Intrinsic value of Microsoft - MSFT

Previous Close

$91.49

  Intrinsic Value

$55.03

stock screener

  Rating & Target

sell

-40%

Previous close

$91.49

 
Intrinsic value

$55.03

 
Up/down potential

-40%

 
Rating

sell

*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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Microsoft (MSFT) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.43
  11.90
  11.21
  10.59
  10.03
  9.53
  9.07
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
Revenue, $m
  89,950
  100,654
  111,937
  123,790
  136,207
  149,183
  162,721
  176,824
  191,500
  206,763
  222,629
  239,116
  256,250
  274,056
  292,565
  311,812
  331,832
  352,667
  374,358
  396,953
  420,501
  445,053
  470,666
  497,397
  525,309
  554,466
  584,936
  616,790
  650,104
  684,957
  721,431
Variable operating expenses, $m
 
  47,795
  52,759
  57,974
  63,437
  69,146
  75,102
  81,306
  87,764
  94,479
  101,459
  105,200
  112,738
  120,572
  128,715
  137,183
  145,991
  155,157
  164,700
  174,641
  185,001
  195,803
  207,071
  218,832
  231,112
  243,939
  257,345
  271,359
  286,016
  301,350
  317,396
Fixed operating expenses, $m
 
  25,813
  26,458
  27,119
  27,797
  28,492
  29,205
  29,935
  30,683
  31,450
  32,236
  33,042
  33,868
  34,715
  35,583
  36,472
  37,384
  38,319
  39,277
  40,259
  41,265
  42,297
  43,354
  44,438
  45,549
  46,688
  47,855
  49,051
  50,278
  51,535
  52,823
Total operating expenses, $m
  67,679
  73,608
  79,217
  85,093
  91,234
  97,638
  104,307
  111,241
  118,447
  125,929
  133,695
  138,242
  146,606
  155,287
  164,298
  173,655
  183,375
  193,476
  203,977
  214,900
  226,266
  238,100
  250,425
  263,270
  276,661
  290,627
  305,200
  320,410
  336,294
  352,885
  370,219
Operating income, $m
  22,271
  27,046
  32,720
  38,697
  44,973
  51,545
  58,414
  65,583
  73,054
  80,835
  88,934
  100,874
  109,643
  118,769
  128,267
  138,157
  148,457
  159,191
  170,381
  182,053
  194,235
  206,953
  220,240
  234,127
  248,648
  263,839
  279,736
  296,379
  313,811
  332,073
  351,212
EBITDA, $m
  31,049
  35,042
  41,219
  47,723
  54,552
  61,703
  69,175
  76,971
  85,097
  93,557
  102,363
  111,526
  121,058
  130,977
  141,300
  152,046
  163,239
  174,900
  187,057
  199,736
  212,966
  226,779
  241,206
  256,284
  272,048
  288,537
  305,792
  323,855
  342,770
  362,585
  383,348
Interest expense (income), $m
  1,600
  2,663
  1,465
  1,929
  2,416
  2,927
  3,461
  4,017
  4,597
  5,201
  5,828
  6,481
  7,159
  7,863
  8,596
  9,357
  10,148
  10,972
  11,828
  12,720
  13,650
  14,618
  15,628
  16,681
  17,780
  18,928
  20,127
  21,380
  22,690
  24,060
  25,493
Earnings before tax, $m
  23,149
  24,384
  31,255
  36,768
  42,556
  48,618
  54,954
  61,565
  68,457
  75,634
  83,105
  94,393
  102,485
  110,906
  119,672
  128,800
  138,309
  148,219
  158,553
  169,333
  180,585
  192,336
  204,613
  217,447
  230,868
  244,911
  259,609
  275,000
  291,121
  308,013
  325,719
Tax expense, $m
  1,945
  6,584
  8,439
  9,927
  11,490
  13,127
  14,838
  16,623
  18,483
  20,421
  22,438
  25,486
  27,671
  29,944
  32,311
  34,776
  37,343
  40,019
  42,809
  45,720
  48,758
  51,931
  55,245
  58,711
  62,334
  66,126
  70,094
  74,250
  78,603
  83,164
  87,944
Net income, $m
  21,204
  17,800
  22,816
  26,841
  31,066
  35,491
  40,116
  44,943
  49,973
  55,213
  60,667
  68,907
  74,814
  80,961
  87,360
  94,024
  100,965
  108,200
  115,743
  123,613
  131,827
  140,405
  149,367
  158,736
  168,534
  178,785
  189,515
  200,750
  212,518
  224,850
  237,775

