Financial Statement Analysis of Microsoft

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Ⅰ Introduction Microsoft is a company that is famous for its various products such as the Windows series. The firm is well known and is frequently cited as an example of good management. However, how good is it? As of December 1st, 2007, one share of Microsoft was approximately $33. Every investor would be curious if that price is reasonable. Also, it is too dangerous to rely completely on intuition or rumor when you buy stocks. Therefore, we decided to analyze Microsoft in a more rational, reasonable, fact-based way, and refer to that information in determining whether to buy Microsoft 's stock or not. The 10-K financial statement from Microsoft is an enormous document, and it would take too much time to read the entire material. We…show more content…
There are two exceptions, however; revenue related to Xbox console and hardware are recorded under the FOB shipping point, and revenue related to games published by Microsoft is recognized under the FOB destination. In short, most of Microsoft 's products are sold under the FOB shipping point method. Therefore, we think Microsoft is adopting a rather aggressive revenue recognition policy. B)Inventories Three points in this section shows that Microsoft employs a conservative policy on inventories. First, inventories are stated at the Lower of cost or market(LCM), which is a conservative accounting policy. This policy is very important for high-technology companies like MS; it 's products ' cost and selling price are declining. Second policy is employed to avoid overstating assets and income. Next, Microsoft regularly review inventories and their estimated utility. Finally, in case the inventory 's utility decreases, the company reduces the inventory to a new cost basis. C)Property and Equipment Depreciation is inevitable once you purchase a fixed asset. Microsoft uses the straight-line method to calculate depreciation as most other companies do. The main point is that MS uses the straight-line method over the shorter of the estimated life

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