Microsoft Corp. (NASDAQ:MSFT)

Debt Ratios

The company's debt to equity ratio exhibited a consistent decline from 0.62 in 2020 to 0.26 projected in 2025, indicating a gradual decrease in reliance on debt relative to shareholders' equity. When including operating lease liabilities, this ratio also followed a downward trend from 0.69 to 0.33 over the same period. Similarly, the debt to capital ratio decreased from 0.38 to 0.21, and its variant including operating lease liabilities declined from 0.41 to 0.25. These reductions suggest prudent debt management and a strengthening equity base. The debt to assets ratio also decreased from 0.24 to 0.14, reflecting a lower proportion of assets financed through debt, and when including operating lease liabilities, it fell from 0.27 to 0.18.

Financial Leverage

Financial leverage showed a continuous decline from 2.55 in 2020 to 1.8 projected in 2025. This trend indicates reduced dependence on debt financing, implying a more conservative capital structure and potentially lower financial risk.

Interest Coverage

Interest coverage ratios improved significantly, starting at 21.47 in 2020 and increasing to 52.84 in 2025. This suggests that the company's earnings before interest and taxes are more than sufficient to cover interest expenses, indicating strong operational performance and financial stability.

Fixed Charge Coverage

Fixed charge coverage improved noticeably from 12.44 in 2020 to a peak of 19.5 in 2022, before gradually declining to 16.63 in 2025. Although there is a slight decrease after 2022, the coverage ratios remain well above initial levels, signifying that the company maintains a robust ability to meet fixed financial obligations.

Overall Analysis

The data depict a clear trend of deleveraging over the reviewed periods, with consistent reductions in debt ratios and financial leverage. Coupled with increasing interest coverage, this signifies improved financial health and reduced risk associated with debt servicing. The fixed charge coverage trend supports this positive outlook but signals a moderate softening after 2022. The inclusion of operating lease liabilities into debt measurements slightly elevates debt ratios but does not alter the overall downward trend. These patterns reflect a strategic focus on strengthening the balance sheet and enhancing capacity to meet financial commitments through operational earnings.

Total Debt

The total debt initially decreased from 72,823 million USD in mid-2020 to 64,304 million USD in mid-2023, indicating a reduction in debt over this period. However, from mid-2023 onwards, there is a notable increase in total debt, reaching 89,323 million USD by mid-2025. This suggests an increased leverage or financing activity in the later period, reversing the previous downward trend.

Stockholders’ Equity

Stockholders' equity demonstrates a consistent and significant upward trend across all periods. It increased from 118,304 million USD in mid-2020 to 343,479 million USD by mid-2025, nearly tripling during this timeframe. This steady growth in equity indicates strong retained earnings, capital infusion, or asset revaluation enhancing the company's net worth.

Debt to Equity Ratio

The debt to equity ratio continuously declines from 0.62 in mid-2020 to 0.26 in mid-2025. This decline reflects an improving capital structure, where equity is growing at a faster pace relative to debt. Despite some increase in absolute debt levels after mid-2023, the proportional increase in equity results in a lower leverage ratio, suggesting reduced financial risk over time.

Total debt (including operating lease liability)

The total debt exhibited a fluctuating trend over the observed period. Initially, the amount remained relatively stable from 2020 through 2021, with a slight decrease in 2022. However, starting from 2023, there was a consistent and marked increase in total debt, reaching the highest value in 2025. This upward trajectory in debt indicates a growing reliance on borrowed funds over the last few years.

Stockholders’ equity

Stockholders’ equity demonstrated steady and substantial growth throughout the entire period. Each year showed an increase compared to the previous year, with particularly notable acceleration after 2022. By 2025, equity had nearly tripled compared to the initial value in 2020, indicating a strong enhancement in shareholder value and retained earnings over time.

Debt to equity (including operating lease liability)

The debt-to-equity ratio showed a consistent decline during the timeline, dropping from 0.69 in 2020 to 0.33 in 2025. This downward trend suggests that the company’s growth in equity outpaced the growth in debt, resulting in reduced financial leverage. The ratio’s steady decrease implies a stronger equity position relative to debt, potentially signaling improved financial stability and lower risk.

Overall observations

Despite an increasing absolute level of total debt in recent years, the company’s financial leverage has decreased due to a more rapid increase in equity. This points to a solidification of the capital structure, enhanced shareholder wealth, and a likely improved ability to service debt. The trends collectively reflect a strategic balance between debt utilization and equity growth, promoting sustainable financial health.

