Intrinsic value of Microsoft - MSFT

Previous Close

$68.68

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$68.68

 
Intrinsic value

$31.05

 
Up/down potential

-55%

 
Rating

str. sell

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MSFT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 531.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -8.83
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  85,320
  87,026
  89,028
  91,316
  93,885
  96,731
  99,854
  103,255
  106,936
  110,902
  115,158
  119,711
  124,570
  129,743
  135,240
  141,074
  147,257
  153,801
  160,721
  168,034
  175,755
  183,901
  192,493
  201,549
  211,090
  221,140
  231,720
  242,857
  254,576
  266,905
  279,874
Variable operating expenses, $m
 
  70,282
  71,857
  73,658
  75,679
  77,920
  80,378
  83,054
  85,951
  89,073
  92,423
  94,219
  98,043
  102,114
  106,441
  111,033
  115,899
  121,049
  126,496
  132,252
  138,328
  144,740
  151,502
  158,629
  166,139
  174,049
  182,376
  191,141
  200,365
  210,069
  220,275
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  65,460
  70,282
  71,857
  73,658
  75,679
  77,920
  80,378
  83,054
  85,951
  89,073
  92,423
  94,219
  98,043
  102,114
  106,441
  111,033
  115,899
  121,049
  126,496
  132,252
  138,328
  144,740
  151,502
  158,629
  166,139
  174,049
  182,376
  191,141
  200,365
  210,069
  220,275
Operating income, $m
  19,860
  16,745
  17,171
  17,658
  18,205
  18,811
  19,476
  20,201
  20,984
  21,829
  22,735
  25,492
  26,527
  27,628
  28,799
  30,041
  31,358
  32,751
  34,225
  35,782
  37,426
  39,161
  40,991
  42,919
  44,951
  47,091
  49,344
  51,716
  54,211
  56,837
  59,598
EBITDA, $m
  26,482
  20,917
  21,398
  21,948
  22,565
  23,249
  24,000
  24,817
  25,702
  26,655
  27,678
  28,772
  29,940
  31,183
  32,505
  33,907
  35,393
  36,966
  38,629
  40,386
  42,242
  44,200
  46,265
  48,442
  50,735
  53,150
  55,693
  58,370
  61,187
  64,150
  67,267
Interest expense (income), $m
  1,100
  1,419
  199
  258
  326
  402
  486
  579
  679
  788
  906
  1,032
  1,167
  1,311
  1,464
  1,627
  1,800
  1,983
  2,177
  2,382
  2,599
  2,828
  3,069
  3,324
  3,592
  3,875
  4,173
  4,486
  4,816
  5,164
  5,529
Earnings before tax, $m
  19,751
  15,325
  16,973
  17,400
  17,880
  18,410
  18,990
  19,622
  20,305
  21,040
  21,829
  24,460
  25,360
  26,317
  27,335
  28,414
  29,558
  30,768
  32,048
  33,400
  34,827
  36,333
  37,922
  39,595
  41,359
  43,216
  45,171
  47,229
  49,395
  51,673
  54,069
Tax expense, $m
  2,953
  4,138
  4,583
  4,698
  4,828
  4,971
  5,127
  5,298
  5,482
  5,681
  5,894
  6,604
  6,847
  7,106
  7,380
  7,672
  7,981
  8,307
  8,653
  9,018
  9,403
  9,810
  10,239
  10,691
  11,167
  11,668
  12,196
  12,752
  13,337
  13,952
  14,599
Net income, $m
  16,798
  11,187
  12,390
  12,702
  13,052
  13,439
  13,863
  14,324
  14,823
  15,360
  15,935
  17,856
  18,513
  19,212
  19,954
  20,742
  21,577
  22,461
  23,395
  24,382
  25,424
  26,523
  27,683
  28,905
  30,192
  31,548
  32,975
  34,477
  36,058
  37,721
  39,471

