To behold the daybreak!
The little light fades the immense and diaphanous shadows,
The air tastes good to my palate.
--"Song of Myself," Walt Whitman

On April 26, Microsoft (NASDAQ:MSFT), which surely needs no introduction, released third-quarter 2007 earnings for the period ended March 31, 2007. The National Poetry Month tribute above seems fitting, as fresh vistas have recently opened up for the software giant -- pun very much intended.

  • Windows Vista is finally kicking in a serious contribution, as the consumer-oriented versions were released early in this quarter alongside an updated Office suite. They have been selling quite well, thank you.
  • A 5% share concentration doesn't sound like much for a whole year, but when the company has a market cap north of $270 billion, you see that Microsoft is returning a serious chunk of change to shareholders this way.
  • Owner earnings are tracking the net income line very closely, because Microsoft isn't a capital-intensive company. Tom Gardner's structural free cash flow measurement removes capital expenditures and the depreciation of assets, which just doesn't move the needle very far in this case.

(Figures in millions, except per-share data)

Income Statement Highlights

FQ3 2007

FQ3 2006

Change

Sales

$14,398

$10,900

32.1%

Net Profit

$4,926

$2,977

65.5%

EPS

$0.50

$0.29

72.4%

Diluted Shares

9,862

10,415

(5.3%)

Get back to basics with the income statement.

Margin Checkup

FQ3 2007

FQ3 2006

Change*

Gross Margin

85.1%

81.4%

3.8

Operating Margin

45.8%

39.3%

6.5

Net Margin

34.2%

27.3%

6.9

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

FQ3 2007

FQ3 2006

Change

Cash + ST Invest.

$28,236

$33,505

(15.7%)

Accounts Rec.

$8,454

$6,818

24.0%

Inventory

$1,750

$1,113

57.2%

Liabilities

FQ3 2007

FQ3 2006

Change

Accounts Payable

$2,843

$2,354

20.8%

Long-Term Debt

$0

$0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

FQ3 2007

FQ3 2006

Change

Cash From Ops.

$7,291

$4,563

59.8%

Capital Expenditures

$461

$302

52.6%

Free Cash Flow

$6,830

$4,261

60.3%

Owner Earnings

$4,910

$2,852

72.2%

Free cash flow is a Fool's best friend.

Related Foolishness:

Microsoft is a Motley Fool Inside Value selection.

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, Fool contributor Anders Bylund had no position in any company mentioned. Fool rules are here.