Microsoft Msft Stock Valuation Calculator Spreadsheet

Jae Jun | Old School Value Author

mail questions or comments to: [email protected] www.oldschoolvalue.com

Disclaimer Nothing on Old School Value, related pages, emails, or other communications by the author, either written or oral, are intended to be a recommendation to either buy, hold, or sell any specific security or group of securities. Likewise, nothing herein should be construed as an endorsement of any financial adviser, investment manager, commercial information provider, transaction service, or brokerage firm. The findings from this spreadsheet is merely a start to a means of further research and uncovering a great business and investment. Old School Value holds no responsibility for any investment whatsoever.

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Company Name

ticker

Microsoft Corp

MSFT

www.oldschoolvalue.com

9/21/2009

Figures in Millions except per share values

Microsoft Corporation is engaged in developing, manufacturing, licensing, and supporting a range of software products and services for different types of computing devices. The Company operates in five business segments: Client, Server and Tools, Online Services Business, Microsoft Business Division, and Entertainment and Devices Division. The software products and services include operating systems for servers, personal computers, and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; computing applications; software development tools, and video games. The Company provide consulting and product and solution support services, and trains and certifies computer system integrators and developers. It also designs and sells hardware, including Xbox 360 video game console, the Zune digital music and entertainment device, and peripherals.

Asset Valuation

Total Net Reprod. Cost Reprod. Cost of Assets BV Tangible BV NNWC

EPV Valuation

$ $ $ $

4.63

EPV

7.38 Normalized Income 3.09 Discount Rate 0.56 Margin of Safety

Key Statistics Market Cap (millions)

DCF Valuation

$

24.36 DCF Price

$

$

19,259.53 Growth Rate 9% Discount Rate 0% Margin of Safety

Gross (TTM)

27.66

Current Ratio (MRQ)

1.82

Gross - 5 Yr. Avg.

52-Week Low

14.87

LT Debt to Equity (MRQ)

9.47

% off 52-Week Low

69.9%

Total Debt to Equity (MRQ)

P/E Ratio (TTM)

15.59

Sales (MRQ) vs Qtr. 1 Yr. Ago

-17.29

Price to Sales (TTM)

3.85

Sales (TTM) vs TTM 1 Yr. Ago

Price to Book (MRQ)

5.69

Sales - 5 Yr. Growth Rate

225,080

Valuation Ratios

$

Current Price

30.04

$

25.26

14% 1.01 16%

$

Margins & Profitability 1.8

Price to Tangible Book (MRQ)

9% Growth Rate 9% Normalized EPS 9% Margin of Safety

Financial Strength Quick Ratio (MRQ)

52-Week High

Graham Valuation

27.91 Graham Price

14.53

Growth Stats

Operating (TTM)

33.56

Net Profit (TTM)

81.06

Operating - 5 Yr. Avg.

36.03

Net Profit - 5 Yr. Avg.28.01

EBITD (TTM)

37.94

Pre-Tax (TTM)

33.92

EBITD - 5 Yr. Avg.

38.98

Pre-Tax - 5 Yr. Avg.

38.82

79.2

Management Effective

24.93

Efficiency

ROA (TTM)

19.34

Revenue/Employee (TTM) 628355

3.85

ROA - 5 Yr. Avg.

19.63

Net Income/Employee (TTM) 156656

9.67

ROI (TTM)

31.08

Receivable Turnover (TTM) 4.72

8.9

EPS (MRQ) vs Qtr. 1 Yr. Ago

-25.55

ROI - 5 Yr Avg

28.63

Inventory Turnover (TTM)

14.28

Price to Cash Flow (TTM)

13.14

EPS (TTM) vs TTM 1 Yr. Ago

-13.36

ROE (TTM)

38.42

Asset Turnover (TTM)

0.78

Price to Free Cash Flow (TTM)

19.66

EPS - 5 Yr. Growth Rate

16.65

ROE - 5 Yr. Avg.

33.44

Enterprise Value/Revenue (TTM)

3.44

Capital Spending - 5 Yr. Grwth

22.98

Enterprise Value/EBITDA (TTM)

8.636

Historical Stock Price Vs Intrinsic Value Per Share 60

50

Historical Price

40

30

Intrinsic Value

20

Buy Price 10

0

9/28/1998

9/28/1999

9/28/2000

9/28/2001

9/28/2002

9/28/2003

9/28/2004

9/28/2005

9/28/2006

9/28/2007

9/28/2008

Multi-Year Performance Shareholder Equity Free Cash Flow CROIC FCF/Sales ROA ROE Revenue Growth Gross Margin Operating Margin Net Margin Earnings Growth Cash from Ops Growth

2000-2007 -6.7% 5.2% 19.4% 29.7% 14.3% 18.8% 12.1% 82.5% 39.1% 28.7% 7.6% 3.5%

2001-2008 -10.2% 11.4% 20.8% 28.1% 14.3% 18.8% 13.2% 82.1% 37.2% 28.7% 16.0% 7.0%

2002-2009 -9.4% 8.1% 26.2% 27.2% 16.5% 24.2% 10.9% 81.7% 36.9% 28.0% 12.5% 4.0%

2000-2005 1.4% 5.8% 16.6% 30.8% 13.4% 17.1% 11.6% 83.4% 41.5% 29.9% 5.7% 3.5%

2001-2006 -5.5% 8.9% 16.6% 29.7% 13.4% 17.1% 11.8% 82.5% 39.1% 28.7% 12.7% 1.4%

2002-2007 -12.8% 10.2% 20.8% 27.8% 14.3% 18.8% 12.5% 82.1% 36.9% 28.0% 14.9% 4.2%

2003-2008 -17.3% 9.4% 26.2% 27.2% 16.5% 24.2% 13.4% 82.1% 36.9% 28.9% 15.2% 6.5%

2004-2009 -18.7% 11.2% 33.1% 26.4% 18.6% 33.5% 9.7% 81.3% 36.4% 28.0% 16.7% 5.4%

Median -9.8% 9.2% 20.8% 27.9% 14.3% 18.8% 12.0% 82.1% 37.1% 28.7% 13.8% 4.1%

Margin Percentages 100.0% 86.9%

90.0%

86.3%

81.7%

82.3%

42.0%

41.1%

81.8%

84.4%

82.7%

79.1%

80.8%

79.2%

37.2%

36.2%

37.2%

34.8%

28.5%

27.5%

29.3%

2006

2007

2008

80.0% 70.0% 60.0% 47.6% 41.0%

50.0%

46.3%

40.0%

29.0%

27.6%

2001

2002

30.0%

Gross Margin 36.6% 30.8%

31.0% 24.5% 22.2%

Operating Margin Net Margin

24.9%

20.0% 10.0% 0.0% 2000

2003

2004

2005

Free Cash Flow vs Tangible Shareholder Equity Trend

2009

Efficiency & Profitability

$80,000.0

70.0%

$70,000.0

60.0%

$60,000.0

50.0%

$50,000.0

CROIC

40.0%

$40,000.0

FCF

$30,000.0

Shareholder Equity

FCF/Sales

30.0%

ROA

20.0%

$20,000.0

ROE

10.0%

$10,000.0

$-

0.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2000

Sales vs Accounts Receivables

2001

2002

2003

2004

2005

2006

2007

2008

2009

CAPEX vs PPE

$70,000.0

$10,000.0 $9,000.0

$60,000.0

$8,000.0 $50,000.0

Last 6 yrs

$7,000.0

Last 5 yrs

$6,000.0

$40,000.0

Sales Accts Receivable

$30,000.0

Inventory

$20,000.0

Last 4 yrs

$5,000.0

Last 3 yrs

$4,000.0

Last 2 yrs

$3,000.0

Last 1 yr

$2,000.0 $10,000.0

PPE

$1,000.0

$-

$2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TTM

2003

2004

2005

2006

2007

2008

2009

TTM

Company Name

ticker

Microsoft Corp

MSFT

9/21/2009

Figures in Millions except per share values Financial Data

MSFT

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

TTM

Income Statement Revenue COGS COGS (%)