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  113,167
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  193,468
  81,869
  83,752
  85,904
  88,321
  90,998
  93,936
  97,135
  100,598
  104,329
  108,333
  112,616
  117,187
  122,053
  127,225
  132,713
  138,529
  144,686
  151,196
  158,075
  165,338
  173,002
  181,084
  189,604
  198,580
  208,033
  217,987
  228,464
  239,488
  251,087
  263,286
Adjusted assets (=assets-cash), $m
  80,301
  81,869
  83,752
  85,904
  88,321
  90,998
  93,936
  97,135
  100,598
  104,329
  108,333
  112,616
  117,187
  122,053
  127,225
  132,713
  138,529
  144,686
  151,196
  158,075
  165,338
  173,002
  181,084
  189,604
  198,580
  208,033
  217,987
  228,464
  239,488
  251,087
  263,286
Revenue / Adjusted assets
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
  1.063
Average production assets, $m
  11,650
  11,923
  12,197
  12,510
  12,862
  13,252
  13,680
  14,146
  14,650
  15,194
  15,777
  16,400
  17,066
  17,775
  18,528
  19,327
  20,174
  21,071
  22,019
  23,021
  24,078
  25,194
  26,371
  27,612
  28,919
  30,296
  31,746
  33,271
  34,877
  36,566
  38,343
Working capital, $m
  80,303
  -20,364
  -20,833
  -21,368
  -21,969
  -22,635
  -23,366
  -24,162
  -25,023
  -25,951
  -26,947
  -28,012
  -29,149
  -30,360
  -31,646
  -33,011
  -34,458
  -35,989
  -37,609
  -39,320
  -41,127
  -43,033
  -45,043
  -47,162
  -49,395
  -51,747
  -54,223
  -56,829
  -59,571
  -62,456
  -65,490
Total debt, $m
  53,461
  5,672
  7,366
  9,304
  11,478
  13,888
  16,532
  19,412
  22,528
  25,886
  29,490
  33,345
  37,458
  41,838
  46,493
  51,432
  56,666
  62,207
  68,066
  74,258
  80,794
  87,692
  94,966
  102,633
  110,712
  119,220
  128,178
  137,607
  147,530
  157,968
  168,948
Total liabilities, $m
  121,471
  73,682
  75,376
  77,314
  79,488
  81,898
  84,542
  87,422
  90,538
  93,896
  97,500
  101,355
  105,468
  109,848
  114,503
  119,442
  124,676
  130,217
  136,076
  142,268
  148,804
  155,702
  162,976
  170,643
  178,722
  187,230
  196,188
  205,617
  215,540
  225,978
  236,958
Total equity, $m
  71,997
  8,187
  8,375
  8,590
  8,832
  9,100
  9,394
  9,714
  10,060
  10,433
  10,833
  11,262
  11,719
  12,205
  12,723
  13,271
  13,853
  14,469
  15,120
  15,808
  16,534
  17,300
  18,108
  18,960
  19,858
  20,803
  21,799
  22,846
  23,949
  25,109
  26,329
Total liabilities and equity, $m
  193,468
  81,869
  83,751
  85,904
  88,320
  90,998
  93,936
  97,136
  100,598
  104,329
  108,333
  112,617
  117,187
  122,053
  127,226
  132,713
  138,529
  144,686
  151,196
  158,076
  165,338
  173,002
  181,084
  189,603
  198,580
  208,033
  217,987
  228,463
  239,489
  251,087
  263,287
Debt-to-equity ratio
  0.743
  0.690
  0.880
  1.080
  1.300
  1.530
  1.760
  2.000
  2.240
  2.480
  2.720
  2.960
  3.200
  3.430
  3.650
  3.880
  4.090
  4.300
  4.500
  4.700
  4.890
  5.070
  5.240
  5.410
  5.580
  5.730
  5.880
  6.020
  6.160
  6.290
  6.420
Adjusted equity ratio
  -0.352
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16,798
  11,187
  12,390
  12,702
  13,052
  13,439
  13,863
  14,324
  14,823
  15,360
  15,935
  17,856
  18,513
  19,212
  19,954
  20,742
  21,577
  22,461
  23,395
  24,382
  25,424
  26,523
  27,683
  28,905
  30,192
  31,548
  32,975
  34,477
  36,058
  37,721
  39,471
Depreciation, amort., depletion, $m
  6,622
  4,172
  4,227
  4,289
  4,360
  4,438
  4,523
  4,616
  4,717
  4,826
