Microsoft Corporation

Value 1/3 passed

• ⚠ Trading below our fair-value estimate -40% vs our DCF estimate
• – P/B below industry industry P/B not on the free feed
• – P/E below industry industry P/E not on the free feed
• ✓ P/E below peer average P/E 22.8 vs peers 27.1
• – P/S sane vs its own history needs multi-year P/S (Tier B)
• ⚠ More than 20% below fair value -40% margin of safety

Future 4/4 passed

• ✓ Earnings trending up 19.5%/yr over 9yr
• – Growth beats the industry industry growth not on the free feed
• ✓ Earnings growth beats the market 19.5%/yr vs market ~9.0%
• ✓ Revenue trending up 13.4%/yr over 9yr
• ✓ Return on equity improving ROE 29.6% vs 24.7% 9yr ago

Past 3/4 passed

• ✓ Earnings grew over the period 20.5B → 101.8B
• – High-quality earnings (few one-offs) one-off detection deferred — needs statement detail
• ⚠ Growth accelerating vs its average latest 15.5%/yr vs 19.5% average
• ✓ Revenue higher than five years ago 91.2B → 281.7B
• ✓ Return on equity above 20% ROE 34.0%

Health 6/6 passed

• ✓ Debt/equity falling over time long-term debt/equity 11.7% vs 48.8%
• ✓ Debt is under 40% of equity debt/equity 30%
• ✓ Debt well covered by cash flow operating cash flow covers 316.0% of debt
• ✓ Interest comfortably covered by profit EBIT covers interest 53.9×
• ✓ Short-term assets cover long-term debt 191.1B vs 134.3B
• ✓ Short-term assets cover short-term bills 191.1B vs 141.2B

Dividend 4/6 passed

• ✓ Dividend covered by earnings and cash flow covered by both earnings and free cash flow
• ✓ Dividend growing over time over 10yr on record
• ✓ No dividend cut in recent years steady over 10yr on record
• ✓ Payout ratio under 75% payout 20.7% of earnings
• ⚠ Yield beats the market yield 0.95% vs market ~1.5%
• ⚠ Yield in the top quartile of payers yield 0.95% vs 5.05% cut among the 12 payers Otto tracks