$ $

22,956.0 3,002.0 13.1%

$ $

25,296.0 3,455.0 13.7%

$ $

28,365.0 5,191.0 18.3%

$ $

32,187.0 5,686.0 17.7%

$ $

36,835.0 6,716.0 18.2%

$ $

39,788.0 6,200.0 15.6%

$ $

44,282.0 $ 7,650.0 $ 17.3%

51,122.0 $ 10,693.0 $ 20.9%

60,420.0 $ 11,598.0 $ 19.2%

58,437.0 $ 12,155.0 $ 20.8%

58,437.0 12,155.0 20.8%

Gross Profit

$

19,954.0

$

21,841.0

$

23,174.0

$

26,501.0

$

30,119.0

$

33,588.0

$

36,632.0

40,429.0

48,822.0

46,282.0

46,282.0

Gross Profit (%)

86.9%

86.3%

81.7%

82.3%

$

$

$

$

81.8%

84.4%

82.7%

79.1%

80.8%

79.2%

79.2%

13,306.0 $ 36.1% 7,779.0 $ 21.1% $ 0.0%

12,843.0 $ 32.3% 6,184.0 $ 15.5% $ 0.0%

13,576.0 $ 30.7% 6,584.0 $ 14.9% $ 0.0%

14,784.0 $ 28.9% 7,121.0 $ 13.9% $ 0.0%

18,166.0 $ 30.1% 8,164.0 $ 13.5% $ 0.0%

16,909.0 $ 28.9% 9,010.0 $ 15.4% $ 0.0%

Operating Expenses SG&A SG&A (%) R&D R&D (%) Other Other (%) Operating Income

$ $ $

$

Operating Income (%)

5,150.0 $ 22.4% 3,775.0 $ 16.4% 92.0 $ 0.4% 10,937.0

$

47.6%

5,742.0 $ 22.7% 4,379.0 $ 17.3% $ 0.0% 11,720.0

$

46.3%

6,957.0 $ 24.5% 4,307.0 $ 15.2% $ 0.0% 11,910.0

$

42.0%

8,625.0 $ 26.8% 4,659.0 $ 14.5% $ 0.0% 13,217.0

$

41.1%

9,034.0

$

24.5%

14,561.0

$

36.6%

16,472.0

$

37.2%

18,524.0

$

36.2%

22,492.0

$

37.2%

20,363.0

$

34.8%

16,909.0 28.9% 9,010.0 15.4% 0.0% 20,363.0 34.8%

Other Income and Expense Net Int Inc & Other

$

3,338.0

$

(195.0)

$

(397.0)

$

1,509.0

$

3,162.0

$

2,067.0

$

1,790.0

$

1,577.0

$

1,322.0

$

(542.0)

$

(542.0)

Earnings Before Taxes Income Taxes Tax Rate %

$ $

14,275.0 4,854.0 34.0%

$ $

11,525.0 3,804.0 33.0%

$ $

11,513.0 3,684.0 32.0%

$ $

14,726.0 4,733.0 32.1%

$ $

12,196.0 4,028.0 33.0%

$ $

16,628.0 4,374.0 26.3%

$ $

18,262.0 5,663.0 31.0%

$ $

20,101.0 6,036.0 30.0%

$ $

23,814.0 6,133.0 25.8%

$ $

19,821.0 5,252.0 26.5%

$ $

19,821.0 5,252.0 26.5%

Earnings After Taxes Acctg Changes Disc Operations Ext Items

$ $ $ $

9,421.0 -

$ $ $ $

7,721.0 $ (375.0) $ $ $

7,829.0 -

$ $ $ $

9,993.0 -

$ $ $ $

8,168.0 -

$ $ $ $

12,254.0 -

$ $ $ $

12,599.0 -

$ $ $ $

14,065.0 -

$ $ $ $

17,681.0 -

$ $ $ $

14,569.0 -

$ $ $ $

14,569.0 -

Net Income

$

9,421.0

$

7,346.0

7,829.0

$

9,993.0

$

8,168.0

$

12,254.0

$

12,599.0

$

14,065.0

$

17,681.0

$

14,569.0

$

14,569.0

Net Income (%) Diluted EPS, Cont Ops$ Diluted EPS$ Shares

$ $

41.0% 0.9 $ 0.9 $ 11072

$

29.0% 0.7 $ 0.7 $ 11148

27.6% 0.7 $ 0.7 $ 11106

31.0% 0.9 $ 0.9 $ 10882

22.2% 0.8 $ 0.8 $ 10894

30.8% 1.1 $ 1.1 $ 10906

28.5% 1.2 $ 1.2 $ 10531

27.5% 1.4 $ 1.4 $ 9886

29.3% 1.9 $ 1.9 $ 9470

24.9% 1.6 $ 1.6 $ 8996

24.9% 1.6 1.6 8910

Balance Sheet Assets Cash and Equiv Short-Term Investments Accts Rec Inventory Other Current Assets

$ $ $ $ $

4,846.0 18,952.0 3,250.0 3,260.0

$ $ $ $ $

3,922.0 27,678.0 3,671.0 4,366.0

$ $ $ $ $

3,016.0 35,636.0 5,129.0 673.0 4,122.0

$ $ $ $ $

6,438.0 42,610.0 5,196.0 640.0 4,089.0

$ $ $ $ $

15,982.0 44,610.0 5,890.0 421.0 3,663.0

$ $ $ $ $

4,851.0 32,900.0 7,180.0 491.0 3,315.0

$ $ $ $ $

6,714.0 27,447.0 9,316.0 1,478.0 4,055.0

$ $ $ $ $

6,111.0 17,300.0 11,338.0 1,127.0 4,292.0

$ $ $ $ $

10,339.0 13,323.0 13,589.0 985.0 5,006.0

$ $ $ $ $

6,076.0 25,371.0 11,192.0 717.0 5,924.0

$ $ $ $ $

6,076.0 25,371.0 11,192.0 717.0 5,924.0

Total Current Assets Net PP&E Intangibles Other Long-Term Assets

$ $ $ $

30,308.0 1,903.0 19,939.0

$ $ $ $

39,637.0 2,309.0 17,311.0

$ $ $ $

48,576.0 2,268.0 1,669.0 15,133.0

$ $ $ $

58,973.0 2,223.0 3,512.0 14,863.0

$ $ $ $

70,566.0 2,326.0 3,684.0 15,813.0

$ $ $ $

48,737.0 2,346.0 3,808.0 15,924.0

$ $ $ $

49,010.0 3,044.0 4,405.0 13,138.0

$ $ $ $

40,168.0 4,350.0 5,638.0 13,015.0

$ $ $ $

43,242.0 6,242.0 14,081.0 9,228.0

$ $ $ $

49,280.0 7,535.0 14,262.0 6,811.0

$ $ $ $

49,280.0 7,535.0 14,262.0 6,811.0

Total Assets

$

52,150.0

$

59,257.0

$

67,646.0

$

79,571.0

$

92,389.0

$

70,815.0

$

69,597.0

$

63,171.0

$

72,793.0

$

77,888.0

$

77,888.0

Liabilities & Stockholders' Equity Accts Payable Short-Term Debt Taxes Payable Accrued Liabilities