Total Debt

The total debt experienced a decline from June 30, 2020, to June 30, 2023, decreasing from 72,823 million US dollars to 64,304 million US dollars. However, starting from June 30, 2023, there was a notable increase, with total debt rising to 78,775 million US dollars in 2024 and further to 89,323 million US dollars in 2025.

Total Capital

Total capital demonstrated a consistent upward trend across the entire period, increasing steadily from 191,127 million US dollars in 2020 to 432,802 million US dollars in 2025. This represents a significant growth in capital base over six years.

Debt to Capital Ratio

The debt to capital ratio showed a continuous decline from 0.38 in 2020 to 0.21 in 2025. This indicates a reduction in the proportion of debt relative to total capital, reflecting a stronger capital structure despite the increase in absolute debt levels in later years.

The financial data reveals a series of notable trends regarding the company's debt and capital structure over a six-year period ending June 30, 2025.

Total Debt (including operating lease liability)

The total debt initially remained relatively stable from 2020 through 2021, with a slight increase from 82,110 million USD to 82,278 million USD. However, a decline occurred in 2022 down to 78,400 million USD, followed by a marginal increase in 2023 to 79,441 million USD. Starting in 2024, total debt escalated significantly, reaching 97,852 million USD, and continued to rise sharply in 2025 to 112,184 million USD. This upward movement in debt levels during the later years indicates increased leverage or borrowing activity.

Total Capital (including operating lease liability)

Total capital demonstrated consistent growth throughout the examined years. Beginning at 200,414 million USD in 2020, total capital expanded steadily each year, reaching 224,266 million USD in 2021, 244,942 million USD in 2022, 285,664 million USD in 2023, then experiencing more pronounced increases in 2024 and 2025, ultimately attaining 455,663 million USD. The rising capital base suggests significant investment or accumulation of assets over time.

Debt to Capital Ratio (including operating lease liability)

The debt to capital ratio showed a continuous downward trend over the six-year period. Starting at 0.41 in 2020, the ratio decreased progressively each year to 0.37 in 2021, 0.32 in 2022, 0.28 in 2023, 0.27 in 2024, and ultimately reaching 0.25 by 2025. This decline implies that although total debt increased in absolute terms toward the latter years, the company's capital base grew at a faster pace, resulting in a lower relative debt burden. This trend can be interpreted as improving financial stability and stronger equity financing relative to debt.

Overall, the data indicates that while the absolute level of debt rose substantially in the most recent years, this was offset by a more significant expansion in total capital, leading to a consistent reduction in the debt-to-capital ratio. This pattern reflects a conservative approach to leverage and suggests a strengthening balance sheet position over the period analyzed.

The financial data indicates a clear upward trend in the total assets over the analyzed periods. From June 30, 2020, to June 30, 2025, total assets increased consistently from approximately 301 billion US dollars to around 619 billion US dollars, more than doubling in size within these five years. This suggests robust growth in the company's asset base, which could reflect expansion, increased investments, or asset revaluation.

In contrast, total debt shows a more variable progression. Initially, total debt decreased from about 72.8 billion US dollars in 2020 to roughly 64.3 billion US dollars in 2023, indicating a period of debt reduction or repayment. However, after 2023, there is a noticeable increase in total debt, rising to 78.8 billion in 2024 and further to 89.3 billion in 2025. This uptick might imply additional borrowing, possibly to finance new initiatives, acquisitions, or other strategic activities.

The debt to assets ratio, a key leverage indicator, exhibits a consistent decline throughout the period, moving from 0.24 in 2020 down to 0.14 in 2025. Despite the increase in absolute debt levels towards the latter years, the ratio continues to decrease due to the more rapid growth in total assets. This decreasing leverage ratio signifies an improving balance sheet strength, reflecting reduced financial risk and greater asset coverage for debt obligations.

Total assets

Consistent and significant growth, more than doubling over five years.

Total debt

Initial decline followed by a marked increase in the final two years.

Debt to assets ratio

Steady reduction, indicating improved solvency and lower relative leverage.

Total debt (including operating lease liability)

The total debt remained relatively stable from June 2020 through June 2023, fluctuating slightly around the 78,000 to 82,000 million USD range. However, starting in the fiscal year ending June 2024, there was a noticeable increase in total debt, rising significantly to 97,852 million USD and further to 112,184 million USD by June 2025. This marks a distinct upward trend in debt levels over the most recent two years.