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  132,901
  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
  250,312
  131,402
  146,132
  161,606
  177,816
  194,756
  212,429
  230,840
  250,001
  269,926
  290,638
  312,162
  334,530
  357,775
  381,939
  407,065
  433,201
  460,400
  488,718
  518,216
  548,957
  581,009
  614,446
  649,344
  685,782
  723,846
  763,624
  805,209
  848,700
  894,200
  941,816
Adjusted assets (=assets-cash), $m
  117,411
  131,402
  146,132
  161,606
  177,816
  194,756
  212,429
  230,840
  250,001
  269,926
  290,638
  312,162
  334,530
  357,775
  381,939
  407,065
  433,201
  460,400
  488,718
  518,216
  548,957
  581,009
  614,446
  649,344
  685,782
  723,846
  763,624
  805,209
  848,700
  894,200
  941,816
Revenue / Adjusted assets
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
Average production assets, $m
  22,064
  24,660
  27,425
  30,329
  33,371
  36,550
  39,867
  43,322
  46,918
  50,657
  54,544
  58,584
  62,781
  67,144
  71,679
  76,394
  81,299
  86,403
  91,718
  97,254
  103,023
  109,038
  115,313
  121,862
  128,701
  135,844
  143,309
  151,114
  159,276
  167,815
  176,751
Working capital, $m
  106,951
  -17,715
  -19,701
  -21,787
  -23,972
  -26,256
  -28,639
  -31,121
  -33,704
  -36,390
  -39,183
  -42,084
  -45,100
  -48,234
  -51,492
  -54,879
  -58,402
  -62,069
  -65,887
  -69,864
  -74,008
  -78,329
  -82,837
  -87,542
  -92,454
  -97,586
  -102,949
  -108,555
  -114,418
  -120,552
  -126,972
Total debt, $m
  86,194
  41,855
  55,112
  69,039
  83,627
  98,874
  114,779
  131,349
  148,593
  166,527
  185,167
  204,539
  224,670
  245,591
  267,338
  289,952
  313,474
  337,953
  363,439
  389,987
  417,654
  446,501
  476,595
  508,003
  540,797
  575,054
  610,854
  648,281
  687,423
  728,373
  771,228
Total liabilities, $m
  162,601
  118,262
  131,519
  145,446
  160,034
  175,281
  191,186
  207,756
  225,000
  242,934
  261,574
  280,946
  301,077
  321,998
  343,745
  366,359
  389,881
  414,360
  439,846
  466,394
  494,061
  522,908
  553,002
  584,410
  617,204
  651,461
  687,261
  724,688
  763,830
  804,780
  847,635
Total equity, $m
  87,711
  13,140
  14,613
  16,161
  17,782
  19,476
  21,243
  23,084
  25,000
  26,993
  29,064
  31,216
  33,453
  35,778
  38,194
  40,707
  43,320
  46,040
  48,872
  51,822
  54,896
  58,101
  61,445
  64,934
  68,578
  72,385
  76,362
  80,521
  84,870
  89,420
  94,182
Total liabilities and equity, $m
  250,312
  131,402
  146,132
  161,607
  177,816
  194,757
  212,429
  230,840
  250,000
  269,927
  290,638
  312,162
  334,530
  357,776
  381,939
  407,066
  433,201
  460,400
  488,718
  518,216
  548,957
  581,009
  614,447
  649,344
  685,782
  723,846
  763,623
  805,209
  848,700
  894,200
  941,817
Debt-to-equity ratio
  0.983
  3.190
  3.770
  4.270
  4.700
  5.080
  5.400
  5.690
  5.940
  6.170
  6.370
  6.550
  6.720
  6.860
  7.000
  7.120
  7.240
  7.340
  7.440
  7.530
  7.610
  7.680
  7.760
  7.820
  7.890
  7.940
  8.000
  8.050
  8.100
  8.150
  8.190
Adjusted equity ratio
  -0.308
  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
  21,204
  17,800
  22,816
  26,841
  31,066
  35,491
  40,116
  44,943
  49,973
  55,213
  60,667
  68,907
  74,814
  80,961
  87,360
  94,024
  100,965
  108,200
  115,743
  123,613
  131,827
  140,405
  149,367
  158,736
  168,534
  178,785
  189,515
  200,750
  212,518
  224,850
  237,775
Depreciation, amort., depletion, $m
  8,778
  7,996
  8,499
  9,027
  9,580
  10,158
  10,761
  11,389
  12,043
  12,723
  13,429
  10,652
  11,415
  12,208
  13,032
  13,890
  14,782
  15,710
  16,676
  17,682
  18,731
  19,825
