Microsoft/Intuit Case Study Essay

1430 Words Aug 5th, 2013 6 Pages
Microsoft/Intuit Case Study

Team 7

Garric Zhang
Ling Liao
Eric Wang

1. What factors have contributed to Microsoft’s large cash hoard? | 1985 | 1986 | 1987 | 1988 | 1989 | Cash and Marketable Securities | 18.9 | 102.7 | 132.5 | 183.2 | 300.8 | Stockholders' Equity | 54.5 | 139.3 | 239.1 | 375.5 | 561.7 | Net Profit | 24.1 | 39.3 | 71.8 | 123.9 | 170.5 | ROE | 44.22% | 28.21% | 30.03% | 33.00% | 30.35% | New Cash and Marketable Securities | 2.8 | 4.1 | 9.3 | 18.6 | 25.2 | New Stockholders' Equity | 38.4 | 40.7 | 115.9 | 210.9 | 286.1 | New Net Profit | 23.5 | 37.4 | 67.5 | 118 | 157.7 | ROE (after adjusted) | 61.20% | 91.89% | 58.24% | 55.95% | 55.12% | Increased ratio | 38.39% | 225.71% | 93.94% |
…show more content…
What’s more, the Microsoft acted as a monopolist in its field, which made it to generate huge amounts of free cash flow. From the charts above, we find that its cash flow mainly came from the operations, which increased average annual 64.78% from 1985 to 1994, while MSFT did not issued so many stocks and made a few investments.
In fact, MSFT is primarily a software company, which is different from the processors and hardware companies. Its product life cycle always be shorter than other products, because the development of technology was very fast, and the software need to update more frequently, which had a higher research and development fees than some other companies in other industries. From the balance sheet, we can find the fixed asset / total asset is low compare to current asset / total asset. For example, the former in 1994 is 17.34%, while the latter is 80.40%, which is about quintupling to the former, so we can conclude that the company has a lower fixed asset and higher current asset.
Because all the factors above, such as high operating inflow, low investment outflow, low fixed asset etc., Microsoft had a large cash hoard.

2. Calculate their ROE. Then look at balance sheet with excess cash and marketable securities taken out. Excess means in excess of the amount needed for regular operations. What happens to their net