$ $ $ $

1,083.0 585.0 557.0

$ $ $ $

1,188.0 1,468.0 742.0

$ $ $ $

1,208.0 2,022.0 7,065.0

$ $ $ $

1,573.0 2,044.0 8,641.0

$ $ $ $

1,717.0 3,478.0 7,853.0

$ $ $ $

2,086.0 2,020.0 9,164.0

$ $ $ $

2,909.0 1,557.0 11,076.0

$ $ $ $

3,247.0 1,040.0 2,325.0

$ $ $ $

4,034.0 3,248.0 2,934.0

$ $ $ $

3,324.0 2,000.0 725.0 3,156.0

$ $ $ $

3,324.0 2,000.0 725.0 3,156.0

Other Short-Term Liabilities

$

7,530.0

$

7,734.0

$

2,449.0

$

1,716.0

$

1,921.0

$

3,607.0

$

6,900.0

$

17,142.0

$

19,670.0

$

17,829.0

$

17,829.0

Total Current Liabilities Long-Term Debt

$ $

9,755.0 -

$ $

11,132.0 -

$ $

12,744.0 -

$ $

13,974.0 -

$ $

14,969.0 -

$ $

16,877.0 -

$ $

22,442.0 -

$ $

23,754.0 -

$ $

29,886.0 -

$ $

27,034.0 3,746.0

$ $

27,034.0 3,746.0

Other Long-Term Liabilities

$

1,027.0

$

836.0

$

2,722.0

$

4,577.0

$

2,595.0

$

5,823.0

$

7,051.0

$

8,320.0

$

6,621.0

$

7,550.0

$

7,550.0

Total Liabilities

$

10,782.0

$

11,968.0

$

15,466.0

$

18,551.0

$

17,564.0

$

22,700.0

$

29,493.0

$

32,074.0

$

36,507.0

$

38,330.0

$

38,330.0

Total Equity

$

41,368.0

$

47,289.0

$

52,180.0

$

61,020.0

$

74,825.0

$

48,115.0

$

40,104.0

$

31,097.0

$

36,286.0

$

39,558.0

$

39,558.0

Total Liabilities & Equity

$

52,150.0

$

59,257.0

$

67,646.0

$

79,571.0

$

92,389.0

$

70,815.0

$

69,597.0

$

63,171.0

$

72,793.0

$

77,888.0

$

77,888.0

Cash Flows Statement Cash Flows From Operating Activities Net Income Depr & Amort Deferred Taxes Other

$ $ $ $

9,421.0 748.0 3,792.0

$ $ $ $

Cash from Operations

$

13,961.0

$

7,346.0 1,536.0 (420.0) 4,960.0 13,422.0

$ $ $ $ $

7,829.0 1,084.0 (416.0) 6,012.0

$ $ $ $

9,993.0 1,439.0 336.0 4,029.0

$ $ $ $

8,168.0 $ 1,186.0 $ (1,479.0) $ 6,751.0 $

14,509.0

$

15,797.0

$

(770.0) (10,075.0)

$ $ $

(891.0) $ (1,063.0) $ (5,259.0) $

(1,109.0) $ (4.0) $ (1,632.0) $

(10,845.0)

$

(7,213.0)

(2,745.0)

14,626.0

$

12,254.0 $ 855.0 $ (179.0) $ 3,675.0 $ 16,605.0

$

12,599.0 903.0 219.0 683.0

$ $ $ $

14,065.0 1,440.0 421.0 1,870.0

$ $ $ $

17,681.0 2,056.0 935.0 940.0

$ $ $ $

14,569.0 2,562.0 762.0 1,144.0

$ $ $ $

14,569.0 2,562.0 762.0 1,144.0

14,404.0

$

17,796.0

$

21,612.0

$

19,037.0

$

19,037.0

Cash Flows From Investing Activities Cap Ex Purchase of Business Other

$ $ $

Cash from Investing

$

(879.0) $ $ (11,048.0) $ (11,927.0)

$

(1,103.0) $ $ (7,631.0) $ (8,734.0)

$

$

$

(812.0) $ (207.0) $ 16,046.0 $ 15,027.0

$

(1,578.0) (649.0) 10,230.0

$ $ $

(2,264.0) (1,150.0) 9,503.0

$ $ $

(3,182.0) (8,053.0) 6,648.0

$ $ $

(3,119.0) (868.0) (11,783.0)

$ $ $

(3,119.0) (868.0) (11,783.0)

8,003.0

$

6,089.0

$

(4,587.0)

$

(15,770.0)

$

(15,770.0)

(20,793.0) $ $ (3,805.0) $ 54.0 $

(9,039.0) (4,015.0) 120.0

$ $ $ $

(8,722.0) 5,974.0 (4,468.0) (247.0)

$ $ $ $

(8,722.0) 5,974.0 (4,468.0) (247.0)

Cash Flows From Financing Activities Net Issuance of Stock Net Issuance of Debt Dividends Other

$ $ $ $

(2,651.0) $ $ (13.0) $ 472.0 $

(4,454.0) $ $ $ (1,132.0) $

(4,572.0) $ $ $ $

(4,366.0) $ $ (857.0) $ $

(635.0) $ $ (1,729.0) $ $

Cash from Financing Currency Adj Change in Cash

$ $ $

(2,192.0) $ 29.0 $ (158.0) $

(5,586.0) $ (26.0) $ (898.0) $

(4,572.0) 2.0 (908.0)

(5,223.0) 61.0 3,361.0

$ $ $

(2,364.0) $ 27.0 $ 9,517.0 $

Cash from Operations Cap Ex

$ $

13,961.0 $ (879.0) $

13,422.0 $ (1,103.0) $

14,509.0 $ (770.0) $

15,797.0 $ (891.0) $

14,626.0 $ (1,109.0) $

Free Cash Flow Book Value Per Share

$ $

9,290.0 3.74

7,779.0 4.24

8,143.0 4.70

$ $ $

(4,948.0) $ $ (36,112.0) $ (18.0) $ (41,078.0) (7.0) (9,446.0)

$ $ $

(17,106.0) $ $ (3,545.0) $ 89.0 $ (20,562.0) 18.0 1,845.0

$ $ $

(24,544.0) 56.0 (659.0)

$ $ $

(12,934.0) $ 137.0 $ 4,228.0 $

(7,463.0) $ (67.0) $ (4,263.0) $

(7,463.0) (67.0) (4,263.0)

17,796.0 $ (2,264.0) $

21,612.0 $ (3,182.0) $

19,037.0 $ (3,119.0) $

19,037.0 (3,119.0)

Free Cash Flow

$ $

$ $

$ $

10,541.0 5.61

$ $

8,245.0 6.87

$ $

16,605.0 $ (812.0) $ 12,297.0 4.41

$ $

14,404.0 $ (1,578.0) $ 11,924.0 3.81

$ $

13,241.0 3.15

$ $

16,555.0 3.83

$ $

14,012.0 4.40

$ $

14,012.0 4.44

Company Name

ticker

Microsoft Corp 9/21/2009

User Growth

User Input Params

MSFT

www.oldschoolvalue.com

Figures in Millions except per share values

Desired MOS 50%

Growth 9.2%

Discount % 9.0%

2000

2001

2002

$

Price 25.26

Share Value Buy under Actual D/C % $ 27.91 $ 13.95 9% Financial Data 2004 2005 2006