  20,966
  22,157
  23,400
  24,699
  26,056
  27,475
  28,959
  30,512
  32,136
Funds from operations, $m
  41,159
  25,796
  31,315
  35,867
  40,646
  45,649
  50,877
  56,332
  62,016
  67,935
  74,096
  79,559
  86,228
  93,169
  100,393
  107,914
  115,747
  123,910
  132,419
  141,295
  150,558
  160,230
  170,333
  180,893
  191,934
  203,484
  215,571
  228,225
  241,477
  255,361
  269,911
Change in working capital, $m
  1,652
  -1,884
  -1,986
  -2,086
  -2,185
  -2,284
  -2,383
  -2,482
  -2,583
  -2,686
  -2,792
  -2,902
  -3,015
  -3,134
  -3,258
  -3,387
  -3,524
  -3,667
  -3,818
  -3,977
  -4,144
  -4,321
  -4,508
  -4,705
  -4,912
  -5,132
  -5,363
  -5,606
  -5,863
  -6,134
  -6,419
Cash from operations, $m
  39,507
  27,680
  33,301
  37,953
  42,831
  47,933
  53,260
  58,814
  64,599
  70,622
  76,889
  82,460
  89,244
  96,303
  103,650
  111,301
  119,271
  127,576
  136,237
  145,272
  154,703
  164,551
  174,841
  185,597
  196,846
  208,615
  220,933
  233,831
  247,341
  261,495
  276,331
Maintenance CAPEX, $m
  0
  -4,012
  -4,484
  -4,986
  -5,514
  -6,067
  -6,645
  -7,248
  -7,877
  -8,530
  -9,210
  -9,917
  -10,652
  -11,415
  -12,208
  -13,032
  -13,890
  -14,782
  -15,710
  -16,676
  -17,682
  -18,731
  -19,825
  -20,966
  -22,157
  -23,400
  -24,699
  -26,056
  -27,475
  -28,959
  -30,512
New CAPEX, $m
  -8,129
  -2,596
  -2,764
  -2,904
  -3,042
  -3,179
  -3,317
  -3,455
  -3,596
  -3,739
  -3,887
  -4,039
  -4,198
  -4,363
  -4,535
  -4,715
  -4,905
  -5,104
  -5,314
  -5,536
  -5,769
  -6,015
  -6,275
  -6,549
  -6,838
  -7,143
  -7,465
  -7,804
  -8,162
  -8,539
  -8,936
Cash from investing activities, $m
  -46,781
  -6,608
  -7,248
  -7,890
  -8,556
  -9,246
  -9,962
  -10,703
  -11,473
  -12,269
  -13,097
  -13,956
  -14,850
  -15,778
  -16,743
  -17,747
  -18,795
  -19,886
  -21,024
  -22,212
  -23,451
  -24,746
  -26,100
  -27,515
  -28,995
  -30,543
  -32,164
  -33,860
  -35,637
  -37,498
  -39,448
Free cash flow, $m
  -7,274
  21,072
  26,052
  30,063
  34,275
  38,686
  43,297
  48,110
  53,127
  58,352
  63,791
  68,504
  74,395
  80,526
  86,908
  93,553
  100,476
  107,690
  115,213
  123,060
  131,251
  139,805
  148,741
  158,082
  167,851
  178,072
  188,769
  199,971
  211,704
  223,997
  236,883
Issuance/(repayment) of debt, $m
  31,459
  -34,218
  13,257
  13,927
  14,588
  15,247
  15,906
  16,570
  17,244
  17,933
  18,641
  19,372
  20,131
  20,921
  21,747
  22,613
  23,523
  24,479
  25,486
  26,548
  27,667
  28,848
  30,093
  31,408
  32,794
  34,257
  35,800
  37,427
  39,142
  40,950
  42,855
Issuance/(repurchase) of shares, $m
  -11,016
  30,409
  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  
  20,253
  -3,809
  13,257
  13,927
  14,588
  15,247
  15,906
  16,570
  17,244
  17,933
  18,641
  19,372
  20,131
  20,921
  21,747
  22,613
  23,523
  24,479
  25,486
  26,548
  27,667
  28,848
  30,093
  31,408
  32,794
  34,257
  35,800
  37,427
  39,142
  40,950
  42,855
Total cash flow (excl. dividends), $m
  12,998
  17,263
  39,310
  43,989
  48,863
  53,933
  59,203
  64,680
  70,371
  76,285
  82,432
  87,876
  94,525
  101,447
  108,655
  116,166
  123,998
  132,169
  140,699
  149,608
  158,918
  168,652
  178,834
  189,490
  200,646
  212,329
  224,569
  237,398
  250,846
  264,947
  279,737
Retained Cash Flow (-), $m
  -15,714
  -48,209
  -1,473
  -1,547
  -1,621
  -1,694
  -1,767
  -1,841
  -1,916
  -1,993
  -2,071
  -2,152
  -2,237
  -2,325
  -2,416
  -2,513
  -2,614
  -2,720
  -2,832
  -2,950
  -3,074
  -3,205
  -3,344
  -3,490
  -3,644
  -3,806
  -3,978
  -4,159
  -4,349
  -4,550
  -4,762
Prev. year cash balance distribution, $m
 
