Intrinsic value of Microsoft - MSFT

Previous Close

$107.28

  Intrinsic Value

$185.23

stock screener

  Rating & Target

str. buy

+73%

Previous close

$107.28

 
Intrinsic value

$185.23

 
Up/down potential

+73%

 
Rating

str. buy

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 0001), $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 824.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.50
  16.25
  15.13
  14.11
  13.20
  12.38
  11.64
  10.98
  10.38
  9.84
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
  7.08
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
Revenue, $m
  129,673
  150,745
  173,545
  198,037
  224,180
  251,936
  281,269
  312,148
  344,552
  378,466
  413,884
  450,814
  489,270
  529,279
  570,878
  614,114
  659,044
  705,735
  754,263
  804,712
  857,177
  911,760
  968,572
  1,027,731
  1,089,365
  1,153,608
  1,220,606
  1,290,508
  1,363,476
  1,439,678
Variable operating expenses, $m
  72,111
  83,118
  95,028
  107,822
  121,478
  135,977
  151,300
  167,431
  184,357
  202,073
  216,201
  235,491
  255,580
  276,479
  298,209
  320,795
  344,265
  368,655
  394,004
  420,357
  447,763
  476,276
  505,952
  536,855
  569,051
  602,610
  637,607
  674,122
  712,239
  752,044
Fixed operating expenses, $m
  13,815
  14,119
  14,430
  14,747
  15,072
  15,403
  15,742
  16,089
  16,443
  16,804
  17,174
  17,552
  17,938
  18,333
  18,736
  19,148
  19,569
  20,000
  20,440
  20,890
  21,349
  21,819
  22,299
  22,789
  23,291
  23,803
  24,327
  24,862
  25,409
  25,968
Total operating expenses, $m
  85,926
  97,237
  109,458
  122,569
  136,550
  151,380
  167,042
  183,520
  200,800
  218,877
  233,375
  253,043
  273,518
  294,812
  316,945
  339,943
  363,834
  388,655
  414,444
  441,247
  469,112
  498,095
  528,251
  559,644
  592,342
  626,413
  661,934
  698,984
  737,648
  778,012
Operating income, $m
  43,747
  53,507
  64,087
  75,467
  87,630
  100,555
  114,227
  128,629
  143,752
  159,589
  180,510
  197,770
  215,752
  234,467
  253,933
  274,171
  295,210
  317,081
  339,819
  363,465
  388,065
  413,665
  440,320
  468,086
  497,023
  527,195
  558,671
  591,524
  625,828
  661,666
EBITDA, $m
  56,703
  67,858
  79,946
  92,948
  106,840
  121,603
  137,216
  153,662
  170,930
  189,011
  207,902
  227,607
  248,134
  269,497
  291,716
  314,816
  338,829
  363,789
  389,739
  416,725
  444,796
  474,010
  504,424
  536,105
  569,121
  603,546
  639,456
  676,935
  716,069
  756,949
Interest expense (income), $m
  1,600
  4,418
  5,370
  7,035
  8,837
  10,772
  12,838
  15,032
  17,350
  19,790
  22,351
  25,031
  27,829
  30,748
  33,787
  36,948
  40,236
  43,653
  47,203
  50,893
  54,728
  58,714
  62,860
  67,174
  71,663
  76,338
  81,209
  86,286
  91,580
  97,104
  102,870
Earnings before tax, $m
  39,329
  48,138
  57,052
  66,630
  76,857
  87,717
  99,195
  111,280
  123,962
  137,238
  155,479
  169,941
  185,004
  200,680
  216,984
  233,936
  251,558
  269,878
  288,926
  308,738
  329,350
  350,805
  373,146
  396,423
  420,684
  445,986
  472,386
  499,944
  528,724
  558,795
Tax expense, $m
  10,619
  12,997
  15,404
  17,990
  20,752
  23,684
  26,783
  30,046
  33,470
  37,054
  41,979
  45,884
  49,951
  54,184
  58,586
  63,163
  67,921
  72,867
  78,010
  83,359
  88,925
  94,717
  100,750
  107,034
  113,585
  120,416
  127,544
  134,985
  142,756
  150,875
Net income, $m
  28,710
  35,140
  41,648
  48,640
  56,106
  64,033
  72,412
  81,234
  90,493
  100,184
  113,500
  124,057
  135,053
  146,497
  158,398
  170,773
  183,637
  197,011
  210,916
  225,379
  240,426
  256,088
  272,397
  289,388
  307,100
  325,570
  344,842
  364,959
  385,969
  407,920