2003

52Wk High $27.66

52Wk Low $14.87

2007

2008

2009

Income Sheet Data Revenue Gross Profit Operating Income Net Income Diluted EPS

$ $ $ $ $

22,956.0 19,954.0 10,937.0 9,421.0 0.9

$ $ $ $ $

25,296.0 21,841.0 11,720.0 7,346.0 0.7

$ $ $ $ $

28,365.0 23,174.0 11,910.0 7,829.0 0.7

$ 32,187.0 $ 26,501.0 $ 13,217.0 $ 9,993.0 $ 0.9

$ 36,835.0 $ 30,119.0 $ 9,034.0 $ 8,168.0 $ 0.8

$ $ $ $ $

39,788.0 33,588.0 14,561.0 12,254.0 1.1

$ $ $ $ $

44,282.0 36,632.0 16,472.0 12,599.0 1.2

$ $ $ $ $

51,122.0 40,429.0 18,524.0 14,065.0 1.4

$ $ $ $ $

60,420.0 48,822.0 22,492.0 17,681.0 1.9

$ $ $ $ $

58,437.0 46,282.0 20,363.0 14,569.0 1.6

$ $ $

13,961.0 9,290.0 879.0

$ $ $

13,422.0 7,779.0 1,103.0

$ $ $

14,509.0 8,143.0 770.0

$ 15,797.0 $ 10,541.0 $ 891.0

$ 14,626.0 $ 8,245.0 $ 1,109.0

$ $ $

16,605.0 12,297.0 812.0

$ 14,404.0 $ 11,924.0 $ 1,578.0

$ 17,796.0 $ 13,241.0 $ 2,264.0

$ 21,612.0 $ 16,555.0 $ 3,182.0

$ 19,037.0 $ 14,012.0 $ 3,119.0

$ $ $ $

30,308.0 9,755.0 10,782.0 41,368.0

$ $ $ $

39,637.0 11,132.0 11,968.0 47,289.0

$ $ $ $

48,576.0 12,744.0 15,466.0 50,511.0

$ $ $ $

$ $ $ $

$ $ $ $

48,737.0 16,877.0 22,700.0 44,307.0

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

Cash Flow Data Cash from Operations Free Cash Flow Capex

Balance Sheet Data Current Assets Current Liabilities Total Liabilities Tangible Shareholder Equity

58,973.0 13,974.0 18,551.0 57,508.0

70,566.0 14,969.0 17,564.0 71,141.0

49,010.0 22,442.0 29,493.0 35,699.0

40,168.0 23,754.0 32,074.0 25,459.0

43,242.0 29,886.0 36,507.0 22,205.0

49,280.0 27,034.0 38,330.0 25,296.0

Margins Gross Margin Operating Margin Net Margin Current Assets>1.5 times

86.9% 47.6% 41.0% 310.7%

86.3% 46.3% 29.0% 356.1%

81.7% 42.0% 27.6% 381.2%

82.3% 41.1% 31.0% 422.0%

81.8% 24.5% 22.2% 471.4%

84.4% 36.6% 30.8% 288.8%

82.7% 37.2% 28.5% 218.4%

79.1% 36.2% 27.5% 169.1%

80.8% 37.2% 29.3% 144.7%

79.2% 34.8% 24.9% 182.3%

21.9% 40.5%

16.2% 30.8%

21.1% 27.4%

13.2% 16.6%

15.3% 28.7% 7.7 12.3% 15.7%

17.0% 32.7% 8.9 13.6% 17.7%

11.2% 22.4% 16.0 9.5% 12.0%

24.5% 30.9% 12.6 15.0% 19.9%

27.9% 26.9% 5.2 18.0% 28.6%

39.2% 25.9% 9.5 21.2% 39.5%

57.4% 27.4% 11.8 26.0% 52.5%

38.3% 24.0% 17.0 19.3% 38.4%

26.1% 0.0% 86.2%

25.3% 0.0% 65.0%

29.6% 0.0% 52.7%

30.4% 0.0% 56.8%

23.5% 0.0% 46.9%

47.2% 0.0% 54.2%

73.5% 0.0% 40.4%

103.1% 0.0% 41.3%

100.6% 0.0% 45.3%

96.9% 8.7% 36.6%

2000-2007 -6.7% 5.2% 19.4% 29.7% 14.3% 18.8% 12.1% 82.5% 39.1% 28.7% 7.6% 3.5%

2001-2008 -10.2% 11.4% 20.8% 28.1% 14.3% 18.8% 13.2% 82.1% 37.2% 28.7% 16.0% 7.0%

2002-2009 -9.4% 8.1% 26.2% 27.2% 16.5% 24.2% 10.9% 81.7% 36.9% 28.0% 12.5% 4.0%

2002-2007 -12.8% 10.2% 20.8% 27.8% 14.3% 18.8% 12.5% 82.1% 36.9% 28.0% 14.9% 4.2%

2003-2008 -17.3% 9.4% 26.2% 27.2% 16.5% 24.2% 13.4% 82.1% 36.9% 28.9% 15.2% 6.5%

2004-2009 -18.7% 11.2% 33.1% 26.4% 18.6% 33.5% 9.7% 81.3% 36.4% 28.0% 16.7% 5.4%

2016 $24,429.44 2026 $ 35,315

2017 $24,875.75 2027 $ 36,374

Efficiency & Profitability CROIC FCF/Sales Inventory Turnover Return On Assets (ROA) Retun On Equity (ROE)

Debt Related Debt to Equity Capitalization Ratio FCF to Debt

Multi-Year Performance Shareholder Equity Free Cash Flow CROIC FCF/Sales ROA ROE Revenue Growth Gross Margin Operating Margin Net Margin Earnings Growth Cash from Ops Growth

2000-2005 1.4% 5.8% 16.6% 30.8% 13.4% 17.1% 11.6% 83.4% 41.5% 29.9% 5.7% 3.5%

2001-2006 -5.5% 8.9% 16.6% 29.7% 13.4% 17.1% 11.8% 82.5% 39.1% 28.7% 12.7% 1.4%

Median -9.8% 9.2% 20.8% 27.9% 14.3% 18.8% 12.0% 82.1% 37.1% 28.7% 13.8% 4.1%

Projection of future Free Cash Flow Growing at 9% Terminal Value 3%

$ $

2010 15,299 2020 29,576

$ $

2011 16,704 2021 30,463

$ $

2012 18,238 2022 31,377

2013 $19,250.88 2023 $ 32,318

Company Valuation Total Value Shares Outstanding Per Share Value Margin of Safety Purchase Price Current Price Actual Discount Enterprise Value Enterprise Value/EBITDA

$ $ $ $ $

2014 $20,841.94 2024 $ 33,288

2015 $22,564.51 2025 $ 34,286

2018 $26,726.11 2028 $ 37,465

2019 $28,714.11 2029 $ 38,589

Free Cash Flow and Tangible Shareholder Equity Trend 248,410 8901 27.91 50% 13.95 25.26 9% 200,930.00 8.636

