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Microsoft Company’s Vertical and Horizontal Analysis
|
As of 12/31/2008 |
Period 1 (%) |
12/31/2007 |
Period 2 (%) |
12/31/2006 |
Period 3 (%) | |
|
ASSETS | ||||||
|
CURRENT ASSETS | ||||||
|
Cash |
$67,354 |
20.72% |
$43,255 |
15.64% |
$33,169 |
13.40% |
|
Accounts receivable |
7,566 |
2.33% |
6,239 |
2.26% |
5,821 |
2.35% |
|
Inventory |
202,633 |
62.35% |
183,444 |
66.34% |
169,292 |
68.41% |
|
TOTAL CURRENT ASSETS |
$277,554 |
85.40% |
$232,938 |
84.23% |
$208,282 |
84.17% |
|
Equipment |
$39,446 |
12.14% |
$36,589 |
13.23% |
$32,878 |
13.29% |
|
Other assets |
8,010 |
2.46% |
7,011 |
2.54% |
6,306 |
2.55% |
|
TOTAL ASSETS |
$325,009 |
100.00% |
$276,538 |
100.00% |
$247,466 |
100.00% |
|
LIABILITIES | ||||||
|
CURRENT LIABILITIES | ||||||
|
Accounts payable |
$87,397 |
26.89% |
$74,198 |
26.83% |
$70,336 |
28.42% |
|
Notes payable |
8,321 |
2.56% |
7,456 |
2.70% |
6,549 |
2.65% |
|
TOTAL CURRENT LIABILITIES |
$95,718 |
29.45% |
$81,654 |
29.53% |
$76,885 |
31.07% |
|
0.00% | ||||||
|
Long-term liabilities |
56,707 |
17.45% |
53,457 |
19.33% |
44,267 |
17.89% |
|
TOTAL LIABILITIES |
$152,425 |
46.90% |
$135,111 |
48.86% |
$121,152 |
48.96% |
|
EQUITY | ||||||
|
Paid in capital |
$20,000 |
6.15% |
$20,000 |
7.23% |
$20,000 |
8.08% |
|
Retained earnings |
152,584 |
46.95% |
121,427 |
43.91% |
106,314 |
42.96% |
|
TOTAL EQUITY |
$172,584 |
53.10% |
$141,427 |
51.14% |
$126,314 |
51.04% |
|
TOTAL LIABILITIES AND EQUITY |
$325,009 |
100.00% |
$276,538 |
100.00% |
$247,466 |
100.00% |
Data Source: Microsoft Corporation. (n.d.). Annual reports. Microsoft Investor Relations. https://www.microsoft.com/en-us/investor/annual-reports
The vertical analysis shows Microsoft's balance sheet items as a percentage of either total assets for three periods: 12/31/2008, 12/31/2007, and 12/31/2006. For assets, current assets make up the majority, ranging from 84-85% of total assets. Cash and short-term investments are the largest components at 62-68% of total assets. Long-term assets like equipment are a smaller portion. On the liabilities and equity side, equity makes up just over half, ranging from 51-53% over the periods. Current liabilities are 29-31% of the total, with accounts payable being the largest piece at 26-28%. Long-term liabilities are a smaller share at 17-19%. The overall proportions remain fairly consistent year-over-year, with only minor fluctuations in the percentages of each balance sheet item. This suggests a relatively stable financial structure over this 3-year window based on the vertical common-size analysis provided.