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  210,850
  245,114
  282,187
  322,011
  364,520
  409,652
  457,348
  507,558
  560,247
  615,391
  672,982
  733,030
  795,560
  860,616
  928,257
  998,560
  1,071,617
  1,147,537
  1,226,444
  1,308,476
  1,393,784
  1,482,537
  1,574,913
  1,671,107
  1,771,324
  1,875,786
  1,984,725
  2,098,388
  2,217,034
  2,340,939
Adjusted assets (=assets-cash), $m
  210,850
  245,114
  282,187
  322,011
  364,520
  409,652
  457,348
  507,558
  560,247
  615,391
  672,982
  733,030
  795,560
  860,616
  928,257
  998,560
  1,071,617
  1,147,537
  1,226,444
  1,308,476
  1,393,784
  1,482,537
  1,574,913
  1,671,107
  1,771,324
  1,875,786
  1,984,725
  2,098,388
  2,217,034
  2,340,939
Revenue / Adjusted assets
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
Average production assets, $m
  65,226
  75,825
  87,293
  99,612
  112,762
  126,724
  141,478
  157,011
  173,310
  190,368
  208,184
  226,759
  246,103
  266,227
  287,152
  308,899
  331,499
  354,985
  379,394
  404,770
  431,160
  458,615
  487,192
  516,949
  547,950
  580,265
  613,965
  649,126
  685,828
  724,158
Working capital, $m
  -21,915
  -25,476
  -29,329
  -33,468
  -37,886
  -42,577
  -47,534
  -52,753
  -58,229
  -63,961
  -69,946
  -76,187
  -82,687
  -89,448
  -96,478
  -103,785
  -111,379
  -119,269
  -127,470
  -135,996
  -144,863
  -154,087
  -163,689
  -173,686
  -184,103
  -194,960
  -206,282
  -218,096
  -230,427
  -243,306
Total debt, $m
  99,441
  130,278
  163,644
  199,486
  237,744
  278,363
  321,289
  366,479
  413,899
  463,528
  515,360
  569,403
  625,680
  684,230
  745,107
  808,380
  874,131
  942,460
  1,013,476
  1,087,304
  1,164,082
  1,243,959
  1,327,098
  1,413,672
  1,503,868
  1,597,883
  1,695,928
  1,798,225
  1,905,007
  2,016,521
Total liabilities, $m
  189,765
  220,602
  253,968
  289,810
  328,068
  368,687
  411,613
  456,803
  504,223
  553,852
  605,684
  659,727
  716,004
  774,554
  835,431
  898,704
  964,455
  1,032,784
  1,103,800
  1,177,628
  1,254,406
  1,334,283
  1,417,422
  1,503,996
  1,594,192
  1,688,207
  1,786,252
  1,888,549
  1,995,331
  2,106,845
Total equity, $m
  21,085
  24,511
  28,219
  32,201
  36,452
  40,965
  45,735
  50,756
  56,025
  61,539
  67,298
  73,303
  79,556
  86,062
  92,826
  99,856
  107,162
  114,754
  122,644
  130,848
  139,378
  148,254
  157,491
  167,111
  177,132
  187,579
  198,472
  209,839
  221,703
  234,094
Total liabilities and equity, $m
  210,850
  245,113
  282,187
  322,011
  364,520
  409,652
  457,348
  507,559
  560,248
  615,391
  672,982
  733,030
  795,560
  860,616
  928,257
  998,560
  1,071,617
  1,147,538
  1,226,444
  1,308,476
  1,393,784
  1,482,537
  1,574,913
  1,671,107
  1,771,324
  1,875,786
  1,984,724
  2,098,388
  2,217,034
  2,340,939
Debt-to-equity ratio
  4.720
  5.320
  5.800
  6.190
  6.520
  6.800
  7.030
  7.220
  7.390
  7.530
  7.660
  7.770
  7.860
  7.950
  8.030
  8.100
  8.160
  8.210
  8.260
  8.310
  8.350
  8.390
  8.430
  8.460
  8.490
  8.520
  8.540
  8.570
  8.590
  8.610
Adjusted equity ratio
  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
  28,710
  35,140
  41,648
  48,640
  56,106
  64,033
  72,412
  81,234
  90,493
  100,184
  113,500
  124,057
  135,053
  146,497
  158,398
  170,773
  183,637
  197,011
  210,916
  225,379
  240,426
  256,088
  272,397
  289,388
  307,100
  325,570
  344,842
  364,959
  385,969
  407,920
Depreciation, amort., depletion, $m
  12,956
  14,351
  15,860
  17,480
  19,211
  21,048
  22,989
  25,033
  27,178
  29,422
  27,393
  29,837
  32,382
  35,030
  37,783
  40,645
  43,618
  46,709
  49,920
  53,259
  56,732
  60,344
  64,104
  68,020
  72,099
  76,351
  80,785
  85,411
  90,241
  95,284
Funds from operations, $m
  41,666
  49,491
  57,507
  66,121
  75,317
  85,081
  95,401
  106,267
  117,670
  129,606
  140,892
  153,894
  167,435
  181,526
  196,182
  211,418
  227,255
  243,719
  260,836
  278,638
  297,157
  316,432
  336,501
  357,408
  379,198
  401,921
  425,626
  450,370
  476,209
  503,204
Change in working capital, $m
  -3,264
  -3,561
  -3,853
  -4,139
  -4,418
  -4,691
  -4,957
