Stock Analysis on Net
Stock Analysis on Net

Microsoft Corp. (NASDAQ:MSFT)

Common-Size Income Statement 

Microsoft Corp., common-size consolidated income statement

Microsoft Excel
12 months ended: Jun 30, 2025 Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020
Product 22.70 26.42 30.53 36.68 42.28 47.58
Service and other 77.30 73.58 69.47 63.32 57.72 52.42
Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Product -4.79 -6.23 -8.40 -9.62 -10.84 -11.20
Service and other -26.38 -24.01 -22.68 -21.98 -20.24 -21.02
Cost of revenue -31.18% -30.24% -31.08% -31.60% -31.07% -32.22%
Gross margin 68.82% 69.76% 68.92% 68.40% 68.93% 67.78%
Research and development -11.53 -12.04 -12.83 -12.36 -12.32 -13.47
Sales and marketing -9.11 -9.98 -10.74 -11.01 -11.97 -13.70
General and administrative -2.56 -3.10 -3.57 -2.98 -3.04 -3.57
Operating income 45.62% 44.64% 41.77% 42.06% 41.59% 37.03%
Interest and dividends income 0.94 1.29 1.41 1.06 1.27 1.87
Interest expense -0.85 -1.20 -0.93 -1.04 -1.40 -1.81
Net recognized gains (losses) on investments -0.12 -0.05 0.12 0.23 0.73 0.02
Net gains (losses) on derivatives -0.09 -0.08 -0.22 -0.03 0.01 0.13
Net gains (losses) on foreign currency remeasurements 0.06 -0.10 0.09 -0.04 0.03 -0.13
Other, net -1.68 -0.54 -0.11 -0.02 0.06 -0.03
Other income (expense), net -1.74% -0.67% 0.37% 0.17% 0.71% 0.05%
Income before income taxes 43.88% 43.97% 42.14% 42.22% 42.30% 37.08%
Provision for income taxes -7.74 -8.02 -8.00 -5.54 -5.85 -6.12
Net income 36.15% 35.96% 34.15% 36.69% 36.45% 30.96%

Based on: 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), 10-K (reporting date: 2020-06-30).

Revenue Composition
There is a clear shift in revenue composition over the periods. The share of revenue from products has steadily decreased from 47.58% in 2020 to 22.7% in 2025, indicating a declining reliance on product sales. Conversely, service and other revenues have increased significantly from 52.42% to 77.3%, reflecting a strategic shift towards service-oriented offerings.
Cost and Margin Trends
Product costs as a percentage of revenue have improved, moving from -11.2% in 2020 to -4.79% in 2025, indicating better cost control or lower product-related expenses. Service costs have increased in absolute terms but decreased relative to revenue, changing from -21.02% to -26.38%. Overall cost of revenue remains relatively stable, fluctuating slightly around the 31% mark. This stability supports the consistent gross margins, which have largely remained above 67%, peaking at 69.76% in 2024.
Operating Expenses
Research and development expenses have modestly decreased from -13.47% to -11.53% of revenue, suggesting increased efficiency or cost optimization in innovation activities. Sales and marketing expenses have also contracted notably from -13.7% to -9.11%, reinforcing effective cost management in these areas. General and administrative costs show a slight decline from -3.57% to -2.56%, contributing to overall expense control.
Profitability Metrics
Operating income has shown a strong upward trend from 37.03% in 2020 to 45.62% in 2025, indicating enhanced operational efficiency and profitability. Income before taxes follows a similar trajectory, rising from 37.08% to approximately 43.88% over the period. Net income margins have improved over time as well, increasing from 30.96% to 36.15%, albeit with some fluctuation, particularly a dip in 2023.
Investment and Financial Items
Interest and dividends income has declined from 1.87% to 0.94%, while interest expenses decreased slightly from -1.81% to -0.85%, signaling a reduction in both investment income and debt costs. Gains and losses on investments, derivatives, and foreign currency remeasurements exhibit volatility but are relatively minor in impact. Other income (expense), net trends downward with increasing negative contributions in later years, most notably reaching -1.74% in 2025.
Taxation
The provision for income taxes shows variability, beginning at -6.12% of revenue, dipping to -5.54%, and then increasing to around -8% in 2023 and 2024, before slightly decreasing to -7.74% in 2025. This fluctuation may reflect changes in tax rates or taxable income structures.
Summary Insights
The data reflects a strategic pivot from product-based revenue to service-driven revenue, accompanied by disciplined cost control across product, service, and operating expense lines. This has resulted in sustained or improved profitability margins. While investment income and other financial income sources have diminished, the company has managed to reduce interest expenses. Tax expenses fluctuate but generally correspond to higher profitability levels. Overall, the trends suggest enhanced operational efficiency and a successful repositioning towards higher-margin service offerings.