$80,000.0

8901

$70,000.0

$60,000.0 $50,000.0 $40,000.0

$71,141.0 Shareholder Equity $57,508.0 $50,511.0 $47,289.0 $44,307.0 $41,368.0 $35,699.0

FCF

$30,000.0 $20,000.0

$9,290.0 $7,779.0 $8,143.0 $10,541.0 $8,245.0

$25,459.0 $25,296.0 $22,205.0 $16,555.0 $14,012.0 $12,297.0$11,924.0$13,241.0

$10,000.0 $2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Multi-Year Performance Graph 250.0%

Gross Margin

Operating Margin

Net Margin

Earnings Growth

ROA

ROE

200.0% 18.8%

14.3% 7.6%

150.0%

18.8%

24.2%

14.3%

16.5%

16.0%

12.5%

33.5%

24.2%

17.1%

17.1%

18.8%

13.4% 5.7%

13.4%

14.3%

16.5%

18.6%

12.7%

14.9%

15.2%

16.7%

29.9%

28.7%

28.0%

28.9%

28.0%

28.7%

28.7%

28.0%

39.1%

37.2%

36.9%

41.5%

39.1%

36.9%

36.9%

36.4%

82.5%

82.1%

81.7%

83.4%

82.5%

82.1%

82.1%

81.3%

2000-2007

2001-2008

2002-2009

2000-2005

2001-2006

2002-2007

2003-2008

2004-2009

100.0%

50.0%

0.0%

Margin Percentages 100.0% 90.0%

86.9%

86.3%

82.3%

81.7%

84.4%

81.8%

82.7%

80.8%

79.1%

79.2%

80.0% Gross Margin

70.0% 60.0% 50.0%

47.6% 41.0%

46.3%

40.0%

42.0%

29.0%

41.1%

30.0%

36.6% 30.8%

31.0%

27.6%

24.5% 22.2%

37.2%

36.2%

28.5%

27.5%

37.2% 29.3%

Operating Margin

34.8% 24.9%

20.0%

Net Margin

10.0% 0.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Efficiency & Profitability

Debt

70.0% CROIC

FCF/Sales

2009

ROA

120.0%

ROE

60.0%

Debt to Equity

Capitalization Ratio

FCF to Debt

100.0%

50.0% 80.0% 40.0% 60.0%

30.0%

40.0%

20.0%

20.0%

10.0% 0.0%

0.0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Sales, Receivables, Inventory $70,000.0

Sales

Accts Receivable

Inventory

$60,000.0 $50,000.0

$40,000.0 $30,000.0 $20,000.0 $10,000.0

$2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

TTM

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Company Name

ticker

Microsoft Corp

MSFT

9/21/2009

Figures in Millions except per share values

www.oldschoolvalue.com Desired MOS

Growth

Discount %

50%

9.2%

9%

Price $

25.26

Share Value $

27.91

Buy under $

Actual D/C % 52Wk High

13.95

9%

$

27.66

52Wk Low $

14.87

Historical Stock Price Vs Intrinsic Value Per Share 60

Historical Price

Intrinsic Value

Buy Price

Linear (Historical Price)

50

40

30

20

10

0 9/28/1998

9/28/1999

9/28/2000

9/28/2001

9/28/2002

9/28/2003

9/28/2004

9/28/2005

9/28/2006

9/28/2007

9/28/2008

Company Name

ticker

Microsoft Corp

MSFT

9/21/2009

User Growth

Figures in Millions except per share values

www.oldschoolvalue.com User Input Params

Desired MOS

Growth

66%

13.8%

2000 0.85 2010 $ 1.62 $

Diluted EPS

Earnings Growth EPS Weighted Average Earnings Growth EPS Weighted Average

2001 0.66 2011 $ 1.85 $

Price $

Actual DC% Share Value

25.26

2002 0.71 2012 $ 1.86 $

16% 2003 0.92 2013 $ 2.15 $

30.04

Buy under $

P/B Ratio

10.21

Earnings 2004 2005 $ 0.75 $ 1.12

$

Net Net Working Capital

5.74

$

2006 1.20

$

0.21 2007 1.42

$

2008 1.87

$

2009 1.62

Multi-Year Performance 2000-2005 2001-2006 2002-2007 2003-2008 2004-2009 2000-2003 2001-2004 2002-2005 5.7% 12.7% 14.9% 15.2% 16.7% 2.7% 4.4% 16.4% $ 0.84 $ 0.89 $ 1.02 $ 1.21 $ 1.33 $ 0.79 $ 0.76 $ 0.88 2003-2006 2004-2007 2005-2008 2006-2009 Median (1998-2007) 13.8% 9.26% 23.71% 18.63% 10.52% $1.01 $ 1.00 $ 1.12 $ 1.40 $ 1.53

Company Stats Normal Earnings Expected 5 Year Growth 20 yr A Corp Bond Rate Book Value Per Share Price to Book Ratio Enterprise Value Per Share

$

1.01 13.79% 5.7 4.40 5.74 22.57

$2.00

$1.87

$1.80

EPS

Linear (EPS)

$1.60 $1.12

$1.20 $1.00

$1.85

$1.62

$1.62

2009

2010

$1.42

$1.40

$1.20

$0.92

$0.85

$0.80

Company Valuation Per Share Value Desired MOS Purchase Price Current Price Actual Discount

$

$0.66

$0.71

2001

2002

$0.75

$0.60

$ $ $

30.04 66.00% 10.21 25.26 16%

$0.40 $0.20 $2000

2003

2004

2005

2006

2007

2008

2011

Old School Value | http://www.oldschoolvalue.com Company Company Name Name

ticker

Microsoft Corp

MSFT

9/21/2009

User Discount %

Figures in Millions except per share values

9% Discount Rate %

Net Reprod. Cost

EPV

$

9%

24.36

$4.63

Current Price

$

MOS %

25.26

Tangible BV

0%

$

3.09

NNWC

$

0.56

Reproduction Asset Value Quarterly numbers based on: 2009 Q4 Statement Source Date: 30-Jul-09

Assets Cash & Equivalents Marketable Securities Accounts Receivable - Gross Other Receivable

Receivables Inventories: Raw Materials Inventories: Work in Progress Inventories: Purchased Components Inventories: Finished Goods Inventories: Other Inventories -- Total Prepaid Expenses Current Defered Income Taxes Other Current Assets

Total Current Assets Goodwill, Net Intangibles, Net

Intangibles Property/Plant/Equipment - Net Long Term Investments Note Receivable - Long Term Other Long Term Assets, Total

Total Assets

Data Source

Book Value $ $ $ $ $ $ $

Adjust +/-

Multiplier

31,447.0 25,371.0 11,192.0 11,192.0 170.0 45.0

$ $ 502.0 $ $ 717.0 $ $ 2,213.0 $ 5,924.0 $ 51,493.0 $ 12,503.0 $ 1,759.0 $ 14,262.0

MSN Reproduction Asset Value

$

31,447.0

$ $ $

25,371.0 11,192.0 -

$

11,192.0

PPE Sales R&D

50%

$ 7,535.0 $ 4,933.0 $ $ 1,878.0 $ 80,101.0

$

717.0

$ $ $

2,213.0 5,924.0

$

51,493.0

$ $

6,251.5 1,759.0

$

8,010.5

$ $ $ $

7,535.0 4,933.0 1,878.0

$

68,916.5

$2,000.0

Reproduction Asset Value

$1,000.0

Liabilities & Equity

Book Value Corrected BV

Accounts Payable

$

3,324.0

$

3,324.0

Accrued Expenses Accrued Liabilities Notes Payable/Short Term Debt Current Port. of LT Debt/Capital Leases Other Current Liabilities

