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Microsoft (NASDAQ: MSFT) will be the stock in focus: (Price at time of writing $59.87 as 21 October 2016)
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Background and overview of Microsoft (NASDAQ: MSFT)
We do not think this company needs any introduction. We highly doubt that people do not know who Microsoft is or what they do. For those that do not know, Wikipedia sums up their operations very nicely. For our readers convenience we will quote them here:
"Microsoft is an American multinational technology company headquartered in Redmond, Washington, that develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers and services. Its best known software products are the Microsoft Windows line of operating systems,Microsoft Office office suite, and Internet Explorer and Edge web browsers. Its flagship hardware products are the Xbox video game consoles and the Microsoft Surface tablet lineup. As of 2011, it was the world's largest software maker by revenue, and one of the world's most valuable companies."
"Microsoft is an American multinational technology company headquartered in Redmond, Washington, that develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers and services. Its best known software products are the Microsoft Windows line of operating systems,Microsoft Office office suite, and Internet Explorer and Edge web browsers. Its flagship hardware products are the Xbox video game consoles and the Microsoft Surface tablet lineup. As of 2011, it was the world's largest software maker by revenue, and one of the world's most valuable companies."
Scroll over or click on the funnel chart to get more details of MSFT's latest financial results.
Financial review:
Apple is sitting on a net profit margin of 22.9%. So essentially for every $100 they receive they make $22.9 in profits after paying all expenses and taxes. Pretty strong net profit margins. But then again, majority of computer users across the world use their software and buy the licenses for their software. And with such a hold on the market, they can bump up margins and get away with it as people will still pay to get the software and licenses.
Diluted earnings per share came in at $0.60 a share for the quarter. This places MSFT on a PE ratio of 24.9 (assuming their earnings per share for the three months ended in September is repeated for the rest of the fiscal year). The PE is demanding to say the least, even for a company with such a strong brand name and customer loyalty. MSFT is currently sitting on a dividend yield of 2.6% (assuming their dividend per share for the three months ended in September is repeated for the rest of the fiscal year). Investors looking to invest in tech companies on the NASDAQ will find a higher dividend yield here compared to Apple (APPL).
Diluted earnings per share came in at $0.60 a share for the quarter. This places MSFT on a PE ratio of 24.9 (assuming their earnings per share for the three months ended in September is repeated for the rest of the fiscal year). The PE is demanding to say the least, even for a company with such a strong brand name and customer loyalty. MSFT is currently sitting on a dividend yield of 2.6% (assuming their dividend per share for the three months ended in September is repeated for the rest of the fiscal year). Investors looking to invest in tech companies on the NASDAQ will find a higher dividend yield here compared to Apple (APPL).
Cash generated by operating activities for the 3 months amounted to $11 549million (or roughly $1.46 a shares). Showing MSFT is a strong cash generative business. At the end of the 3months their cash and equivalents on their balance sheet was $13 928million
Pie charts below shows revenue and income earned per operating division for MSFT:
Pie charts below shows revenue and income earned per operating division for MSFT:
From the pie charts above it's clear that MSFT earns strong revenues and income from all three of their major operating divisions. Shows they are not overly dependent on just one division to contribute to their revenue or profits.
Another noticeable observation from the pie charts above is the fact that Productivity and Business Processes brings in 29.8% of revenue but 43.9% in operating profit. Clearly strong margins are earned in this division. In contrast more personal computing brings in 41.6%, yet only 27.1% in operating income. Thus we can assume lower margins are earned in this division when compared to their other divisions.
Below we will take a look at a few of MSFT's financial ratios and then provide a valuation based on MSFT current financial results.
Below we will take a look at a few of MSFT's financial ratios and then provide a valuation based on MSFT current financial results.
A few financial ratios for MSFT (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 2.02 (more than 2 shows high levels of financial leverage).
- Current Ratio: 2.69 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 2.63 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 2.21%
- Return on Equity (ROE): 6.66%
- Net Profit Margin: 22.9%
- Dividend Yield: 2.6%
Valuation:
Based on AAPL's current financial results we value them at between $60.56 and $60.70. Based on this valuation MSFT is close to being fully priced. MSFT should form part of any long term investment portfolio. Long term investors who do not hold MSFT yet should look to buy or add to current holdings at prices below our valuation level. Perhaps look to buy at levels around the $58 as this provides a little bit of capital gain should it trade at our valuation level.
For South African investors, please remember exchange rate movements will have an impact on the value of your MSFT shares when the value is calculated in Rand terms.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)
For South African investors, please remember exchange rate movements will have an impact on the value of your MSFT shares when the value is calculated in Rand terms.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question. Note this is not a binding valuation and investors should do their own research before investing in a specific share. Southafricanmi.com cannot be held liable for any losses incurred, We would accept donations on profits made though ;)
