Microsoft Corporation: Financial Ratio and Stock Price Analysis
This paper presents a financial research report on Microsoft Corporation, one of the world's leading software products and services firms. Beginning with a company overview that covers Microsoft's history, product divisions, competitive landscape, and governance structure, the paper proceeds to analyze the company's stock price from January 2006 through July 2011, comparing it against the Standard and Poor's 500 Index. The analysis also draws on return on assets and return on equity ratios to evaluate Microsoft's investment viability. The paper concludes that Microsoft's common stock represents a sound investment, supported by upward trends in key profitability ratios.
- Introduction: Scope and method of the financial report
- Microsoft Corporation: An Overview: Company history, divisions, and governance
- Competitive Landscape and Business Practices: Competitors, distribution, and antitrust concerns
- Innovation and Future Outlook: R&D investment and growth prospects
- Stock Price Analysis: Microsoft and S&P 500 price data 2006–2011
- Conclusion: Investment recommendation based on financial ratios
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What makes this paper effective
- The paper moves logically from qualitative company background to quantitative financial data, giving readers the context needed to interpret the analysis.
- Concrete stock price data presented in tabular form across a multi-year period allows direct visual comparison between Microsoft and the broader S&P 500 index.
- The conclusion ties directly back to the ratio analysis, grounding the investment recommendation in specific financial metrics rather than general impressions.
Key academic technique demonstrated
The paper demonstrates the use of financial ratio analysis — specifically return on assets (ROA) and return on equity (ROE) — as evidence-based tools for evaluating a company's investment viability. By pairing these ratios with a longitudinal stock price comparison against a benchmark index, the author shows how quantitative methods can support a reasoned investment conclusion.
Structure breakdown
The paper is organized into five substantive sections. An introduction establishes scope and method. A company overview covers history, product divisions, distribution channels, and governance. A discussion of the competitive environment and business practices follows. An innovation-focused section addresses future growth prospects. Stock price data for Microsoft and the S&P 500 (2006–2011) is then presented in parallel tables. A brief conclusion synthesizes the ratio and price findings into a final investment judgment.
Introduction
Sharing a passion for computer programming, childhood friends Bill Gates and Paul Allen — the two founders of Microsoft Corporation — changed the application software industry for good with their revolutionary computer software products designed for a wide range of computing devices across the world. This paper presents a financial research report on Microsoft. It begins with an overview of the company and then performs a ratio analysis as well as a stock price analysis.
Microsoft Corporation: An Overview
Headquartered in Redmond, Washington, Microsoft has in recent years diversified its operations, with numerous product divisions producing new innovations in areas including consumer electronics, phone operating systems, and video game applications. The company was originally established to develop and sell BASIC interpreters for the Altair 8800 in the mid-1970s. Today, Microsoft has established itself as a leading software products and services firm with operations and product divisions spread across the globe.
Microsoft's presence in global markets has largely been driven by its tendency to expand through acquisitions. According to the company's website (www.microsoft.com), Microsoft operates five divisions: the Online Services Division, Windows and Windows Live Division, Entertainment and Devices Division, Server & Tools Division, and Microsoft Business Division.
Competitive Landscape and Business Practices
In the application software industry, Elleithy (2007) notes that the main drivers of demand include smart appliances, mobile devices, web services, and other relatively recent advances in the global economy. Consequently, the profitability of companies in this industry is largely dependent on their ability to streamline operations and develop superior marketing plans. Over time, Microsoft's most persistent competitors have included Oracle Corporation, Google Inc., and Apple Inc. (Bentzel, 2006). The distribution of the company's products and services is carried out primarily through original equipment manufacturers, resellers, and distributors, though a significant portion is also sold online.
In the past, Microsoft has been accused of business practices that are broadly considered monopolistic. Some of the anticompetitive strategies alleged against the company include software restrictions and the use of misrepresentative marketing approaches. As is common for public companies, Microsoft is governed by a largely independent board of directors responsible for safeguarding the long-term interests of shareholders. The board consists of nine members elected by shareholders. At the time of this writing, Bill Gates served as chairman of the board, and Steve Ballmer served as CEO.
Conclusion
Based on the ratio analysis conducted above as well as the stock price analysis, Microsoft's common stock is a viable investment. This assertion is largely founded on Microsoft's Return on Assets Ratio and its Return on Equity Ratio. As discussed, these two ratios have been on an upward trend over the past two years, and if those trends continue, investors could earn higher profits for each dollar invested in Microsoft going forward.
References
Bentzel, J. E. (2006). Asymmetric marketing: Tossing the 'chasm' in the age of software superpowers. Asymmetric Marketing.
Elleithy, K. (2007). Advances and innovations in systems, computing sciences and software engineering. Springer.
Lopez-Claros, A. (2010). The innovation for development report 2010–2011: Innovation as a driver of productivity and economic growth. Palgrave Macmillan.
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