$ $ $

3,156.0 2,000.0

$ $ $

3,156.0 2,000.0

$ $

18,554.0

Total Current Liabilities

$ $ 18,554.0 $ 27,034.0

$

27,034.0

Long-Term Debt

$

$

3,746.0

Capital Lease Obligations

$

Deferred Income Taxes

$ $ $

7,550.0

$

38,330.0

Common Stock Equity Retained Earnings

$ $ $ 7,550.0 $ 38,330.0 $ 39,558.0 $ (22,824.0)

$ $

39,558.0 (22,824.0)

Total Capitalization Total Equity Total Liabilities & Stock Equity

$ 43,304.0 $ 39,558.0 $ 77,888.0

$

43,304.0

$ $

41,771.0 77,888.0

Minority Interest Total Other Liabilities

Total Liabilities

2003 CAPEX (statements) Last 6 yrs Last 5 yrs Last 4 yrs Last 3 yrs Last 2 yrs Last 1 yr

Multiplier

-

$

-

2005

2006

2007

2008

2009

TTM

$

891.0

$

1,109.0

$

812.0

$

1,578.0

$

2,264.0

$

3,182.0

$

3,119.0

$

3,119.0

$ $ $

2,764.0 1,661.0 891.0

$ $ $

2,770.0 2,000.0 1,109.0

$ $ $

2,812.0 1,921.0 812.0

$ $ $

3,499.0 2,390.0 1,578.0

$ $ $

4,654.0 3,842.0 2,264.0

$ $ $

7,024.0 5,446.0 3,182.0

$ $ $

8,565.0 6,301.0 3,119.0

$ $ $

9,420.0 6,238.0 3,119.0

$ $ $

2,223.0 32,187.0 4,659.0

$ $ $

2,326.0 36,835.0 7,779.0

$ $ $

2,346.0 39,788.0 6,184.0

$ $ $

3,044.0 44,282.0 6,584.0

$ $ $

4,350.0 51,122.0 7,121.0

$ 6,242.0 $ 60,420.0 $ 8,164.0

$ $ $

7,535.0 58,437.0 9,010.0

$ $ $

7,535.0 58,437.0 9,010.0

$10,000.0 $9,000.0

$8,000.0 Last 6 yrs

$7,000.0

Last 5 yrs

$6,000.0

Last 4 yrs

$5,000.0

Last 3 yrs

$4,000.0

Last 2 yrs

$3,000.0

Last 1 yr

PPE

$2003

2004

2005

Asset Valuation Tangible BV

3,746.0

2004

Adjusted BV NNWC Reprod. Cost of Assets Reprod. Cost of Assets BV Total Net Reprod. Cost

Total $

2006

2007

2008

2009

TTM

Asset Valuation Data

Per Share 27,509 $ 3.09

Shares Outstanding

8901.0

$ $

30,587 5,026

$ $

3.44 0.56

Balance Sheet Assets Adjusted Assets Total Liabilities

$ $ $

80,101.0 68,916.5 38,330.0

$

104,043

$

11.69

Total Equity

$

41,771.0

$

65,713

$

7.38

$

41,181

$

4.63

Marketing/Brand Value R&D Value

$ $

17,631.3 17,495.2

Cash Needed for Business Interest Bearing Debt Non Interest Bearing Debt

$ $ $

584.4 5,746.0 32,584.0

Excess Cash

$

30,278.3

8901

Old School Value | http://www.oldschoolvalue.com

Earnings Power Value (EPV) 5 Year Annual Data Period End Date Period Length Statement Source

30-Jun-05 12 Months 10-K

30-Jun-06 12 Months 10-K

30-Jun-07 12 Months 10-K

Income Statement Sales EBIT Add back one time charges EBIT Margin EBIT at user defined % of sales EBIT User Defined % Margin Normalized EBITDA Normalized EBIT SG&A R&D

2005 $ 39,788 $ $ 16,628.0 $

Adjusted EBIT Adjusted EBIT %

$ 20,849.5 $ 52.4%

22,972.0 $ 51.9%

Income Before Tax Income Tax - Total Tax Rate

$ 16,628.0 $ $ 4,374.0 $ 26.3%

Adjusted Earnings After tax Depreciation & Amortization Add user defined % of D&A

$ 15,365.0 $ 884.0 $ 176.8

Income as Adjusted Income as Adjusted % Operating Income as Reported

$ 15,541.8 $ 39.1% $ 14,561.0 $

PPE as a % of Sales Sales Growth (decrease) to Prior Year Capex Maintenance Capex Depr & Amort

Past 4 Quarterly Data 30-Jun-08 12 Months 10-K

30-Jun-09 12 Months 10-K

2006 44,282 $ 18,262.0 $

2007 51,122 $ 20,101.0 $

2008 60,420 $ 23,814.0 $

41.8%

41.2%

39.3%

39.4%

33.9%

41.8% 17,755.0 16,871.0 2,697.3 1,524.3

41.2% 18,782.0 17,792.0 3,064.0 1,646.0

39.3% 19,874.0 18,438.0 3,717.5 1,780.3

39.4% 24,143.0 22,271.0 4,596.8 2,041.0

2009 58,437 19,821.0

31-Dec-08 3 Months 10-Q

2009 Q1 $15,061.0 $ $5,927.0

31-Mar-09 3 Months 10-Q

30-Jun-09 3 Months 10-K

2009 Q2 16,629.0 $ $5,690.0

2009 Q3 13,648.0 $ $3,999.0

2009 Q4 13,099.0 $ $3,937.0 $

TTM 58,437.0

39.4%

34.2%

29.3%

30.1%

$ $ $ $

33.9% 22,984.0 20,693.0 4,144.8 2,252.5

39.4% $6,584.0 $5,999.0 $982.8 $570.8

34.2% 6,571.0 5,939.0 982.8 570.8

29.3% 5,392.0 4,728.0 1,123.3 572.5

30.1% 4,708.0 4,027.0 973.5 553.0

$ $ $ $

33.5% 33.5% 23,255.0 20,693.0 4,062.3 2,267.0

25,598.8 $ 50.1%

30,451.8 $ 50.4%

26,218.3 44.9%

$7,480.5 $ 49.7%

7,243.5 $ 43.6%

5,694.8 $ 41.7%

5,463.5 $ 41.7%

25,882.3 44.3%

18,262.0 $ 5,663.0 $ 31.0%

20,101.0 $ 6,036.0 $ 30.0%

23,814.0 $ 6,133.0 $ 25.8%

19,821.0 5,252.0 26.5%

$5,927.0 $ $1,618.0 $ 27.3%

5,690.0 $ 1,464.0 $ 25.7%

3,999.0 $ 1,073.0 $ 26.8%

3,937.0 $ 1,097.0 $ 27.9%

19,553.0 5,252.0 26.9%

15,848.4 990.0 198.0

17,911.9 1,436.0 287.2

22,609.3 1,872.0 374.4

19,271.2 2,291.0 458.2

$5,438.4 $585.0 $117.0

19,729.4 33.8% 20,363.0

$5,555.4 $ 36.9% $5,927.0 $

$ $ $ $ $

$ $ $ $

$ $ $

2005 5.9% $ $ $ $

2,953.0 812.0 637.9 855.0

$ $ $ $

$ $ $

16,046.4 $ 36.2% 16,472.0 $ 2006 6.9%

$ $ $ $

4,494.0 1,578.0 1,269.1 903.0

$ $ $ $

$ $ $

18,199.1 $ 35.6% 18,524.0 $ 2007 8.5%

$ $ $ $

6,840.0 2,264.0 1,682.0 1,440.0

$ $ $

22,983.7 $ 38.0% 22,492.0 $ 2008 10.3%

$ $ $ $

9,298.0 3,182.0 2,221.4 2,056.0

2009 12.9% $ $ $ $

(1,983.0) 3,119.0 3,119.0 2,562.0

2005-2006 2006-2007 2007-2008 2008-2009 2009-TTM 3.2% 13.4% 26.3% -14.2% -1.5% $ 15,794.1 $ 17,122.8 $ 20,591.4 $ 21,356.5 $ 19,583.9

