Company Valuation

Company Valuation

Introduction

This coursework is based on the company valuation of Microsoft. Microsoft is one of the leading companies of the world. It was founded by Bill Gates and Paul Allen in year 1975. Microsoft headquarters is in Redmond, Wash. Microsoft operates in more than sixty countries of the world. Microsoft's decision to add Windows and Office "Live" capabilities reminds us to some degree of their XBOX "Live" offering, and not just because the name is the same.

Microsoft reports record earnings per share of $ 0.77 dollars in the second quarter of 2011. Microsoft Corp. announced its record revenue of $19.950 million for the second quarter ended December 31, 2010. During the quarter, operating profit, net income and diluted earnings per share were $8.170 billion, $ 6.630 billion and $ 0.77 per share respectively. Previous year's results reflect the recognition of deferred revenue of $1.710 billion in connection with the Optional Program Upgrading to Windows 7 and Windows 7 sales before its general availability in October 2009 (Fridson, 2011).

(Source: http://thebusinessferret.com/microsoft-financial-analysis-destroying-value-with-too-much-cash/)

Discussion and Analysis

The primary objective of Microsoft is to increase the sales through reducing the cost and by equating the debt to equity ratios. Objective of sales revenue can be measured by comparing sales with respect to previous sales. The target of Microsoft should be at least 15% increase in sales revenue which may be achieved by various ways such as sales promotion, penetrating into other segments of the market and many others. The objective of the company must be to reduce cost; this can be achieved by comparing profit margin or comparing expenses of the current year and last year. The target to achieve the profit margin is 10 % which can be initiated by introducing new technologies, global expansion, effective marketing strategies etc (Leonard, 2013).

The EV/EBITDA ratio is a key ratio for financial analysis. The EV / EBITDA ratio of Microsoft Corp. is 6.36 for the next 12 months. This is lower than the mean value of its Peer Group: 7.49. According to this financial analysis, valuation of Microsoft Corp. is lower than that of its Peer Group. This ratio is significantly lower than the average of its sector (Software) 8.28. According to this financial analysis, valuation of Microsoft Corp. is significantly lower than that of its sector.

The revenue of the Microsoft Business Division had a growth of 24%. Office 2010 is the consumer ...