Stock Analysis on Net

Microsoft Corp. (NASDAQ:MSFT)

Economic Value Added (EVA)

Microsoft Excel

Economic Profit

Microsoft Corp., economic profit calculation

US$ in millions

Microsoft Excel
12 months ended: Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Net operating profit after taxes (NOPAT)1 71,055 71,024 65,443 46,746 36,908 16,308
Cost of capital2 12.71% 12.64% 12.60% 12.44% 12.18% 11.99%
Invested capital3 247,490 194,094 143,637 107,630 96,412 82,555
 
Economic profit4 39,610 46,494 47,352 33,352 25,168 6,411

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 71,05512.71% × 247,490 = 39,610

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. Microsoft Corp. economic profit decreased from 2021 to 2022 and from 2022 to 2023.

Net Operating Profit after Taxes (NOPAT)

Microsoft Corp., NOPAT calculation

US$ in millions

Microsoft Excel
12 months ended: Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Net income 72,361 72,738 61,271 44,281 39,240 16,571
Deferred income tax expense (benefit)1 (6,059) (5,702) (150) 11 (6,463) (5,143)
Increase (decrease) in allowance for doubtful accounts2 17 (118) (37) 377 34 32
Increase (decrease) in unearned revenue3 5,405 4,267 4,961 1,974 4,486 6,064
Increase (decrease) in equity equivalents4 (637) (1,553) 4,774 2,362 (1,943) 953
Interest expense 1,968 2,063 2,346 2,591 2,686 2,733
Interest expense, operating lease liability5 439 288 255 251 231 188
Adjusted interest expense 2,407 2,351 2,601 2,842 2,917 2,921
Tax benefit of interest expense6 (505) (494) (546) (597) (613) (821)
Adjusted interest expense, after taxes7 1,902 1,857 2,055 2,245 2,305 2,100
(Gain) loss on marketable securities (260) (461) (1,232) (32) (648) (2,399)
Interest and dividends income (2,994) (2,094) (2,131) (2,680) (2,762) (2,214)
Investment income, before taxes (3,254) (2,555) (3,363) (2,712) (3,410) (4,613)
Tax expense (benefit) of investment income8 683 537 706 570 716 1,296
Investment income, after taxes9 (2,571) (2,018) (2,657) (2,142) (2,694) (3,317)
Net operating profit after taxes (NOPAT) 71,055 71,024 65,443 46,746 36,908 16,308

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowance for doubtful accounts.

3 Addition of increase (decrease) in unearned revenue.

4 Addition of increase (decrease) in equity equivalents to net income.

5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 15,137 × 2.90% = 439

6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 2,407 × 21.00% = 505

7 Addition of after taxes interest expense to net income.

8 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 3,254 × 21.00% = 683

9 Elimination of after taxes investment income.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. Microsoft Corp. NOPAT increased from 2021 to 2022 and from 2022 to 2023.

Cash Operating Taxes

Microsoft Corp., cash operating taxes calculation

US$ in millions

Microsoft Excel
12 months ended: Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Provision for income taxes 16,950 10,978 9,831 8,755 4,448 19,903
Less: Deferred income tax expense (benefit) (6,059) (5,702) (150) 11 (6,463) (5,143)
Add: Tax savings from interest expense 505 494 546 597 613 821
Less: Tax imposed on investment income 683 537 706 570 716 1,296
Cash operating taxes 22,831 16,637 9,821 8,771 10,807 24,571

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. Microsoft Corp. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Invested Capital

Microsoft Corp., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel
Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Current portion of long-term debt 5,247 2,749 8,072 3,749 5,516 3,998
Current finance lease liabilities 1,197 1,060 791 540 317 176
Long-term debt, excluding current portion 41,990 47,032 50,074 59,578 66,662 72,242
Long-term finance lease liabilities 15,870 13,842 11,750 8,956 6,257 4,125
Operating lease liability1 15,137 13,717 11,591 9,287 7,703 6,967
Total reported debt & leases 79,441 78,400 82,278 82,110 86,455 87,508
Stockholders’ equity 206,223 166,542 141,988 118,304 102,330 82,718
Net deferred tax (assets) liabilities2 (19,730) (13,285) (6,983) (6,201) (7,303) (828)
Allowance for doubtful accounts3 650 633 751 788 411 377
Unearned revenue4 53,813 48,408 44,141 39,180 37,206 32,720
Equity equivalents5 34,733 35,756 37,909 33,767 30,314 32,269
Accumulated other comprehensive (income) loss, net of tax6 6,343 4,678 (1,822) (3,186) 340 2,187
Adjusted stockholders’ equity 247,299 206,976 178,075 148,885 132,984 117,174
Investments7 (79,250) (91,282) (116,716) (123,365) (123,027) (122,127)
Invested capital 247,490 194,094 143,637 107,630 96,412 82,555