Multiyear Timeframe Adjusted Income & Growth

30-Sep-08 3 Months 10-Q

$ $ $ $

$ $ $

TTM 12.9% $ $ $ $

3,119.0 3,119.0 2,562.0

5,379.79 632.0 126.4

$ $ $ $

$ $ $

5,506.2 $ 33.1% 5,677.0 $

$ $ $

4.5%

$ $

Per Share $ 38.76 $ 27.69

9%

$ 191,682.9

$

21.53

11% 13%

$ $

$ $

17.62 14.91

156,831.5 132,703.6

4,077.4 $ 31.1% 3,987.0 $

EPV Data Cost of Capital Normalized Adjusted Income Average Maintenance Capex Interest Bearing Debt 1% of sales Cash & Equiv Cash - Debt Shares

Normal. Adj. Income Growth

EPV 345,029.3 246,449.5

$ $ $

18,926.1 2,562.0 512.4 19,438.5 33.3% 19,609.0

Possible Values for Override Box Normalized Income $ 19,259.5 Avg Adj. Income 5 yrs $ 18,500.1 TTM Adjusted Income $ 19,438.5

2005-2009 2006-TTM 6.1% 4.9% $ 18,500.1 $ 19,279.4

Cost of Capital Rates 5% 7%

4,299.6 $ 31.5% 4,018.0 $

3,941.16 681.0 136.2

2,191.0 2,008.1 1,729.7

$19,259.5

2005-2008 2006-2009 2007-TTM 12.7% 2.7% -5.4% $ 18,192.8 $ 19,239.6 $ 20,087.7

$ $ $

Average

Normalized Adjusted Income

2005-2007 2006-2008 2007-2009 2008-TTM 8.2% 19.7% 4.1% -8.0% $ 16,595.8 $ 19,076.4 $ 20,304.0 $ 20,717.2

4,166.75 664.0 132.8

$ $ $ $

19,553.0

+Cash-Debt Adjustment $ 370,145.9 $ 271,566.1

$ $

Per Share 41.58 30.51

$ 216,799.6

$

24.36

$ $

$ $

20.44 17.73

181,948.1 157,820.2

$ $ $ $ $ $

9% 19,259.5 2,008.1 5,746 584.37 31,447 25,116.63 8901

User Input

Company Name

ticker

Microsoft Corp

MSFT

9/21/2009

Enter Competitor Tickers Into Boxes Below

all figures in $Mil

MSFT

Industry

Ranking

25.26

NA

NA

225,080

NA

NA

52-Week High

27.66

NA

NA

52-Week Low

14.87

NA

NA

% off 52-Week Low

69.9%

NA

NA

15.59 3.85 5.69 8.9 13.14 19.66 3.44 8.636

15.1 0.76 3.49 7.89 4.79 17.56 NA NA

1 1 1 1 1 1 NA NA

2.06 3.96 26.58 31.71

0.13 1.94 14.58 31.97

1 1 1 1

-17.29 3.85 9.67 -25.55 -13.36 16.65 22.98

-9.37 0.76 9.17 -0.57 0 3.21 29.2

1 1 1 1 1 1 1

1.8 1.82 9.47 14.53

2.31 2.48 12.48 18.85

1 1 1 1

79.2 81.06 37.94 38.98 33.56 36.03 33.92 38.82 24.93 28.01

16.86 53.89 0 24.86 4.49 20.67 4.22 21.88 2.82 13.27

1 1 1 1 1 1 1 1

19.34 19.63 31.08 28.63 38.42 33.44

2.16 9.83 3.17 14.41 3.84 15.86

1 1 1 1 1 1

628355 156656 4.72 14.28 0.78

11774941 348136 2.83 3.32 0.3

NA NA NA NA

Stock Price Market Cap (millions)

Valuation Ratios P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) Enterprise Value/Revenue (TTM) Enterprise Value/EBITDA (TTM)

Dividends Dividend Yield Dividend Yield - 5 Year Avg. Dividend 5 Year Growth Rate Payout Ratio (TTM)

Growth Rates Sales (MRQ) vs Qtr. 1 Yr. Ago Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate EPS (MRQ) vs Qtr. 1 Yr. Ago EPS (TTM) vs TTM 1 Yr. Ago EPS - 5 Yr. Growth Rate Capital Spending - 5 Yr. Growth Rate

Financial Strength Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ)

Profitability Gross Margin (TTM) Gross Margin - 5 Yr. Avg. EBITD Margin (TTM) EBITD - 5 Yr. Avg. Operating Margin (TTM) Operating Margin - 5 Yr. Avg. Pre-Tax Margin (TTM) Pre-Tax Margin - 5 Yr. Avg. Net Profit Margin (TTM) Net Profit Margin - 5 Yr. Avg.

1 1

Management Effectiveness Return Return Return Return Return Return

On On On On On On

Assets (TTM) Assets - 5 Yr. Avg. Investment (TTM) Investment - 5 Yr Avg Equity (TTM) Equity - 5 Yr. Avg.

Efficiency Revenue/Employee (TTM) Net Income/Employee (TTM) Receivable Turnover (TTM) Inventory Turnover (TTM) Asset Turnover (TTM)

