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Microsoft Corp Debt surged on 73.9% and Revenue increased on 5.9%

20/07/2017 • About Microsoft Corp ($4338) • By InTwits

Microsoft Corp reported FY2017 financial results today. Overall the company's long term financial model is characterised by the following facts:
  • Microsoft Corp has medium CAPEX intensity: 5 year average CAPEX/Revenue was 7.1%. At the same time it's a lot of higher than industry average of 5.7%.
  • CAPEX is quite volatile: 24,563 in 2017, 38,715 in 2016, 8,691 in 2015, 5,828 in 2014, 1,822 in 2013
  • The company has highly profitable business model: ROIC is at 17.5%
  • It operates with high leverage: Net Debt/EBITDA is 2.3x while industry average is -2.0x
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Microsoft Corp ($4338) key annual financial indicators

mln. $201320142015201620172017/2016
P&L
Revenue77,84986,83393,58091,15496,5715.9%
Gross Profit57,60059,75560,54258,37462,3106.7%
SG&A20,42520,48820,32419,19819,9423.9%
EBITDA30,51932,97124,11832,70037,80315.6%
Net Income21,86322,07412,19320,53925,48924.1%
Balance Sheet
Cash3,8048,6695,5956,5107,66317.7%
Short Term Debt2,9992,0007,48412,90411,544-10.5%
Long Term Debt12,60120,64527,80840,55781,445100.8%
Cash flow
Capex4,2575,4855,9448,3438,129-2.6%
Ratios
Revenue growth5.6%11.5%7.8%-2.6%5.9%
EBITDA growth23.4%8.0%-26.9%35.6%15.6%
Gross Margin74.0%68.8%64.7%64.0%64.5%0.5%
EBITDA Margin39.2%38.0%25.8%35.9%39.1%3.3%
Net Income Margin28.1%25.4%13.0%22.5%26.4%3.9%
SG&A, % of revenue26.2%23.6%21.7%21.1%20.7%-0.4%
CAPEX, % of revenue5.5%6.3%6.4%9.2%8.4%-0.7%
ROIC30.3%26.2%15.6%20.0%17.5%-2.4%
ROE30.1%26.2%14.4%25.2%29.8%4.7%
Net Debt/EBITDA0.4x0.4x1.2x1.4x2.3x0.8x


Microsoft Corp ($4338) key quoterly financial indicators

mln. $FY17Q1FY17Q2FY17Q3FY17Q4YoY change
P&L
Revenue21,92825,82623,21225,6054.9%2.3%7.9%9.1%
EBITDA8,53110,0719,17610,0259.7%11.5%14.9%26.8%
Net Income5,6676,2675,4868,06911.8%5.5%27.4%54.4%
Balance Sheet
Cash13,9288,4686,7137,663156.5%17.9%-6.4%17.7%
Short Term Debt14,53625,6647,78611,54435.2%584.4%41.6%-10.5%
Long Term Debt60,15459,30676,22281,445116.2%45.8%86.4%100.8%
Ratios
Gross Margin64.2%61.7%65.3%67.0%-1.3%0.8%1.2%1.0%
EBITDA Margin 38.9% 39.0% 39.5% 39.2%1.7%3.2%2.4%5.5%
Net Income Margin 25.8% 24.3% 23.6% 31.5%1.6%0.8%3.6%9.2%

Revenue and profitability


The company's Revenue increased on 5.9%. Revenue growth showed acceleration in FY17Q4 - it increased 9.1% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 0.62 pp from 20.4% to 21.0% in 2017.

Gross Margin showed almost no change in FY2017. SG&A as a % of Revenue showed almost no change in FY2017.

Net Income marign increased on 3.9 pp from 22.5% to 26.4% in FY2017.

Capital expenditures (CAPEX) and working capital investments


The company's CAPEX/Revenue was 8.4% in FY2017. CAPEX/Revenue increased on 2.1 pp from 6.3% in FY2014 to 8.4% in FY2017. For the last three years the average CAPEX/Revenue was 8.0%.

Return on investment


The company operates at high and attractive ROE (29.85%) while ROIC is a bit lower (17.54%). ROIC decreased on 2.4 pp from 20.0% to 17.5% in FY2017. ROE increased on 4.7 pp from 25.2% to 29.8% in FY2017.