  -5,219
  -5,476
  -5,731
  -5,986
  -6,241
  -6,499
  -6,762
  -7,030
  -7,307
  -7,593
  -7,891
  -8,201
  -8,526
  -8,867
  -9,224
  -9,601
  -9,998
  -10,416
  -10,857
  -11,323
  -11,814
  -12,332
  -12,878
Cash from operations, $m
  44,930
  53,052
  61,361
  70,260
  79,735
  89,772
  100,359
  111,486
  123,146
  135,337
  146,878
  160,135
  173,934
  188,288
  203,212
  218,725
  234,849
  251,610
  269,038
  287,164
  306,024
  325,656
  346,102
  367,406
  389,614
  412,778
  436,949
  462,184
  488,541
  516,082
Maintenance CAPEX, $m
  -7,297
  -8,582
  -9,977
  -11,486
  -13,107
  -14,837
  -16,674
  -18,616
  -20,659
  -22,804
  -25,048
  -27,393
  -29,837
  -32,382
  -35,030
  -37,783
  -40,645
  -43,618
  -46,709
  -49,920
  -53,259
  -56,732
  -60,344
  -64,104
  -68,020
  -72,099
  -76,351
  -80,785
  -85,411
  -90,241
New CAPEX, $m
  -9,767
  -10,599
  -11,468
  -12,319
  -13,150
  -13,961
  -14,754
  -15,532
  -16,299
  -17,058
  -17,816
  -18,575
  -19,343
  -20,125
  -20,924
  -21,748
  -22,600
  -23,486
  -24,409
  -25,376
  -26,390
  -27,455
  -28,576
  -29,757
  -31,002
  -32,315
  -33,700
  -35,161
  -36,703
  -38,329
Cash from investing activities, $m
  -17,064
  -19,181
  -21,445
  -23,805
  -26,257
  -28,798
  -31,428
  -34,148
  -36,958
  -39,862
  -42,864
  -45,968
  -49,180
  -52,507
  -55,954
  -59,531
  -63,245
  -67,104
  -71,118
  -75,296
  -79,649
  -84,187
  -88,920
  -93,861
  -99,022
  -104,414
  -110,051
  -115,946
  -122,114
  -128,570
Free cash flow, $m
  27,866
  33,871
  39,915
  46,455
  53,478
  60,973
  68,930
  77,338
  86,188
  95,475
  104,014
  114,167
  124,754
  135,781
  147,258
  159,194
  171,604
  184,506
  197,920
  211,867
  226,375
  241,470
  257,182
  273,545
  290,593
  308,364
  326,899
  346,238
  366,427
  387,513
Issuance/(repayment) of debt, $m
  17,633
  30,837
  33,366
  35,841
  38,258
  40,619
  42,926
  45,190
  47,420
  49,629
  51,832
  54,043
  56,277
  58,550
  60,877
  63,273
  65,752
  68,328
  71,016
  73,828
  76,778
  79,877
  83,139
  86,574
  90,196
  94,015
  98,045
  102,296
  106,782
  111,514
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  17,633
  30,837
  33,366
  35,841
  38,258
  40,619
  42,926
  45,190
  47,420
  49,629
  51,832
  54,043
  56,277
  58,550
  60,877
  63,273
  65,752
  68,328
  71,016
  73,828
  76,778
  79,877
  83,139
  86,574
  90,196
  94,015
  98,045
  102,296
  106,782
  111,514
Total cash flow (excl. dividends), $m
  45,499
  64,708
  73,281
  82,296
  91,736
  101,592
  111,856
  122,528
  133,608
  145,104
  155,846
  168,210
  181,031
  194,331
  208,134
  222,466
  237,356
  252,834
  268,936
  285,696
  303,153
  321,347
  340,321
  360,119
  380,789
  402,380
  424,944
  448,534
  473,209
  499,027
Retained Cash Flow (-), $m
  -13,647
  -3,426
  -3,707
  -3,982
  -4,251
  -4,513
  -4,770
  -5,021
  -5,269
  -5,514
  -5,759
  -6,005
  -6,253
  -6,506
  -6,764
  -7,030
  -7,306
  -7,592
  -7,891
  -8,203
  -8,531
  -8,875
  -9,238
  -9,619
  -10,022
  -10,446
  -10,894
  -11,366
  -11,865
  -12,390
Prev. year cash balance distribution, $m
  75,280
  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
  107,132
  61,281
  69,574
  78,314
  87,485
  97,079
  107,087
  117,506
  128,339
  139,590
  150,087
  162,205
  174,778
  187,826
  201,370
  215,436
  230,050
  245,242
  261,045
  277,493
  294,622
  312,472
  331,083
  350,500
  370,767
  391,934
  414,050
  437,168
  461,344
  486,636
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
  102,715
  56,101
  60,548
  64,483
  67,812
  70,454
  72,346
  73,444
  73,724
  73,182
  71,274
  69,219
  66,454
  63,056
  59,119
  54,747
  50,055
  45,164
  40,194
  35,261
  30,474
  25,927
  21,700
  17,852
  14,423
  11,435
  8,887
  6,764
  5,036
  3,664
Current shareholders' claim on cash, %
  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 is a technology company. The Company develops, licenses, and supports a range of software products, services and devices. The Company's segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company's products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services.