b) Horizontal Analysis
|
% Change |
Absolute change |
As of 12/31/2008 |
% Change |
Absolute change |
12/31/2007 |
12/31/2006 | |
|
ASSETS | |||||||
|
CURRENT ASSETS | |||||||
|
Cash |
24099 |
$67,354 |
30.41% |
$10,086 |
$43,255 |
$33,169 | |
|
Accounts receivable |
21.27% |
1327 |
7,566 |
7.18% |
$418 |
6,239 |
5,821 |
|
Inventory |
10.46% |
19189 |
202,633 |
8.36% |
$14,152 |
183,444 |
169,292 |
|
TOTAL CURRENT ASSETS |
19.15% |
44616 |
$277,554 |
11.84% |
$24,656 |
$232,938 |
$208,282 |
|
Equipment |
7.81% |
2857 |
$39,446 |
11.29% |
$3,711 |
$36,589 |
$32,878 |
|
Other assets |
14.25% |
999 |
8,010 |
11.18% |
$705 |
7,011 |
6,306 |
|
TOTAL ASSETS |
17.53% |
48471 |
$325,009 |
11.75% |
$29,072 |
$276,538 |
$247,466 |
|
LIABILITIES | |||||||
|
CURRENT LIABILITIES | |||||||
|
Accounts payable |
17.79% |
13199 |
$87,397 |
5.49% |
$3,862 |
$74,198 |
$70,336 |
|
Notes payable |
11.60% |
865 |
8,321 |
13.85% |
$907 |
7,456 |
6,549 |
|
TOTAL CURRENT LIABILITIES |
17.22% |
14064 |
$95,718 |
6.20% |
$4,769 |
$81,654 |
$76,885 |
|
Long-term liabilities |
6.08% |
3250 |
56,707 |
20.76% |
$9,190 |
53,457 |
44,267 |
|
TOTAL LIABILITIES |
12.81% |
17314 |
$152,425 |
11.52% |
$13,959 |
$135,111 |
$121,152 |
|
EQUITY | |||||||
|
Paid in capital |
0.00% |
0 |
$20,000 |
0.00% |
$0 |
$20,000 |
$20,000 |
|
Retained earnings |
25.66% |
31157 |
152,584 |
14.22% |
$15,113 |
121,427 |
106,314 |
|
TOTAL EQUITY |
22.03% |
31157 |
$172,584 |
11.96% |
$15,113 |
$141,427 |
$126,314 |
|
TOTAL LIABILITIES AND EQUITY |
17.53% |
48471 |
$325,009 |
11.75% |
$29,072 |
$276,538 |
$247,466 |
Data Source: Microsoft Corporation. (n.d.). Annual reports. Microsoft Investor Relations. https://www.microsoft.com/en-us/investor/annual-reports
The horizontal analysis shows the year-over-year changes in Microsoft's balance sheet items for the periods ending 12/31/2008, 12/31/2007, and 12/31/2006. Total assets increased by 17.53% from 2007 to 2008 and 11.75% from 2006 to 2007. The largest contributor to this growth was the increase in cash and short-term investments, which grew by 24.09% and 19.41% respectively. Total liabilities grew by 12.81% from 2007 to 2008 and 11.52% from 2006 to 2007. Current liabilities increased by 17.22% and 6.20% during these periods, driven primarily by growth in accounts payable. Total equity increased by 22.03% from 2007 to 2008 and 11.96% from 2006 to 2007, largely due to the significant growth in retained earnings of 25.66% and 14.22% respectively. Overall, Microsoft experienced double-digit growth across its balance sheet over these two periods, with particularly strong increases in cash, retained earnings, and total equity.
