investments	1.32%	-0.12%	-0.05%	0.12%	0.23%	0.73%
Net gains (losses) on derivatives	0.56%	-0.09%	-0.08%	-0.22%	-0.03%	0.01%
Net gains (losses) on foreign currency remeasurements	-0.16%	0.06%	-0.10%	0.09%	-0.04%	0.03%
Other, net	1.42%	-1.68%	-0.54%	-0.11%	-0.02%	0.06%
Other income (expense), net	3.22%	-1.74%	-0.67%	0.37%	0.17%	0.71%
Income before income taxes	50.00%	43.88%	43.97%	42.14%	42.22%	42.30%
Provision for income taxes	-9.70%	-7.74%	-8.02%	-8.00%	-5.54%	-5.85%
Net income	40.31%	36.15%	35.96%	34.15%	36.69%	36.45%

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).

A fundamental shift in the revenue composition is observed over the six-year period, characterized by a decisive transition from product-based sales to service-oriented revenue. This structural evolution is accompanied by an expansion in operating profitability and enhanced operational efficiency in sales and marketing expenditures.

Revenue Mix and Cost Structure: The proportion of revenue derived from products declined consistently from 42.28% in 2021 to 19.50% by 2026. Conversely, service and other revenue grew from 57.72% to 80.50% of total revenue. This shift is mirrored in the cost of revenue; while product costs as a percentage of revenue decreased from 10.84% to 3.65%, service costs increased from 20.24% to 28.41%. Despite these internal shifts, the overall gross margin remained remarkably stable, fluctuating within a narrow band between 67.94% and 69.76%.
Operating Expense Trends: A downward trend is evident across all primary operating expense categories relative to revenue. Research and development expenses decreased from 12.32% in 2021 to 10.72% in 2026. General and administrative expenses saw a reduction from 3.04% to 2.40%. The most significant improvement is noted in sales and marketing, which dropped from 11.97% to 8.05% over the period, suggesting increased scalability and marketing efficiency as the service model matured.
Operating and Net Profitability: Operating income as a percentage of revenue exhibited a steady upward trajectory, rising from 41.59% in 2021 to 46.78% in 2026. This expansion was driven primarily by the reduction in operating expenses rather than changes in gross margin. Net income showed a general increase from 36.45% in 2021 to 40.31% in 2026, despite a temporary dip to 34.15% in 2023. The increase in net income toward the end of the period is further supported by a notable spike in other income (expense), net, which reached 3.22% in 2026.
Taxation and Non-Operating Items: The provision for income taxes as a percentage of revenue remained relatively consistent for several years before increasing to 9.70% in 2026. Interest and dividends income and interest expenses remained low and stable, typically fluctuating around 1% of revenue, indicating that non-operating financial activities have a minimal impact on the overall margin profile compared to core operations.

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Microsoft Corp. (NASDAQ:MSFT)

Common-Size Income Statement