FINANCIAL RATIOS  of  Microsoft (MSFT)

Valuation Ratios
P/E Ratio 39
Price to Sales 9.2
Price to Book 9.4
Price to Tangible Book
Price to Cash Flow 20.9
Price to Free Cash Flow 26.4
Growth Rates
Sales Growth Rate 5.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.6%
Cap. Spend. - 3 Yr. Gr. Rate 8.2%
Financial Strength
Quick Ratio 13
Current Ratio 0.1
LT Debt to Equity 86.7%
Total Debt to Equity 98.3%
Interest Coverage 15
Management Effectiveness
Return On Assets 10.2%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 14.2%
Ret/ On T. Cap. - 3 Yr. Avg. 12.9%
Return On Equity 26.6%
Return On Equity - 3 Yr. Avg. 21%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 61.9%
Gross Margin - 3 Yr. Avg. 62.7%
EBITDA Margin 37.3%
EBITDA Margin - 3 Yr. Avg. 32.1%
Operating Margin 24.8%
Oper. Margin - 3 Yr. Avg. 22.4%
Pre-Tax Margin 25.7%
Pre-Tax Margin - 3 Yr. Avg. 22.9%
Net Profit Margin 23.6%
Net Profit Margin - 3 Yr. Avg. 18.8%
Effective Tax Rate 8.4%
Eff/ Tax Rate - 3 Yr. Avg. 19.2%
Payout Ratio 55.9%

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 $110360 million for the last fiscal year's total revenue generated by Microsoft. The default revenue input number comes from 0001 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 17.5% 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 56.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13518 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 5.4% 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 50.3%.

Life of production assets of 7.6 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 -16.9%. 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 - $82718 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 7683.2 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 $824.3 billion.

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