Question

Your grandparents have been left a substantial amount of money and want to invest in a company. Your grandfather trusts you to make a recommendation, but he also wants to see the reasoning behind your choice.

You have an idea of which company to choose and you decide to prepare 3 sets of documents for your grandparents to consider: business analysis, combined income and cash flow statement, and trend analysis.

Business Analysis

Select a public company that trades on either the NYSE or the NASDAQ. Perform a business analysis (both external and internal) for your company using the most recent information from various sources. Possible sources include the following:

• Annual report or form 10-K
• Magazine or newspaper articles
• Company Web sites
• Government information
• Industry information
• Rating agencies
• Analyst reports
• Internet articles

Your analysis should be approximately 5 pages long. Be sure to cite your sources using APA guidelines.

Combined Income and Cash Flow Statement

Download the company's most recent annual report from its Web site or the company's form 10-K from the U.S. Securities and Exchange Commission (SEC) Web site (www.sec.gov).

• Confirm that the firm's income, dividends, and other capital transactions explain the change in equity for the most recent year. (You may need to consult the statement of shareholders' equity.)
• Confirm that the firm's cash flow statement begins with the same net income amounts found in the income statement.
• Confirm that the firm's cash flow statement shows a change in cash that is equal to the difference between cash shown on the balance sheet at the beginning and end of the year. In Excel, construct a combined income statement and cash flow statement.
• Write 1–2 paragraphs that answer the following:
  • What would you do if you found there was a huge difference in the net income amounts and the reported cash flow amounts?
  • How could technology limit the likelihood of this happening again?

Trend Analysis

Finally, prepare a trend analysis of operating ratios for at least 3 years' worth of financial data. Prepare the analysis in Excel. You may wish to create a common-sized income statement first, but it isn't required.

If you adjusted for any nonrecurring items in step 1, explain the adjustments in a separate Word document. Use any other information in your company's annual report to explain the change in revenues, gross margin percentage, and operating margin percentage. Add this information to the Word document.

1. Using the GAAP balance sheet for the most recent year, for each item, determine where it should be classified in the economic balance sheet (core operations, nonoperating net assets, debt claims, other capital claims, or equity claims). Create a 2-column table in Word to show the corresponding accounts.
2. Determine whether any other items should appear on the economic balance sheet that are not on the GAAP balance sheet.
3. Determine if information exists in the annual report or elsewhere that can assist in valuing the nonoperating net assets, debt, and other capital claims.

Answer 1

Business Analysis + Combined Income and Cash Flow Statement+ Trend Analysis

Public company listed in NYSE – selected “Microsoft”

Business Analysis – Industry Trends- Microsoft is a dynamic and highly competitive , with frequent changes in both technology and business models .

The markets for software , devices and cloud based service ae dynamic and highly competitive .Microsoft also deploying competing cloud based service for consumers and business . Microsoft success is highly dependent on their ability to attract and retain Qualified employees.

They hire a mix of university and Industry talent .Microsoft international operations provides a significant portion of total revenue and expenses .

Financial Summary- Company constantly maintaining Revenue growth @ 14% with gross Margin in range of 60%+ .Also net Income margin also crossed 30%+ , overall performance is really appreciable .

Revenue increased by $ 5.3 Billion mainly due to Office commercial revenue increased driven by office 365, Linkdin revenue also increased by $ 1.5 Billion,

Intelligent Cloud – server products and cloud service revenue , including GitHub , increased by $6.5 Billion. Azure revenue growth was 72% die ti higher infrastructure as a service and platform as a service .

Cash and cash Equivalent – Companies cash , cash equivalent and Investment totalled $ 134 Billion as on June 30’19 and 2018.

Cash flow operation increased by $ 8.3 Billion for fiscal year 2019 , mainly due to :

Increase in cash received from customer – excellent news in relates to recued DSO , and pressure on Working capital management .

Companies incurred good amount of money in relates to common stock repurchase and excellent news is company paid $ 1.1 Billion relates to Dividend.

Company keep on settling / repayment of loan / debt – which provide that company is quite solvent and they can continue the same in near future.

Companies future plan in further Investment . they will continue to invest in Sales, marketing , product support , infrastructure and advances area of Technology.

They expect capital expenditure to increase in coming years to support growth in cloud offering.

On the basis of above analysis , we can predict that :

Company will continue revenue growth momentum of average 14% in near future .

Company established growth in all individual sector and they are growoing on daily basis .

Company maintain Gross margin + 60% and we expect same should continue in near future .

Company has clear plan to do more capex and improve revenue growth with margin growth

Company continue to transform business to lead in the new era of the Intelligent cloud and intelligent edge . The next phase of innovation , computing is more powerful and ubiquitous from the cloud to the edge.

Microsoft keep on reinvent productivity and business process

In 2018 , They completed acquisition of GitHub a service that millions of developers around the world reply on to write code together. The acquisition is expected to empower developers to achieve more and service to new audience .

Company is planning to create more personnel computing .

Going forward ( Future opportunity ) – Company is planning to investing significant resources in following places :

1. Transforming the workforce to deliver new modern modular business platform
2. Building and running cloud based service
3. Applying AI to drive more insights
4. Inventing nee game

Company keep on focusing productivity and business process .

Amount in $ Mio	Financial Summary
	2019	2018	2017
Revenue	1,25,843	1,10,360	96,571
Revenue Growth %	14%	14%
Gross margin	82,933	72,007	62,310
Gross margin %	66%	65%	65%
Operating Income	42,959	35,058	29,025
Net Income	39,240	16,571	25,489
Net Income %	31%	15%	26%
Diluted EPS	5.06	2.13	3.25

Complete analysis of cash flow statement – Microsoft

Noticed that net income has been improved from $ 16 Billion to $ 39 Billion in 2019 . After considered change in working capital movement , cash flow from Operating activity has increased in 2019 as compared with 2018 . At cash flow from operating activity – concern area is increase in account receivable balance as well as huge increase in Unearned revenue ( Liability) . Company has to look into both matter on urgent basis .

Cash flow financial activity – Company keep on paying dividend , which is really excellent for company and maintain positive solvency and expect to maintain the same in near future .

Major cash outflow in 2019 relates to common stock purchases $ 19 Billion along with repayment of debt . Company can reduce purchase of common stock in neasr future , which will boost their cash in near future

Company keep on doing Investment , acquisition for future growth ,. In 2019 , company does capex of $ 13 Billion .

Company keep on doing Investment purchase and sale and factoring gain from the same .