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a) Vertical Analysis
|
For year ending |
Dec. 31,2008 |
Period 1 (%) |
Dec. 31,2007 |
Period 1 (%) |
Dec. 31,2006 |
Period 1 (%) |
|
Sales Revenue |
$678,000 |
100.00% |
$576,300 |
100.00% |
$533,586 |
100.00% |
|
Cost of goods sold |
395,952 |
58.40% |
345,780 |
60.00% |
336,159 |
63.00% |
|
GROSS MARGIN |
$282,048 |
41.60% |
$230,520 |
40.00% |
$197,427 |
37.00% |
|
OPERATING EXPENSES: | ||||||
|
Salary to owner |
$40,000 |
5.90% |
$36,000 |
6.25% |
$30,000 |
5.62% |
|
Salaries and wages |
84,750 |
12.50% |
71,712 |
12.44% |
58,673 |
11.00% |
|
Payroll taxes |
9,481 |
1.40% |
8,186 |
1.42% |
6,739 |
1.26% |
|
Bensfits (see Note 1 below) |
18,502 |
2.73% |
16,258 |
2.82% |
13,455 |
2.52% |
|
Rent |
36,000 |
5.31% |
36,000 |
6.25% |
36,000 |
6.75% |
|
Utilities (excluding phone) |
6,917 |
1.02% |
5,763 |
1.00% |
5,236 |
0.98% |
|
Advertising and promotion |
3,222 |
0.48% |
2,882 |
0.50% |
2,539 |
0.48% |
|
Community service |
450 |
0.07% |
400 |
0.07% |
350 |
0.07% |
|
Web hosting fees |
620 |
0.09% | ||||
|
Depreciation |
4,746 |
0.70% |
4,746 |
0.82% |
4,231 |
0.79% |
|
Insurance |
8,234 |
1.21% |
7,556 |
1.31% |
7,234 |
1.36% |
|
Professional service |
4,478 |
0.66% |
3,458 |
0.60% |
3,112 |
0.58% |
|
Office supplies |
10,784 |
1.59% |
9,797 |
1.70% |
9,071 |
1.70% |
|
Telephone |
2,556 |
0.38% |
2,305 |
0.40% |
2,067 |
0.39% |
|
Travel |
1,980 |
0.29% |
1,729 |
0.30% |
1,967 |
0.37% |
|
Other operating expenses |
1,193 |
0.18% |
1,037 |
0.18% |
961 |
0.18% |
|
TOTAL OPERATING EXPENSES |
$233,913 |
34.50% |
$207,829 |
36.06% |
$175,635 |
32.92% |
|
NET OPERATING PROFIT |
$48,135 |
7.10% |
$22,691 |
3.94% |
$21,792 |
4.08% |
|
OTHER INCOME AND EXPENSE | ||||||
|
Interest expense |
891 |
0.13% |
746 |
0.13% |
645 |
0.12% |
|
NET PROFIT BEFORE TAX |
$47,244 |
6.97% |
$21,945 |
3.81% |
$21,147 |
3.96% |
|
INCOME TAX |
7,087 |
1.05% |
3,292 |
0.57% |
3,172 |
0.59% |
|
NET PROFIT AFTER TAX |
$40,157 |
5.92% |
$18,653 |
3.24% |
$17,975 |
3.37% |
Data Source: Microsoft Corporation. (n.d.). Annual reports. Microsoft Investor Relations. https://www.microsoft.com/en-us/investor/annual-reports
The vertical analysis shows Microsoft's income statement items as a percentage of total sales revenue for the periods ending Dec. 31, 2008, Dec. 31, 2007, and Dec. 31, 2006. Cost of goods sold accounts for a significant portion of sales revenue, ranging from 58.40% to 63.00% over the three periods. This results in a gross margin between 37.00% and 41.60%. Operating expenses make up a smaller portion of sales revenue. The largest component is salaries and wages, which account for 11.00% to 12.50% of sales. Other notable expenses include benefits, rent, and advertising/promotion, each ranging from 0.48% to 2.82% of sales. Total operating expenses account for 32.92% to 36.06% of sales revenue, leaving a net operating profit between 3.94% and 7.10%. After accounting for other income, expenses, and taxes, Microsoft's net profit after tax ranges from 3.37% to 5.92% of total sales revenue across the three years analyzed.