  4,943
  3,280
  3,413
  3,555
  3,706
  3,865
  4,035
  4,214
  4,404
  4,604
  4,816
  5,039
  5,274
  5,522
  5,784
  6,059
  6,349
  6,654
  6,975
  7,313
  7,669
Funds from operations, $m
  31,249
  15,359
  16,617
  16,992
  17,412
  17,877
  18,386
  18,940
  19,540
  20,185
  20,878
  21,136
  21,926
  22,767
  23,660
  24,608
  25,612
  26,675
  27,799
  28,986
  30,240
  31,562
  32,957
  34,427
  35,976
  37,607
  39,324
  41,132
  43,034
  45,035
  47,139
Change in working capital, $m
  -2,076
  -399
  -468
  -535
  -601
  -666
  -731
  -796
  -861
  -928
  -996
  -1,065
  -1,137
  -1,210
  -1,286
  -1,365
  -1,447
  -1,531
  -1,619
  -1,711
  -1,807
  -1,906
  -2,010
  -2,119
  -2,233
  -2,352
  -2,476
  -2,606
  -2,742
  -2,885
  -3,035
Cash from operations, $m
  33,325
  7,842
  17,085
  17,527
  18,013
  18,543
  19,117
  19,736
  20,401
  21,113
  21,874
  22,201
  23,063
  23,977
  24,946
  25,973
  27,059
  28,206
  29,418
  30,697
  32,046
  33,469
  34,967
  36,546
  38,209
  39,959
  41,800
  43,738
  45,776
  47,920
  50,174
Maintenance CAPEX, $m
  0
  -2,330
  -2,385
  -2,439
  -2,502
  -2,572
  -2,650
  -2,736
  -2,829
  -2,930
  -3,039
  -3,155
  -3,280
  -3,413
  -3,555
  -3,706
  -3,865
  -4,035
  -4,214
  -4,404
  -4,604
  -4,816
  -5,039
  -5,274
  -5,522
  -5,784
  -6,059
  -6,349
  -6,654
  -6,975
  -7,313
New CAPEX, $m
  -8,343
  -273
  -274
  -313
  -352
  -390
  -428
  -466
  -504
  -543
  -583
  -624
  -666
  -709
  -753
  -799
  -847
  -897
  -948
  -1,002
  -1,058
  -1,116
  -1,177
  -1,241
  -1,307
  -1,377
  -1,450
  -1,526
  -1,606
  -1,689
  -1,777
Cash from investing activities, $m
  -23,950
  -2,603
  -2,659
  -2,752
  -2,854
  -2,962
  -3,078
  -3,202
  -3,333
  -3,473
  -3,622
  -3,779
  -3,946
  -4,122
  -4,308
  -4,505
  -4,712
  -4,932
  -5,162
  -5,406
  -5,662
  -5,932
  -6,216
  -6,515
  -6,829
  -7,161
  -7,509
  -7,875
  -8,260
  -8,664
  -9,090
Free cash flow, $m
  9,375
  5,239
  14,426
  14,774
  15,159
  15,580
  16,039
  16,534
  17,068
  17,640
  18,252
  18,422
  19,117
  19,855
  20,638
  21,468
  22,346
  23,275
  24,256
  25,292
  26,384
  27,537
  28,751
  30,031
  31,379
  32,798
  34,291
  35,863
  37,516
  39,255
  41,084
Issuance/(repayment) of debt, $m
  18,283
  -34,885
  1,695
  1,937
  2,175
  2,410
  2,644
  2,879
  3,117
  3,358
  3,603
  3,855
  4,114
  4,380
  4,655
  4,939
  5,234
  5,541
  5,859
  6,191
  6,537
  6,897
  7,274
  7,667
  8,078
  8,508
  8,958
  9,429
  9,922
  10,439
  10,980
Issuance/(repurchase) of shares, $m
  -15,301
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,613
  -34,885
  1,695
  1,937
  2,175
  2,410
  2,644
  2,879
  3,117
  3,358
  3,603
  3,855
  4,114
  4,380
  4,655
  4,939
  5,234
  5,541
  5,859
  6,191
  6,537
  6,897
  7,274
  7,667
  8,078
  8,508
  8,958
  9,429
  9,922
  10,439
  10,980
Total cash flow (excl. dividends), $m
  11,921
  -29,646
  16,121
  16,711
  17,334
  17,990
  18,683
  19,414
  20,185
  20,998
  21,856
  22,277
  23,231
  24,235
  25,293
  26,407
  27,581
  28,816
  30,115
  31,483
  32,921
  34,434
  36,025
  37,698
  39,457
  41,306
  43,250
  45,292
  47,438
  49,694
  52,063
Retained Cash Flow (-), $m
  8,086
  -36,453
  -188
  -215
  -242
  -268
  -294
  -320
  -346
  -373
  -400
  -428
  -457
  -487
  -517
  -549
  -582
  -616
  -651
  -688
  -726
  -766
  -808
  -852
  -898
  -945
  -995
  -1,048
  -1,102
  -1,160
  -1,220
Prev. year cash balance distribution, $m
 