Total assets

Total assets exhibited consistent growth throughout the entire period under review. Beginning at 301,311 million USD in June 2020, assets increased steadily each year, reaching 619,003 million USD by June 2025. This represents more than a doubling of total assets over the five-year span, indicating substantial expansion of the asset base.

Debt to assets ratio (including operating lease liability)

The debt to assets ratio shows a clear declining trend over the six-year period. Starting at 0.27 in June 2020, the ratio decreased gradually year over year, reaching 0.18 by June 2025. This decline indicates that despite the increase in absolute debt levels in recent years, total assets have grown at a faster pace, resulting in an improved leverage position overall.

The analysis of the annual financial data reveals several noteworthy trends and patterns over the examined periods.

Total Assets

Total assets exhibited a consistent upward trajectory from June 30, 2020, through June 30, 2025. Starting at $301,311 million in 2020, total assets increased steadily each year, reaching $619,003 million by 2025. This significant growth indicates a consistent expansion of the company's asset base, suggesting investments in long-term resources or acquisitions to support business growth.

Stockholders’ Equity

Stockholders’ equity also demonstrated a strong increasing trend. Beginning at $118,304 million in 2020, equity rose annually, culminating at $343,479 million in 2025. The equity growth outpaced the growth of total assets, reflecting a solid accumulation of retained earnings or additional equity financing, which strengthens the company's financial position.

Financial Leverage

Financial leverage, calculated as the ratio of total assets to stockholders’ equity, showed a decreasing trend over the period. The ratio declined from 2.55 in 2020 to 1.8 in 2025, indicating a gradual reduction in reliance on debt financing relative to equity. This diminishing leverage implies improved financial stability and potentially lower financial risk, as the company increasingly funds its assets through equity rather than liabilities.

Earnings before interest and tax (EBIT)

The EBIT demonstrates a consistent upward trend over the six-year span. Starting at 55,627 million USD in 2020, the figure rises steadily each year, reaching 126,012 million USD by 2025. This reflects a substantial increase in operating profitability, with the most pronounced growth observed between 2023 and 2025.

Interest Expense

Interest expense exhibits relative stability with some fluctuations. Beginning at 2,591 million USD in 2020, it declined gradually until 2023, reaching 1,968 million USD. However, there is a notable increase in 2024 to 2,935 million USD, followed by a decrease to 2,385 million USD in 2025. Overall, interest costs remain limited in proportion to EBIT.

Interest Coverage Ratio

The interest coverage ratio shows a significant improvement throughout the period. It increased from 21.47 in 2020 to 52.84 in 2025, indicating enhanced ability to meet interest obligations from operating earnings. The ratio peaks in 2025 after a slight dip in 2024, which correlates with the temporary rise in interest expense during that year. The general trend implies strengthening financial stability and lower risk relating to interest burdens.

Earnings Before Fixed Charges and Tax

The earnings before fixed charges and tax demonstrate a consistent upward trend from 2020 to 2025. Starting at 57,670 million US dollars in 2020, the figure increased steadily each year, reaching 131,536 million US dollars by 2025. This reflects substantial growth in operating income capacity over the six-year period.

Fixed Charges

Fixed charges, which encompass interest and similar obligations, show a generally increasing trend from 2020 through 2025. The charges were 4,634 million US dollars in 2020 and rose to 7,909 million US dollars by 2025. The increase is moderate but consistent, with a more pronounced rise noted after 2022 when fixed charges climbed from 4,524 million to 7,909 million by 2025.

Fixed Charge Coverage Ratio

The fixed charge coverage ratio initially improved significantly from 12.44 in 2020 to a peak of 19.5 in 2022, indicating improved ability to cover fixed charges from earnings. However, following this peak, there is a gradual decline to 16.63 by 2025. Despite the decrease post-2022, the ratio remains considerably higher than the 2020 baseline, suggesting a strong but somewhat diminishing coverage level.

Overall Analysis

The data indicates robust earnings growth paired with steadily increasing fixed charges. Although the fixed charge coverage ratio reduces after 2022, it sustains a healthy level, reflecting that earnings growth has outpaced the rise in fixed charges overall. This suggests the entity maintains a strong capacity to meet its fixed financial obligations despite increased liabilities.