1

Company Name

ticker

Microsoft Corp

MSFT

www.oldschoolvalue.com

9/21/2009

Figures in Millions except per share values

Net Profit Margin

Cash Flow (Continuing Operations) 21612

41%

25%

25%

TTM 2009/06 25% 25% % Change -14.8%

29%

28%

28%

31%

31%

28%

29%

17796 14404

16605

14626

15797

14509

13422

13961

22%

2008/06 29%

2007/06 28%

2006/06 28%

2005/06 31%

2004/06 22%

2003/06 31%

2002/06 28%

2001/06 29%

2000/06 41%

6.4%

-3.3%

-7.6%

38.9%

-28.6%

12.5%

-5.0%

-29.2%

--

Magic Formula Investing -- Return on Capital

TTM 2009/06 16462 19037 % Change -11.9%

2008/06 21612

2007/06 17796

2006/06 14404

2005/06 16605

2004/06 14626

2003/06 15797

2002/06 14509

2001/06 13422

2000/06 13961

21.4%

23.5%

-13.3%

13.5%

-7.4%

8.9%

8.1%

-3.9%

--

7.7%

7.2%

Magic Formula Investing -- Earnings Yield

0.82

11.5%

0.72 0.59

19037

16462

12.4%

11.9%

0.59

0.47

0.38

0.29

0.32

0.39

7.8%

0.46

9.0% 7.1%

5.5%

4.6%

3.9%

0.16

Now 2009/06 0.59 0.59 % Change -28.4%

2008/06 0.82

2007/06 0.72

2006/06 0.47

2005/06 0.38

2004/06 0.16

2003/06 0.29

2002/06 0.32

2001/06 0.39

2000/06 0.46

14.1%

54.0%

21.5%

136.7%

-43.2%

-10.0%

-18.8%

-14.7%

--

Return on Assets (ROA) 24% 19%

Now 2009/06 11.5% 12.4% 3.9% % Change

2008/06 11.9%

2007/06 7.8%

2006/06 9.0%

2005/06 7.1%

2004/06 5.5%

2003/06 7.7%

2002/06 7.2%

2001/06 4.6%

2000/06 3.9%

52.9%

-13.7%

27.9%

28.4%

-28.9%

6.7%

58.0%

17.1%

--

16.4%

15.0%

16.3%

Return on Equity (ROE) 48.7%

22%

19%

18%

18%

17% 13%

12%

36.8%

45.2%

36.8%

31.4%

13%

25.5%

22.8%

9% 10.9%

2009/06 2009/06 19% 19% % Change -23.0%

2008/06 24%

2007/06 22%

2006/06 18%

2005/06 17%

2004/06 9%

2003/06 13%

2002/06 12%

2001/06 13%

2000/06 18%

9.0%

23.2%

4.6%

96.6%

-30.2%

8.6%

-10.8%

-28.2%

--

Current Ratio 4.2

3.8

3.6

2.9 1.8

2009/06 2009/06 1.8 1.8 % Change 26.0%

2008/06 48.7%

2007/06 45.2%

2006/06 31.4%

2005/06 25.5%

2004/06 10.9%

2003/06 16.4%

2002/06 15.0%

2001/06 16.3%

2000/06 22.8%

7.7%

43.9%

23.1%

133.9%

-33.5%

9.3%

-8.0%

-28.5%

--

4.7

4.2

3.8

3.6

Quick Ratio 4.7

1.8

2009/06 2009/06 36.8% 36.8% % Change -24.4%

3.1

2.2 1.4

2.9

1.8

1.7

2008/06 1.4

2007/06 1.7

2006/06 2.2

2005/06 2.9

2004/06 4.7

2003/06 4.2

2002/06 3.8

2001/06 3.6

2000/06 3.1

-14.4%

-22.6%

-24.4%

-38.7%

11.7%

10.7%

7.1%

14.6%

--

1.8

2009/06 2009/06 1.8 1.8 % Change 27.0%

3.1

2.1

1.4

1.6

2008/06 1.4

2007/06 1.6

2006/06 2.1

2005/06 2.9

2004/06 4.7

2003/06 4.2

2002/06 3.8

2001/06 3.6

2000/06 3.1

-14.0%

-22.4%

-25.9%

-39.0%

12.3%

11.1%

5.6%

14.6%

--

Company Name

ticker

Microsoft Corp

MSFT

9/21/2009

Figures in Millions except per share values

www.oldschoolvalue.com

Company Assessment: Quantitative Valuation

Criteria over 10yrs

DCF Valuation Discount

> 25% or 50% depending on moat

Graham Intrinsic Value Discount

> 66%

Criteria over 10yrs

Margins, Profit and Growth Median Revenue growth Median Gross Margin Median Operating Margin Median Net Margin Median EPS growth

9%

0

16%

0 Points

10%

Criteria over 10yrs

Value

Points

30% 15% 10%

15% 13% 10% 7% Consistent over 10yrs Consistent over 10yrs

Criteria for TTM

Balance Sheet

Points

Value 12.0% 82.1% 37.1% 28.7% 13.8%

10%

Business and Management Performance Cash growth from Operations CROIC is postive and capable of paying off financing Median FCF growth positive and consistent Median FCF/Sales Consistent ROE (manually check) Consistent ROA (manually check)

Value

Current assets > 1.5 x current liabilities

> 1.5 x current liabilities

Price to Book ratio < 2 Debt to Equity FCF to Debt Capitalization Ratio Intangibles % of assets

4.1% 20.8% 9.2% 27.9% N/A N/A

N/A N/A

1

N/A

5.74

< 100%

96.9%

> 10%

36.6%

N/A 1 2 2 0

9%

< 15% of assets

18.3%

User Points

0 2 0 2

1.8

< 30%

User Points

1 2 2 2 1

Points

Value

User Points

User Points N/A

Company Assessment: Qualitative Microsoft Corporation is engaged in developing, manufacturing, licensing, and supporting a range of software products and services for different types of computing devices. The Company operates in five business segments: Client, Server and Tools, Online Services Business, Microsoft Business Division, and Entertainment and Devices Division. The software products and services include operating systems for servers, personal computers, and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; computing applications; software development tools, and video games. The Company provide consulting and product and solution support services, and trains and certifies computer system integrators and developers. It also designs and sells hardware, including Xbox 360 video game console, the Zune digital music and entertainment device, and peripherals.

Competitive Advantage Stable market share? Dominant company in industry, segment? Low barriers to entry and exit? Experience goods (brand effect, trademarks) High switching costs? Network effect? E.g. eBay

Comment

User Points

Max Points max 2 max 2 max 2 max 2 max 2 max 2

Business Model

Comment

User Points

Max Points

Growth due to: a) existing product / existing market b) existing product / new market c) new product / existing market d) new product / new market

(yes/no) (yes/no) (yes/no) (yes/no)

Able to increase prices and retain customers? Compete on price? (1 for no, 0 for yes) Barriers of entry to the business? Diverse customers? (1 for diverse, 0 for concentrated) Involved in competition? Monopoly, duopoly, crowded Company has a recurring revenue stream? Capital intensive company? (1 for no, 0 for yes)

a) Yes b) Yes c) Yes d) No

max 2

max max max max max max max

1 1 1 1 2 1 1

Management High insider ownership? Candid management on positives and negatives? Management performance at previous jobs? Compensation levels compared to sales?

Comment

User Points

Max Points max 1 max 1 max 1 max 1

Industry Boring industry? (1 for slow, 0 for fast industry) Can company adapt to changing industry environment? Industry leader or lagger? (1 for leader, 0 for lagger)

Comment

User Points

Max Points max 1 max 1 max 1

Psychological Factors to Consider. Not Weighted. Recency bias? Hindsight bias? Framing issues correctly and in different manners? Is there a data framing bias? Am I too overconfident on the situation? Performed probability analysis for -ve factors? Too much loss aversion? Sunk cost mentality? Slow in changing opinion? Psychological denial ? Bias from commitment and consistency tendency? Pavlovian association? Social proof bias? Status quo bias? False consensus bias? Do I have an exit plan? Category

Total Points out of 5

Valuation Margins, Profit and Growth Business and Management Performance Balance Sheet Competitive Advantage Business Model Management

Low Risk 3.7 3.7

Comment no no DCF, graham, compare to peers maybe no no no no no no no no no no no

High Growth 2.0 2.0

Under Valued 2.5 2.5

0.0 4.0 2.0 3.0 0.0 0.0 0.0

Well Managed 3.5 3.5

Good Financial Health 3.5 3.5

Low Risk 5.0

4.0 Strong Moat

3.0

High Growth

2.0 1.0 0.0

Good Financial Health

Under Valued

Well Managed

Strong Moat 4.0 4.0