  100,263
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  34,164
  15,933
  16,496
  17,092
  17,722
  18,389
  19,094
  19,838
  20,625
  21,455
  21,849
  22,773
  23,748
  24,776
  25,859
  26,999
  28,200
  29,464
  30,795
  32,195
  33,668
  35,217
  36,847
  38,560
  40,361
  42,254
  44,244
  46,336
  48,534
  50,843
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  32,755
  14,586
  14,356
  14,074
  13,737
  13,346
  12,899
  12,399
  11,848
  11,248
  10,376
  9,718
  9,030
  8,318
  7,592
  6,861
  6,136
  5,426
  4,742
  4,091
  3,482
  2,922
  2,415
  1,964
  1,570
  1,233
  950
  717
  530
  383
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Microsoft Corporation, a technology company, develops, licenses, and supports software products, services, and devices worldwide. The company’s Productivity and Business Processes segment offers Office 365 commercial products and services for businesses, including Office, Exchange, SharePoint, and Skype, as well as related Client Access Licenses (CALs); Office 365 consumer services, such as Skype, Outlook.com, and OneDrive; Dynamics business solutions, such as financial management, customer relationship management, supply chain management, and analytics applications for small and mid-size businesses, large organizations, and divisions of enterprises; and LinkedIn online professional network. Its Intelligent Cloud segment licenses server products and cloud services, such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform with computing, networking, storage, database, and management services; and enterprise services, such as Premier Support and Microsoft Consulting that assist in developing, deploying, and managing Microsoft server and desktop solutions, as well as provide training and certification to developers and IT professionals on Microsoft products. The company’s More Personal Computing segment comprises Windows OEM, volume, and other non-volume licensing of the Windows operating system, as well as patent licensing, Windows Embedded, MSN display advertising, and Windows Phone licensing system; devices, including Microsoft Surface, phones, and PC accessories; and search advertising, including Bing and Bing Ads. This segment also provides gaming platforms, including Xbox hardware, Xbox Live, video games, and third-party video games. The company markets and distributes its products through original equipment manufacturers (OEM), distributors, and resellers, as well as through online and Microsoft retail stores. Microsoft Corporation was founded in 1975 and is headquartered in Redmond, Washington.

