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ResearchAssingmentpart2findingsJoshuaSerrano.pptxBusiness Finance
FINC 330 7386
Victoria Samios-Uy, Joshua Serrano, Craig Steward, Alina Waince
MICROSOFT COMPANY
Microsoft is one of the best software developing companies in the world.
This presentation will provide the following:
Analysis of Microsoft’s bons and stocks.
It will analyze Microsoft's financial leverage ratio, bond, and stock performance.
It will also provided a professional recommendation based on the ratios.
Financial Leverage Ratio: 2018-2020
| Equation | 2020 | 2019 | 2018 | |
| Debt-to-Assets (Debt Ratio) | Total Debt Total Assets | 0.21 | 0.25 | 0.29 |
| Debt-to-Equity Ratio | Current Liabilities + Long Term Debt Common Equity | 0.54 | 0.71 | 0.92 |
| Interest Coverage Ratio | EBIT Interest Expense | 21.47 | 17.27 | 14.35 |
By reviewing the above table, we can determine that
Microsoft’s Debt Ratio is below industry average for software companies.
Industry average in fiscal year 2020 was 0.58 for tech companies.
Financial Leverage Ratio: 2018-2020 Continuation
| Equation | 2020 | 2019 | 2018 | |
| Debt-to-Assets (Debt Ratio) | Total Debt Total Assets | 0.21 | 0.25 | 0.29 |
| Debt-to-Equity Ratio | Current Liabilities + Long Term Debt Common Equity | 0.54 | 0.71 | 0.92 |
| Interest Coverage Ratio | EBIT Interest Expense | 21.47 | 17.27 | 14.35 |
Microsoft’s current risk is low for investors in relations to the company’s capital structure.
This can be measured by one of the three ratios that were completed above.
In order for the company to appeal to investors, they need to maintain their finance structure.
Bond Performance:
The two bonds: MSFT3926358 (refer to as A) is a 10 year
maturity bond, and MSFT3926369 (refer to as B) is a 30
year maturity bond. Both of these bonds are callable.
Bond Performance continuation:
The last prices of the bonds are listed in the Last Sale column, with Bond A’s last sale price is $102.933.
Bond B is valued at $111.937. Assuming the par value of the bond is $1000, an investor will have to pay $1029.33, for Bond A if they were to purchase the bond at the listed last sale prices.
An investor will pay $1119.37 for purchasing Bond B at the listed last sale price. Below are the mathematics:
Stock’s performance
In this part of the research assignment, the key market ratios of Microsoft and Apple will be analyzed.
| Price/Earnings Ratio | 2018 41.80 | 2019 29.75 | 2020 35.87 |
| Market Book Ratio | 9.08 | 11.32 | 13.60 |
| Earnings Per Share | 2.13 | 5.06 | 5.76 |
| Dividends Per Share | 1.72 | 1.89 | 2.09 |
| Price/Cash Flow | 17.53 | 23.31 | 25.76 |
| Price/Earnings Ratio | 2020 40.45 |
| Market Book Ratio | 34.16 |
| Earnings Per Share | 3.28 |
| Dividends Per Share | 0.81 |
| Price/Cash Flow | 28.83 |
Stock’s performance Continuation Market Ratios Analysis
After comparing Microsoft and its biggest competitor Apple, it was revealed that both companies have large fluctuations in their ratios
. For example, in 2018 Microsoft reported a price/earning ratio of 41.80 and in 2019 it when down considerably to 29.75 and in 2020 it when back up to a similar rate as 2018 at 35.87.
One big difference between Microsoft to Apple is their market book ratio.
Their Dividend ratios were almost at 1.99, which is considered to be a fair amount. Based on all of these ratios, we can suggest that common stockholders are receiving an adequate ROI amount.
Analysis of Microsoft’s Historical Stock Prices
The table below will show the data about the stock prices for Microsoft’s and one of its biggest competitors, Apple.
| Stock Closed Price 2020 | |
| Microsoft | 222.42 |
| Apple | 132.69 |
Microsoft’s Historical
Microsoft’s Historical
Historic Stock Analysis
The historical stock price for 2020 indicates that Microsoft’s stock price is constantly increasing from 2019 where it was 157.70, to a higher cost of 222.42 in 2020.
Based on the findings in previous sections and the data in the historical price for Microsoft, it is not reasonable to buy the stock at this moment. The reason behind this decision is merely based on the ratios given by Morningstar, Nasdaq, and Yahoo finance. The stock is overvalued based on the industry average as we saw that Apple stock is cheaper than Microsoft at this moment.
Recommendations
Based on all of the analyze data Microsoft has sufficient financial strength to warrant entering in a long-term investment in stocks of the company. They have demonstrated this by all of the years of solid demonstration of financial strength.
They can managed to maintain investors wealth by creating new ways to increase ratio numbers.