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

1 Addition of capitalized operating leases.

2 Elimination of deferred taxes from assets and liabilities. See details »

3 Addition of allowance for doubtful accounts receivable.

4 Addition of unearned revenue.

5 Addition of equity equivalents to stockholders’ equity.

6 Removal of accumulated other comprehensive income.

7 Subtraction of investments.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Microsoft Corp. invested capital increased from 2021 to 2022 and from 2022 to 2023.

Cost of Capital

Microsoft Corp., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 2,457,171 2,457,171 ÷ 2,535,575 = 0.97 0.97 × 13.02% = 12.62%
Debt and finance lease liabilities3 63,267 63,267 ÷ 2,535,575 = 0.02 0.02 × 3.75% × (1 – 21.00%) = 0.07%
Operating lease liability4 15,137 15,137 ÷ 2,535,575 = 0.01 0.01 × 2.90% × (1 – 21.00%) = 0.01%
Total: 2,535,575 1.00 12.71%

Based on: 10-K (reporting date: 2023-06-30).

1 US$ in millions

2 Equity. See details »

3 Debt and finance lease liabilities. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 2,061,436 2,061,436 ÷ 2,140,955 = 0.96 0.96 × 13.02% = 12.54%
Debt and finance lease liabilities3 65,802 65,802 ÷ 2,140,955 = 0.03 0.03 × 3.73% × (1 – 21.00%) = 0.09%
Operating lease liability4 13,717 13,717 ÷ 2,140,955 = 0.01 0.01 × 2.10% × (1 – 21.00%) = 0.01%
Total: 2,140,955 1.00 12.64%

Based on: 10-K (reporting date: 2022-06-30).

1 US$ in millions

2 Equity. See details »

3 Debt and finance lease liabilities. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 2,153,016 2,153,016 ÷ 2,247,148 = 0.96 0.96 × 13.02% = 12.47%
Debt and finance lease liabilities3 82,541 82,541 ÷ 2,247,148 = 0.04 0.04 × 3.83% × (1 – 21.00%) = 0.11%
Operating lease liability4 11,591 11,591 ÷ 2,247,148 = 0.01 0.01 × 2.20% × (1 – 21.00%) = 0.01%
Total: 2,247,148 1.00 12.60%

Based on: 10-K (reporting date: 2021-06-30).

1 US$ in millions

2 Equity. See details »

3 Debt and finance lease liabilities. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 1,551,445 1,551,445 ÷ 1,647,328 = 0.94 0.94 × 13.02% = 12.26%
Debt and finance lease liabilities3 86,596 86,596 ÷ 1,647,328 = 0.05 0.05 × 4.09% × (1 – 21.00%) = 0.17%
Operating lease liability4 9,287 9,287 ÷ 1,647,328 = 0.01 0.01 × 2.70% × (1 – 21.00%) = 0.01%
Total: 1,647,328 1.00 12.44%

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

1 US$ in millions

2 Equity. See details »

3 Debt and finance lease liabilities. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 1,054,145 1,054,145 ÷ 1,147,322 = 0.92 0.92 × 13.02% = 11.96%
Debt and finance lease liabilities3 85,474 85,474 ÷ 1,147,322 = 0.07 0.07 × 3.36% × (1 – 21.00%) = 0.20%
Operating lease liability4 7,703 7,703 ÷ 1,147,322 = 0.01 0.01 × 3.00% × (1 – 21.00%) = 0.02%
Total: 1,147,322 1.00 12.18%

Based on: 10-K (reporting date: 2019-06-30).

