The Financial Performance of Microsoft
In 2009, Microsoft felt the impact of the recession and the difficulties that all businesses faced in responding to one of the most challenging economic environments in the past 100 years. The fiscal 2010 was a year of remarkable accomplishments with record revenue earnings per share reported. Outstanding determination across all businesses, maintained a disciplined approach to controlling costs, and proved deep commitment to smart investments in technology innovation.
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Since the company was created in 1975, Microsoft has created technology that transformed the way people worked, played, and even communicated all over the world. Their services and developments in hardware, and other solutions has opened new opportunities, greater convenience, and enhanced value to people’s lives. Microsoft profits from software licenses, and web based services like Bing, Windows Live, and Xbox Live services. In reviewing the year performance from 2009 and 2010 it is clear that revenue increased. Microsoft had much success in 2010 with the release of Windows 7, as well as PC market improvements.
Operating income increased reflecting the change in revenue, offset in part by higher operating expenses. Sales and marketing expenses increased $335 million. This could be expected because of the increased advertising and marketing of Bing and Windows 7. General and administrative expenses increased $304 million and cost of revenue increased $240 million, primarily reflecting increased online costs and charges resulting from the discontinuation of the KIN phone, offset in part by decreased Xbox 360 console costs and reductions in other costs due to resource management efforts.
Research and development expenses decreased $296 million, because of a decrease in third-party development and programming costs and increased capitalization of certain software development costs. Microsoft year ending 2010 reflects 380 million shares repurchased, an increase in earnings per share and an increase of net income. When viewing the performance of 2008 compared to 2009 it is clear that revenue declined across most segments due to the weak economic environment, which directly affected all markets.
Many business experienced cut backs and layoffs, which caused a decline in demand for PC. According to Microsoft financial results the company had an increased server and server application revenue, reflecting recognition of deferred revenue from previously signed agreements and continued adoption of the Windows Server Platform and applications through SQL Server, Enterprise CAL Suites, and System Center products. Foreign currency exchange rates had a favorable impact of $486 million on revenue. In reference to the decreased operating income, it reflected decreased revenue.
Operating expenses were flat with decreased general and administrative and sales and marketing expenses offset by increased headcount-related expenses, cost of revenue and employee severance charges. According to Microsoft’s calendar for first quarter results ending March 2011, financial performance dropped from the record-setting calendar fourth quarter results 2010. Earnings per share of $0. 61 were a 3-quarter low. First quarter has been an annual cyclical low for Microsoft for 3 years. Gross margin increased slightly but net margin decreased.
Financial position continues strong, very liquid, and total assets are now just below $100 billion. Microsoft’s website has financial reports stating total revenues of $16. 43B, net income of $5. 71B, and earnings per share of $0. 61. From 2010 the fourth quarter total revenues were down -17. 67%, net income down -21. 13%, and earnings per share down -20. 78%. These results are shocking when compared to that same year’s fourth quarter, which these were up +13. 27%, +30. 60%, and +35. 56%, respectively.
Financial reports state that first quarter of 2011, gross margin increased quarter over quarter to 76. 28%, but is still below historical 80+% range. Operating margin dropped quarter over quarter to 34. 75%, which is a 6-quarter low. Net margin dipped to 31. 85%, but is the 3rd consecutive quarter above 30%. Cash flow from operations per share increased dramatically to $1. 02 from the prior year’s fourth quarter (2010) of $0. 49. Most of the increase in cash flow was attributable to a decrease in accounts receivable. Total assets increased quarter over quarter +8. 4% to a record $99. 7B from the prior quarter of $92. 3B. The capital to assets ratio increased quarter over quarter to 53. 60%. The current ratio is a very liquid 66. 44%, which is a multi-year high.
Microsoft reaffirmed operating expense guidance of $26. 9 billion to $27. 3 billion for the full year ending June 30, 2011. Microsoft also offered preliminary operating expense guidance of $28. 0 billion to $28. 6 billion for the full fiscal year ending June 30, 2012. Microsoft’s growth rates for total revenues show a decrease of -17. 7% in March 2011 first quarter results, after increasing for 3 consecutive quarters, by +10. 59%, +0. 97%, and now +23. 20%. Earnings per Share decreased -20. 78% in March 2011 first quarter, after increasing for 3 consecutive quarters, by +13. 33%, +21. 57%, and now +24. 19%. This first quarter has started Microsoft is starting out 2011 with a weak quarter, especially after the 2010 fourth quarter peak. It is important for Microsoft to direct the business focus towards the continuation of technological advancements and high-quality products and services to customers.
Peter Klein said, “We delivered strong financial results despite a mixed PC environment, which demonstrates the strength and breadth of our businesses,” as chief financial officer at Microsoft he continues by saying, “Consumers are purchasing Office 2010, Xbox and Kinect at tremendous rates, and businesses of all sizes are purchasing Microsoft platforms and applications”. Microsoft must continue 2011 with their trend of developing innovative software applications and solutions to enhance and improve communication and aid business intelligence, with special attention to innovations for small businesses.