Stockholders' Equity and the Statement of Cash Flows - Microsoft Co Inc Essay Sample

Microsoft Co Inc is an international company that produces and distribute computer devices. It is a well-known company which most investors expect to understand how it uses its equity finances such as common equity and preferred equity. The investors plan to know how well the company uses these sources of funding to generate income in the form of dividends and interest to shareholders (Camm & Williams, 2017). The analysis of the equity capital of Microsoft company requires a review of its financial statements such as balance sheet and income statement because they are the key documents that bear financial information of a company.

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Microsoft Ltd has nil preferred stock at the end of last three consecutive financial year ends although common stock finances most of its investment portfolios. It is usually estimated at 0.0 thousand showing that it pays no interest to shareholders. Preferred stock is different from common stock because the interest on it is paid before paying a dividend from common stock.

Microsoft has an outstanding common stock of 7.68billion which is 528.85% more than its competitors in the technology sector. When it is compared to other software companies, it is higher with 438.6% which shows that it is performing better than others in both technology and software industry (Camm & Williams, 2017). It is the number of shares that the company issue to the general public. In most cases, it is the amount of share capital which is usually traded in the stock market. This company has an increase in its outstanding share because it has not had any buybacks although it has purchased other shares from the public. Microsoft Corporation always pays a cash dividend at the end of every financial year.

Earnings per share are the amount of money that every shareholder earns from the company. It is calculated by dividing net income payable to common stockholders by the number of outstanding shares.

Earnings per share = $21204000/7680000 =2.76

Microsoft Corporation uses an indirect method to report net cash flow of its operating activities. It always adjusts its net income to alter it from accrual to cash basis. In the process, all the non-cash elements such as depreciation are added back into the net income (Spiceland, 2009). This is to eliminate all the non-cash expenses which have been included when computing net income. Microsoft Corporation also adjusts the net income for all the changes that have taken place between opening and ending balances in both current assets and liabilities. This company uses the indirect method because it adds back noncash elements into the financial statement (Cavusgil & Rose, 2015). Expenses such as depreciation are added back because they have been deducted as expenses although there is no cash paid or received when an asset depreciates. It, therefore, assumes as if it is additional cash which the company has neither received or spent.

The increase in debtors or decrease in current liabilities is also an indication that indirect method is used when preparing cash flow from operating activities. From personal perspectives, this evaluation is an indication that Microsoft Corporation has higher earnings per share. It, therefore, means that shareholders receive a higher return on their equity finance. Furthermore, it highlights the importance of using accounting principles when preparing income statements. Finally, it addresses the need for the use of common stock rather than preferred stock when financing the business organization.

References

Cavusgil, S. T., Knight, G. A., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2015). International business: The new realities.

Spiceland, J. D. (2009). Intermediate accounting. Boston: McGraw-Hill/Irwin.

Camm, J. D., Cochran, J. J., Fry, M. J., Ohlmann, J. W., Anderson, D. R., Sweeney, D. J., & Williams, T. A. (2017). Essentials of business analytics.

https://www.nasdaq.com/symbol/msft/financials?query=income-statement