Introduction
Microsoft Corporation(MSFT) has three reportable segments: productivity and business processes, intelligent cloud and more personal computing.
Productivity and Business Processes
Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:
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Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot.
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Office Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services.
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LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.
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Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on-premises ERP and CRM applications.
Intelligent Cloud
Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:
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Server products and cloud services, including Azure and other cloud services; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (“CALs”); and Nuance and GitHub.
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Enterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting Services), and Nuance professional services.
More Personal Computing
Our More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:
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Windows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things.
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Devices, including Surface, HoloLens, and PC accessories.
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Gaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services.
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Search and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and third-party affiliates. (from Microsoft’s form 10k )
Profitability analysis
The deadline for annual financial reports is June 30, not December 31.
Microsoft’s revenue hit $212 billion, $198.3 billion and $168.1 billion in 2023, in 2022 and in 2021,respectively.
Microsoft’s revenue in 2023 was up 7% y-o-y.
Microsoft’s revenue in 2022 was up 18% y-o-y.
The growth in 2023 only had 7%,which is low.
Net income was $72.3 billion, $72.7 billion and $61.3 billion in 2023, in 2022 and in 2021, respectively.
The gross profit margin was 69%, 68.4% and 69% in 2023, in 2022 and in 2021,respectively.
Why is the net income in 2023 related flat ? because income taxes surged in 2023.
Provision for income taxes was $16.9 billion, $11 billion and $9.8 billion in 2023, in 2022 and in 2021, respectively.
Provision for income taxes in 2023 was up 53.6% year-over-year. The growth rate of income taxes is far more than the growth rate of revenues in 2023.
The net profit margin was 34%,36.7% and 36.5% in 2023, in 2022 and in 2021,respectively.
The return on equity was 35% and 43.7% in 2023 and in 2022.
Microsoft’s profitability has been very strong.
Assets structure analysis
Total assets were $412 billion and $364.8 billion in 2023 and in 2022, respectively.
Microsoft had total current asset of $184.2 billion in 2023, in which total cash and cash equivalents, and short-term investments were $111.2 billion.
Microsoft reported property and equipment, net was $95.6 billion and $74.4 billion in 2023 and in 2022,respectively.
Goodwill was $67.9 billion and $67.5 billion in 2023 and in 2022, respectively.
Goodwill is triggered by acquiring activity, and Microsoft has seen acquiring as a development strategy.
Liquidity and solvency analysis
Total current assets were $184.2 billion in 2023, while total liabilities were $205.7 billion in 2023.
The rate of total current assets to total liabilities is 0.89 : 1.
The total current assets could cover total liabilities about 1 time.
The financial situation is very healthy.
Cash flow analysis
Net cash from operations was $87.6 billion, $89 billion and $76.7 billion in 2023, in 2022 and in 2021,respectively.
Additions to property and equipment were $28.1 billion, $23.9 billion and $20.6 billion in 2023, in 2022 and in 2021,respectively.
The free cash flow was $59.5 billion, $65.1 billion and $56.1 billion in 2023, in 2022 and in 2021, respectively.
Microsoft’s financial results for the six months ended December 31,2023
Microsoft’s total revenue increased $15.7 billion or 15% to $118.5 billion for the six months ended December 31, 2023, compared with $102.8 billion for the six months ended December 31,2022.
Net income reached $44.1 billion and $34 billion for the six months ended December 31, 2023 and for the six months ended December 31, 2022. The net income is up about 30%.
Summary
Microsoft ‘s profitability is very strong.
M&A is a long-term strategy
We reckon that Microsoft’ s reasonable capitalization is worth $1.2 trillion.