FINANCIAL RATIOS  of  Microsoft (MSFT)

Valuation Ratios
P/E Ratio 31.9
Price to Sales 6.3
Price to Book 7.4
Price to Tangible Book
Price to Cash Flow 16.1
Price to Free Cash Flow 21.5
Growth Rates
Sales Growth Rate -8.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 40.4%
Cap. Spend. - 3 Yr. Gr. Rate 14.4%
Financial Strength
Quick Ratio 9
Current Ratio 0.1
LT Debt to Equity 56.3%
Total Debt to Equity 74.3%
Interest Coverage 19
Management Effectiveness
Return On Assets 9.6%
Ret/ On Assets - 3 Yr. Avg. 10.4%
Return On Total Capital 13.9%
Ret/ On T. Cap. - 3 Yr. Avg. 15.3%
Return On Equity 22.1%
Return On Equity - 3 Yr. Avg. 20.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 61.6%
Gross Margin - 3 Yr. Avg. 65%
EBITDA Margin 32.2%
EBITDA Margin - 3 Yr. Avg. 32.5%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 24.8%
Pre-Tax Margin 23.1%
Pre-Tax Margin - 3 Yr. Avg. 25%
Net Profit Margin 19.7%
Net Profit Margin - 3 Yr. Avg. 19.4%
Effective Tax Rate 15%
Eff/ Tax Rate - 3 Yr. Avg. 23.2%
Payout Ratio 65.5%

MSFT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSFT stock intrinsic value calculation we used $85320 million for the last fiscal year's total revenue generated by Microsoft. The default revenue input number comes from 2016 income statement of Microsoft. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MSFT stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MSFT is calculated based on our internal credit rating of Microsoft, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Microsoft.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MSFT stock the variable cost ratio is equal to 80.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MSFT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Microsoft.

Corporate tax rate of 27% is the nominal tax rate for Microsoft. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MSFT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MSFT are equal to 13.7%.

Life of production assets of 4.4 years is the average useful life of capital assets used in Microsoft operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MSFT is equal to -23.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $71997 million for Microsoft - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 7745.22 million for Microsoft is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Microsoft at the current share price and the inputted number of shares is $531.9 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
ADBE Adobe Systems 139.52 prem.  prem.
RHT Red Hat 87.63 prem.  prem.
HPQ HP 18.96 prem.  prem.
CRM Salesforce.com 88.49 prem.  prem.
SAP SAP ADR 106.28 prem.  prem.
VZ Verizon Commun 45.48 prem.  prem.
AAPL Apple 153.80 prem.  prem.
IBM International 152.03 prem.  prem.
YHOO Yahoo! 50.31 prem.  prem.
HPE Hewlett Packar 18.86 prem.  prem.

COMPANY NEWS

▶ What Do AA+ And AAA Credit Ratings Mean?   [09:25AM  Investopedia]
▶ Is Symantec Finally Worth Watching?   [09:07AM  Market Realist]
▶ The Rise of Mixed Martial Arts in Asia   [12:31AM  Bloomberg Video]
▶ The PC market is going more high end   [May-23-17 11:02PM  CNBC Videos]
▶ Is Microsoft taking on Apple?   [07:46PM  CNBC Videos]
▶ Check Out Microsofts New Surface Pro Tablet   [03:59PM  Fortune Videos]
▶ Is Leadership Changing Hands?   [01:36PM  GuruFocus.com]
▶ HubSpot joins Microsoft in funding San Francisco startup   [09:30AM  American City Business Journals]
▶ Assessing Salesforce as an Investment in 2017   [09:06AM  Market Realist]
▶ Microsoft Unveils Latest Surface Pro Hybrid   [08:41AM  TheStreet.com]
▶ Why Investors Should Follow The Activists   [May-22-17 10:10PM  Forbes]
▶ CrowdStrike CEO Weighs in on Ransomware Attacks   [07:45PM  Bloomberg Video]
▶ [$$] Big Techs Not-So-Easy Money   [May-21-17 11:53PM  The Wall Street Journal]
▶ [$$] Big Tech's Not-So-Easy Money   [11:00AM  The Wall Street Journal]
▶ Microsoft Surface Laptop: Hands-On Review   [May-20-17 03:20PM  Forbes]
▶ These Washington donors gave the most to the nation's top 25 PACs   [06:05PM  American City Business Journals]
Stock chart of MSFT Financial statements of MSFT Annual reports of MSFT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.