b) Horizontal Analysis
|
For year ending |
% Change (2007/2008) |
Absolute change (2007/2008) |
Dec. 31,2008 |
% Change (2006/2007) |
Absolute change (2006/2007) |
Dec. 31,2007 |
Dec. 31,2006 |
|
Sales Revenue |
17.65% |
101700 |
$678,000 |
8.01% |
$42,714 |
$576,300 |
$533,586 |
|
Cost of goods sold |
14.51% |
50172 |
395,952 |
2.86% |
$9,621 |
345,780 |
336,159 |
|
GROSS MARGIN |
22.35% |
51528 |
$282,048 |
16.76% |
$33,093 |
$230,520 |
$197,427 |
|
OPERATING EXPENSES: | |||||||
|
Salary to owner |
11.11% |
4000 |
$40,000 |
20.00% |
$6,000 |
$36,000 |
$30,000 |
|
Salaries and wages |
18.18% |
13038 |
84,750 |
22.22% |
$13,039 |
71,712 |
58,673 |
|
Payroll taxes |
15.82% |
1295 |
9,481 |
21.47% |
$1,447 |
8,186 |
6,739 |
|
Bensfits (see Note 1 below) |
13.80% |
2244 |
18,502 |
20.83% |
$2,803 |
16,258 |
13,455 |
|
Rent |
0.00% |
0 |
36,000 |
0.00% |
$0 |
36,000 |
36,000 |
|
Utilities (excluding phone) |
20.02% |
1154 |
6,917 |
10.06% |
$527 |
5,763 |
5,236 |
|
Advertising and promotion |
11.80% |
340 |
3,222 |
13.51% |
$343 |
2,882 |
2,539 |
|
Community service |
12.50% |
50 |
450 |
14.29% |
$50 |
400 |
350 |
|
Web hosting fees |
620 |
620 | |||||
|
Depreciation |
0.00% |
0 |
4,746 |
12.17% |
$515 |
4,746 |
4,231 |
|
Insurance |
8.97% |
678 |
8,234 |
4.45% |
$322 |
7,556 |
7,234 |
|
Professional service |
29.50% |
1020 |
4,478 |
11.12% |
$346 |
3,458 |
3,112 |
|
Office supplies |
10.07% |
987 |
10,784 |
8.00% |
$726 |
9,797 |
9,071 |
|
Telephone |
10.89% |
251 |
2,556 |
11.51% |
$238 |
2,305 |
2,067 |
|
Travel |
14.52% |
251 |
1,980 |
12.10% |
$238 |
1,729 |
1,967 |
|
Other operating expenses |
15.04% |
156 |
1,193 |
7.91% |
$76 |
1,037 |
961 |
|
TOTAL OPERATING EXPENSES |
12.55% |
26084 |
$233,913 |
18.33% |
$32,194 |
$207,829 |
$175,635 |
|
NET OPERATING PROFIT |
112.13% |
25444 |
$48,135 |
4.13% |
$899 |
$22,691 |
$21,792 |
|
OTHER INCOME AND EXPENSE | |||||||
|
Interest expense |
19.44% |
145 |
891 |
15.66% |
$101 |
746 |
645 |
|
NET PROFIT BEFORE TAX |
115.28% |
25299 |
$47,244 |
3.77% |
$798 |
$21,945 |
$21,147 |
|
INCOME TAX |
115.28% |
3795 |
7,087 |
3.78% |
$120 |
3,292 |
3,172 |
|
NET PROFIT AFTER TAX |
115.28% |
21504 |
$40,157 |
3.77% |
$678 |
$18,653 |
$17,975 |
Data Source: Microsoft Corporation. (n.d.). Annual reports. Microsoft Investor Relations. https://www.microsoft.com/en-us/investor/annual-reports
The horizontal analysis shows the year-over-year changes in Microsoft's income statement items for the periods 2007/2008 and 2006/2007. Sales revenue increased by 17.65% from 2007 to 2008 and by 8.01% from 2006 to 2007. Cost of goods sold grew by 14.51% and 2.86% respectively, resulting in a gross margin increase of 22.35% from 2007 to 2008 and 16.76% from 2006 to 2007. Total operating expenses increased by 12.55% from 2007 to 2008 and by 18.33% from 2006 to 2007. Salaries and wages, the largest component, grew by 18.18% and 22.22% respectively. Professional service expenses also saw significant growth, increasing by 29.50% and 11.12% over the two periods. Net operating profit increased by 112.13% from 2007 to 2008 and by 4.13% from 2006 to 2007. After accounting for other income, expenses, and taxes, net profit after tax grew by 115.28% from 2007 to 2008 and by 3.77% from 2006 to 2007.
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- Data Source: Microsoft Corporation. (n.d.). Annual reports. Microsoft Investor Relations. https://www.microsoft.com/en-us/investor/annual-reports
