Microsoft Set for a Huge Q3: Fool by Numbers

On Jan. 25, software king Microsoft (Nasdaq: MSFT  ) released second-quarter 2007 earnings for the period ended Dec. 31, 2006.

  • These figures exclude $1.64 billion of unearned revenues, preorders for Windows Vista and Office 2007 that have yet to launch. Those items will hit stores next week, and the next quarter will add that line back into net sales. The bottom-line impact should be about $0.11 per diluted share.
  • The new hotness a year ago was the Xbox 360, and Microsoft couldn't make them fast enough to satisfy early demand. This year, there are some consoles on shelves and in warehouses, and the price per unit hasn't dropped since it was launched, so there's one reason for the rising inventory levels.
  • I've been wondering what a couple of Microsoft's competitors intend to do with their cash balances, but $10 billion looks petty next to the Redmond giant's constant $30 billion stash -- give or take a couple of measly billion. The difference is that we all know that Microsoft has acquisitions in its blood, and now comes with a 1.3% dividend yield, too. No mystery there.

(Figures in millions, except per-share data)

Income Statement Highlights

Q2 2007

Q2 2006

Change

Sales

$12,542

$11,837

6.0%

Net Profit

$2,626

$3,653

(28.1%)

EPS

$0.26

$0.34

(23.5%)

Diluted Shares

9,942

10,638

(6.5%)



Get back to basics with a look at the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change*

Gross Margin

71.1%

81.1%

(9.9)

Operating Margin

27.7%

39.3%

(11.7)

Net Margin

20.9%

30.9%

(9.9)

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Management Effectiveness

Q2 2007

Q2 2006

Change*

Return On Assets

15.9%

21.1%

(5.1)

Return On Equity

28.9%

31.6%

(2.7)

*Expressed in percentage points.

See how management puts its financial tools to work.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$28,873

$34,701

(16.8%)

Accounts Rec.

$9,895

$7,758

27.5%

Inventory

$1,725

$1,003

72.0%



Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$2,944

$2,477

18.9%

Long-Term Debt

$0

$0

N/A



Learn the ways of the balance sheet.

Cash Flow Highlights

Q2 2007

Q2 2006

Change

Cash From Ops.

$2,042

$2,231

(8.5%)

Capital Expenditures

$572

$318

79.9%

Free Cash Flow

$1,470

$1,913

(23.2%)

Owner Earnings

$2,419

$3,566

(32.2%)



Find out why Fools always follow the money.

Cash Conversion Checkup

Q2 2007

Q2 2006

Change

Days in Inventory

52.8

34.7

18.0

Days in Receivables

60.2

51.5

8.6

Days Payables Outstanding

66.5

87.0

(20.5)

Cash Conversion Cycle

46.5

(0.7)

47.2



Read up on cash conversion metrics.

Related Companies:

Related Foolishness:

Microsoft is a Motley Fool Inside Value pick, and Electronic Arts piqued the interest of our flagship Motley Fool Stock Advisor newsletter service. Grab a couple offree 30-day trials -- no strings attached -- and check out what the fuss is all about.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.


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