1 US$ in millions

2 Equity. See details »

3 Debt and finance lease liabilities. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 828,474 828,474 ÷ 917,242 = 0.90 0.90 × 13.02% = 11.76%
Debt and finance lease liabilities3 81,801 81,801 ÷ 917,242 = 0.09 0.09 × 3.31% × (1 – 28.10%) = 0.21%
Operating lease liability4 6,967 6,967 ÷ 917,242 = 0.01 0.01 × 2.70% × (1 – 28.10%) = 0.01%
Total: 917,242 1.00 11.99%

Based on: 10-K (reporting date: 2018-06-30).

1 US$ in millions

2 Equity. See details »

3 Debt and finance lease liabilities. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

Microsoft Corp., economic spread ratio calculation, comparison to benchmarks

Microsoft Excel
Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Selected Financial Data (US$ in millions)
Economic profit1 39,610 46,494 47,352 33,352 25,168 6,411
Invested capital2 247,490 194,094 143,637 107,630 96,412 82,555
Performance Ratio
Economic spread ratio3 16.00% 23.95% 32.97% 30.99% 26.10% 7.77%
Benchmarks
Economic Spread Ratio, Competitors4
Accenture PLC 5.85% 8.69% 10.54% 11.10% 9.83% 10.07%
Adobe Inc. 5.37% 10.81% 13.22% 5.49% 3.59% 1.24%
International Business Machines Corp. -1.42% -9.29% -4.30% -4.04% -0.31%
Intuit Inc. -6.20% -5.14% 2.61% 5.94% 19.61% 17.30%
Oracle Corp. -1.20% -0.91% 7.15% 1.46% 4.16% -4.83%
Palo Alto Networks Inc. 14.81% 6.66% -2.02% -3.05% 0.18% -2.63%
Salesforce Inc. -12.16% -9.73% -7.42% -10.46% -6.45%
ServiceNow Inc. 8.92% 4.38% 5.59% 7.21% 6.62%
Synopsys Inc. -3.70% 2.88% -3.14% -2.97% -5.96% -7.33%

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

1 Economic profit. See details »

2 Invested capital. See details »

3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 39,610 ÷ 247,490 = 16.00%

4 Click competitor name to see calculations.

Performance ratio Description The company
Economic spread ratio The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Microsoft Corp. economic spread ratio deteriorated from 2021 to 2022 and from 2022 to 2023.

Economic Profit Margin

Microsoft Corp., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Selected Financial Data (US$ in millions)
Economic profit1 39,610 46,494 47,352 33,352 25,168 6,411
 
Revenue 211,915 198,270 168,088 143,015 125,843 110,360
Add: Increase (decrease) in unearned revenue 5,405 4,267 4,961 1,974 4,486 6,064
Adjusted revenue 217,320 202,537 173,049 144,989 130,329 116,424
Performance Ratio
Economic profit margin2 18.23% 22.96% 27.36% 23.00% 19.31% 5.51%
Benchmarks
Economic Profit Margin, Competitors3
Accenture PLC 3.01% 4.19% 5.40% 5.65% 4.54% 4.23%
Adobe Inc. 6.72% 12.59% 16.47% 7.87% 5.40% 2.03%
International Business Machines Corp. -2.54% -16.13% -8.20% -7.02% -0.53%
Intuit Inc. -10.15% -9.89% 3.30% 6.69% 13.06% 11.50%
Oracle Corp. -2.33% -1.67% 14.14% 3.32% 7.58% -8.73%
Palo Alto Networks Inc. 14.70% 7.76% -2.72% -4.96% 0.20% -3.91%
Salesforce Inc. -30.97% -27.02% -17.02% -25.75% -12.69%
ServiceNow Inc. 7.17% 3.52% 4.84% 5.88% 4.85%
Synopsys Inc. -5.22% 4.06% -5.00% -5.10% -10.30% -12.50%

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

1 Economic profit. See details »

2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 39,610 ÷ 217,320 = 18.23%

3 Click competitor name to see calculations.

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Microsoft Corp. economic profit margin deteriorated from 2021 to 2022 and from 2022 to 2023.