  122,780
  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
 
  91,834
  37,837
  42,442
  47,242
  52,239
  57,436
  62,839
  68,455
  74,292
  80,361
  85,723
  92,289
  99,122
  106,239
  113,654
  121,385
  129,450
  137,867
  146,658
  155,844
  165,447
  175,491
  186,000
  197,002
  208,523
  220,592
  233,239
  246,497
  260,397
  274,976
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
 
  88,048
  34,638
  36,936
  38,899
  40,491
  41,683
  42,453
  42,786
  42,677
  42,130
  40,709
  39,383
  37,688
  35,666
  33,367
  30,846
  28,166
  25,390
  22,581
  19,803
  17,113
  14,561
  12,191
  10,034
  8,112
  6,436
  5,006
  3,814
  2,842
  2,070
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

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 33.3
Price to Sales 7.8
Price to Book 8
Price to Tangible Book
Price to Cash Flow 17.9
Price to Free Cash Flow 22.5
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 $89950 million for the last fiscal year's total revenue generated by Microsoft. The default revenue input number comes from 2017 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 11.9% 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 47.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $25183 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 24.5%.

Life of production assets of 5.5 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 -17.6%. 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 - $87711 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 7730.77 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 $707.3 billion.

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COMPANY NEWS

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▶ IBM sues UNC grad to block her from taking executive job with Microsoft   [01:06PM  American City Business Journals]
Financial statements of MSFT
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