Description
The questions on this sheet should be answered using the attached information from Microsoft’s 10-K from 2023 (pages 6-8). I want to understand the details and process of each question so that I can use this sheet to prepare for my exam, so please show all processes and calculations. Since the length of answers for each question is limited, please try to keep your answers as brief as possible. You can use any book you want if that is helpful for solving the problem, and please let me know the name of the book you use so that I can review it. Please do not use Chatgpt, I have already used it to double-check my answer, but I think they are not completely right. Please let me know if there is any problem or any relative note you need. Thank you!
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1a. Comute Total Asset Turnover for Microsoft, for the year ended June 30, 2023. Show your
computations.
Total Asset Turnover
Computations:
1b. This ratio has declined significantly over the past ten years. Provide one hypothesis (possible
explanaton) as to why that might occur and then name a ratio which one could use to test your
hypothesis. Be brief (one sentence for each portion of the question should be sufficient), but be as
specific as possible.
Hypothesis:
Ratio:
2. Assume that Microsoft’s Operating ROA (OPROA) for the year ended June 30, 2023 is 51.6%.
Using this number, compute our measure of financial performance (as distinct from operating
performance) for Microsoft for the year ended June 30, 2023. You can find the formula for this on
slide 2 of Notes 6. Hint: All balance sheet numbers here should be averages even though the
formula doesn’t show this. Show your computations.
Financial Performance:
Computations:
3a. Compute Days in Accounts Payable for Microsoft for the year ended June 30, 2023. Use “Total
Cost of Revenue” for Cost of Goods Sold. Show your computations.
Days A/P
Computations:
3b. Assume that Microsoft changes its policy and tells its suppliers it will now take 30 days longer to
pay them than what you computed in 3a. What would be the expected effect on Net Operating
Assets? Briefly (no more than one or two sentences) explain.
Circle Answer:
Explanation:
Increase
Decrease
Cannot determine
3c. Assume that Microsoft changes its policy and tells its suppliers it will now take 30 days longer to
pay them than what you computed in 3a. What would be the expected effect on Total Cost of
Revenue? Briefly (no more than one or two sentences) explain.
Circle Answer:
Explanation:
Increase
Decrease
Cannot determine
4. Assume that Microsoft decided to increase leverage by issuing debt and using the cash received to
pay a dividend. How would this affect ROA and Operating ROA? Please circle the correct
answers and briefly (one sentence each) explain.
Effect on ROA
Effect on Operating ROA
increase decrease unclear no_effect
Explanation:
increase decrease unclear no_effect
Explanation:
5. Currently Microsoft reports research and development as an expense. If (contrary to accounting
rules) they were to treat these as a capital expenditures, how would this affect current operating
cash flow and current NOPAT in the short term? Assume that there is NO tax effect. Please
circle the correct answers and briefly (one sentence each) explain.
Effect on Operating cash flow
Effect on NOPAT
increase decrease unclear no_effect
Explanation:
increase decrease unclear no_effect
Explanation:
6. Using the attached information, what was the change in cash for Microsoft during the year ended
June 30, 2021? Show your computations.
Change in cash
Computations:
7. Using the attached information, what were “accruals” for Microsoft for the year ended June 30,
2021? Show your computations.
Accruals
Computations:
8. Using the attached information, did Microsoft’s inventory increase or decrease during the year
ended June 30, 2021? Briefly (one sentence) explain.
Circle Answer: Increase Explanation:
Decrease
Cannot determine
9. Using the attached information, how is Microsoft generating cash during the year ended June 30,
2023? How is it using its cash?
Main source of cash
Two primary uses of cash
10a. Microsoft’s balance sheet contains two liabilities labeled as ‘unearned revenue’ – some of this
is current (“payable” within one year) and some is non-current (“payable” after one year). For
purposes of this question, don’t worry about the distinction. Footnote 1 (not included here)
explains that the bulk of this liability represents license fees paid to Microsoft in advance of
Microsoft delivering services. Assuming that all of Microsoft’s service revenue is paid for in
this manner, use the balance sheet and income statement information to compute the cash that
Microsoft received during the year ended June 30, 2023 for service revenues.
Cash received for
Computation:
services:
10b. Assume that Microsoft overstates the short-term unearned revenue liability account as of June 30,
2023, but correctly estimates the account as of June 30, 2024.
What is the effect
Increase / decrease
/ cannot determine
on income for the
year ended June 30,
2023?
(Circle one)
What is the effect
on income for the
year ended June 30,
2024?