Leverage (Debt)


Debt level is 2.3x Net Debt / EBITDA and 2.5x Debt / EBITDA. Net Debt / EBITDA surged on 0.8x from 1.4x to 2.3x in FY2017. Debt jumped on 73.9% while cash surged on 17.7%.

Appendix 1: Peers in Software


Below you can find Microsoft Corp benchmarking vs. other companies in Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Pizu Group Holdings Ltd ($8053)-42.9%1,742.9%157.9%235.2%
NetDragon Websoft Inc ($777)7.1%8.9%32.1%119.5%
Yunbo Digital Synergy Group Ltd ($8050)241.6%-31.9%348.0%99.6%
China Mobile Games and Cultural Investment Ltd ($8081)-6.6%92.2%34.8%97.8%
China Technology Solar Power Holdings Ltd ($8111)63.9%42.3%52.1%69.8%
 
Median (31 companies)11.4%21.5%7.0%21.3%
Microsoft Corp ($4338)7.8%-2.6%5.9%


Top companies by Gross margin, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Kingdee International Software Group Co Ltd ($268)75.3%82.5%81.5%81.3%
Aurum Pacific China Group Ltd ($8148)81.4%72.9%76.6%78.8%
Kingsoft Corp Ltd ($3888)86.3%82.4%76.8%67.9%
Epicurean and Co Ltd ($8213)67.3%67.3%68.4%67.4%
International Entertainment Corp ($1009)50.8%44.4%43.6%46.6%
 
Median (14 companies)42.5%42.1%40.1%36.5%
Microsoft Corp ($4338)68.8%64.7%64.0%64.5%


Top companies by EBITDA margin, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Kantone Holdings Ltd ($1059)38.9%30.4%21.2%53.0%
International Entertainment Corp ($1009)64.0%54.9%62.0%45.5%
Kingdee International Software Group Co Ltd ($268)33.2%37.2%31.9%31.3%
China Technology Solar Power Holdings Ltd ($8111)10.4%16.3%30.7%28.1%
Kingsoft Corp Ltd ($3888)35.9%20.1%15.3%15.1%
 
Median (13 companies)12.4%8.9%8.5%2.8%
Microsoft Corp ($4338)38.0%25.8%35.9%39.1%


Top companies by CAPEX/Revenue, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
ICO Group Ltd ($8140)0.1%0.1%0.2%9.8%
Kingdee International Software Group Co Ltd ($268)8.7%4.5%2.8%8.3%
Epicurean and Co Ltd ($8213)10.4%10.3%5.5%4.9%
International Entertainment Corp ($1009)5.3%6.1%4.1%3.3%
Pizu Group Holdings Ltd ($8053)0.3%0.0%1.7%1.2%
 
Median (12 companies)1.6%2.6%2.0%0.5%
Microsoft Corp ($4338)6.3%6.4%9.2%8.4%


Top companies by ROIC, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Pizu Group Holdings Ltd ($8053)-13.4%-6.8%120.0%51.7%
ICO Group Ltd ($8140)43.5%6.8%37.7%27.1%
Kantone Holdings Ltd ($1059)7.2%8.3%1.8%17.4%
China Technology Solar Power Holdings Ltd ($8111)0.3%3.9%9.7%9.9%
Kingsoft Corp Ltd ($3888)16.9%7.3%5.0%5.9%
 
Median (31 companies)6.4%3.3%2.0%4.1%
Microsoft Corp ($4338)26.2%15.6%20.0%17.5%


Top companies by Net Debt / EBITDA

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Epicurean and Co Ltd ($8213)4.7x12.3x12.0x13.9x
China Technology Solar Power Holdings Ltd ($8111)7.4x3.3x0.2x0.9x
Pizu Group Holdings Ltd ($8053)346.1x-0.4x0.4x
Kantone Holdings Ltd ($1059)-0.1x-0.0x-0.3x-0.1x
Kingdee International Software Group Co Ltd ($268)1.1x0.5x-1.2x-1.0x
 
Median (9 companies)-1.4x-2.1x-1.2x-1.0x
Microsoft Corp ($4338)0.4x1.2x1.4x2.3x