On Oct. 25, software titan Microsoft (NASDAQ:MSFT) released first-quarter 2008 earnings for the period ended Sept. 30, 2007.

  • The Windows Vista operating system is picking up steam, as corporate customers have started to qualify the platform for production use. It's not an unmitigated success, though -- driver issues still haunt the system, so some businesses and consumers still prefer their new computers to come with Windows XP instead.
  • The entertainment and devices segment reported a $165 million operating profit, thanks to the Halo 3 release and a price cut on the Xbox 360 console. Just remember that the company took a $1 billion charge for fixing broken Xboxes in the last quarter and extending the product's warranty.
  • Microsoft is firing on nearly every cylinder right now, with the notable exception of the online services division, formerly known as MSN. The aQuantive acquisition, which closed in the middle of the quarter, brings a boost to the segment's revenues, but couldn't save the online operating loss from more than doubling compared to last year.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2008

Q1 2007

Change

Sales

$13,762

$10,811

27.3%

Net Profit

$4,289

$3,478

23.3%

EPS

$0.45

$0.35

28.6%

Diluted Shares

9,513

10,010

(5%)

Get back to basics with the income statement.

Margin Checkup

Q1 2008

Q1 2007

Change*

Gross Margin

80.6%

84.3%

(3.8)

Operating Margin

43%

41.4%

1.6

Net Margin

31.2%

32.2%

(1.0)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2008

Q1 2007

Change

Cash + ST Invest.

$21,574

$28,252

(23.6%)

Accounts Rec.

$8,982

$6,879

30.6%

Inventory

$1,178

$2,521

(53.3%)

Liabilities

Q1 2008

Q1 2007

Change

Accounts Payable

$3,206

$2,406

33.3%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2008

Q1 2007

Change

Cash From Ops.

$5,878

$4,061

44.7%

Capital Expenditures

$510

$411

24.1%

Free Cash Flow

$5,368

$3,650

47.1%

Owner Earnings

$4,214

$3,316

27.1%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

P/E Ratio

CAPS Rating

Microsoft

$331,520

24.9

***

Google (NASDAQ:GOOG)

$209,770

52.6

**

International Business Machines (NYSE:IBM)

$156,520

16.8

***

Oracle (NASDAQ:ORCL)

$107,850

25.0

****

Nintendo (OTC BB: NTDOY.PK)

$87,270

19.4

*****

Adobe Systems (NASDAQ:ADBE)

$27,120

41.7

*****

Using the latest reported numbers from Capital IQ.

Related Foolishness:

Microsoft is a Motley Fool Inside Value recommendation, and Nintendo is a Motley Fool Stock Advisor pick.

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 was a Google shareholder but had no other position in any company mentioned. Fool rules are here.