Increase /
decrease
/
cannot determine
(Circle one)
10c. How might one assess whether the appropriate level of unearned revenue is deferred in 2023?
Explanation:
End of Questions
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INCOME STATEMENTS
(In millions, except per share amounts)
Year Ended June 30,
Revenue:
Product
Service
2023
$
Total revenue
64,699
147,216
2022
$
72,732
125,538
2021
$
71,074
97,014
211,915
198,270
168,088
17,804
48,059
19,064
43,586
18,219
34,013
Total cost of revenue
65,863
62,650
52,232
Gross margin
Research and development
146,052
135,620
115,856
Sales and marketing
General and administrative
27,195
22,759
7,575
24,512
21,825
5,900
20,716
20,117
5,107
Operating income
Interest Income, net
88,523
788
83,383
333
69,916
1,186
Income before income taxes
Provision for income taxes
89,311
16,950
83,716
10,978
71,102
9,831
Cost of revenue:
Product
Service
Net income
Refer to accompanying notes.
$
72,361
$
72,738
$
61,271
BALANCE SHEETS
(In millions)
June 30,
2023
Assets
Current assets:
Cash and cash equivalents
Short-term investments
$
34,704
76,558
2022
$
13,931
90,826
Total cash, cash equivalents, and short-term investments
Accounts receivable, net of allowance for doubtful accounts of $650 and $633
Inventories
Other current assets
111,262
48,688
2,500
21,807
104,757
44,261
3,742
16,924
Total current assets
Property and equipment, net of accumulated depreciation of $68,251 and $59,660
Operating lease right-of-use assets
Equity investments
Goodwill
Intangible assets, net
Other long-term assets
184,257
95,641
14,346
9,879
67,886
9,366
30,601
169,684
74,398
13,148
6,891
67,524
11,298
21,897
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Current portion of long-term debt
Accrued compensation
Short-term income taxes
Short-term unearned revenue
Other current liabilities
$
411,976
$
364,840
$
18,095
5,247
11,009
4,152
50,901
14,745
$
19,000
2,749
10,661
4,067
45,538
13,067
Total current liabilities
Long-term debt
Long-term income taxes
Long-term unearned revenue
Deferred income taxes
Operating lease liabilities
Other long-term liabilities
104,149
41,990
25,560
2,912
433
12,728
17,981
95,082
47,032
26,069
2,870
230
11,489
15,526
Total liabilities
205,753
198,298
93,718
118,848
(6,343)
86,939
84,281
(4,678)
206,223
166,542
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,432 and 7,464
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
Refer to accompanying notes.
$
411,976
$
364,840
CASH FLOWS STATEMENTS
(In millions)
Year Ended June 30,
Operations
Net income
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other
Stock-based compensation expense
Net recognized losses (gains) on investments and derivatives
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Other long-term assets
Accounts payable
Unearned revenue
Income taxes
Other current liabilities
Other long-term liabilities
2023
$
72,361
2022
$
72,738
2021
$
61,271
13,861
9,611
196
(6,059)
14,460
7,502
(409 )
(5,702)
11,686
6,118
(1,249)
(150 )
(4,087)
1,242
(1,991)
(2,833)
(2,721)
5,535
(358 )
2,272
553
(6,834)
(1,123)
(709 )
(2,805)
2,943
5,109
696
2,344
825
(6,481)
737
(932 )
(3,459)
2,798
4,633
(2,309)
4,149
1,402
87,582
89,035
78,214
Financing
Cash premium on debt exchange
Repayments of debt
Common stock issued
Common stock repurchased
Common stock cash dividends paid
Other, net
0
(2,750)
1,866
(22,245 )
(19,800 )
(1,006)
0
(9,023)
1,841
(32,696 )
(18,135 )
(863 )
(5,754)
(3,750)
1,693
(27,385 )
(16,521 )
(769 )
Net cash used in financing
(43,935 )
(58,876 )
(52,486 )
(28,107 )
(23,886 )
(20,622 )
(1,670)
(37,651 )
33,510
14,354
(3,116)
(22,038 )
(26,456 )
16,451
28,443
(2,825)
(8,909)
(62,924 )
51,792
14,008
(922 )
(22,680 )
(30,311 )
(27,577 )
Net cash from operations
Investing
Additions to property and equipment
Acquisition of companies, net of cash acquired, and purchases of intangible
and other assets
Purchases of investments
Maturities of investments
Sales of investments
Other, net
Net cash used in investing
Refer to accompanying notes.
7
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