Last update on 2024-06-04

Microsoft (MSFT) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Explore Microsoft's 2023 Piotroski F-Score analysis. Key financial metrics reviewed, find insights on profitability, liquidity, and efficiency. Final score: 6/9.

Short Analysis - Piotroski Score: 6

We're running Microsoft (MSFT) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Microsoft's Piotroski F-Score evaluates its financial strength using 9 criteria in profitability, liquidity, and operational efficiency. For 2023, Microsoft scored 6 out of 9: positive net income, positive cash flow, sufficient cash flow compared to net income, decreased leverage, reduction in shares, and increased gross margin. However, it lost points for reduced ROA, decreased current ratio, and lower asset turnover ratio. Historically, Microsoft's financials have shown strong and consistent growth, with only minor fluctuations.

Insights for Value Investors Seeking Stable Income

Although Microsoft's Piotroski F-Score is 6, which is above average, it is essential to consider the reasons behind the lost points. Despite the decreased ROA and asset turnover indicating reduced efficiency in some areas, the company's strong cash flow, reduced debt, and strategic share buybacks highlight its solid financial health. The historical data supports an overall positive outlook. Therefore, Microsoft seems to be a strong investment for long-term growth, warranting further consideration.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Microsoft (MSFT)

Company has a positive net income?

Assessing net income is crucial as it indicates the company's profitability. Stable and increasing net income signals good financial health and operational efficiency.

In 2023, Microsoft reported a net income of $72,361,000,000, which is positive. Over the past 20 years, the net income trajectory shows strong growth from $9,993,000,000 in 2003 to the current value. Despite a minor dip from 2022's peak of $72,738,000,000, the trend is very positive overall. The steady growth exemplifies Microsoft's successful strategies. Thus, Microsoft earns 1 point for having a positive net income.

Company has a positive cash flow?

Cash Flow from Operations (CFO) analyzes the ability of a company to generate cash from its core business operations. Positive CFO indicates financial robustness.

Microsoft's CFO for 2023 stands at $87,582,000,000, which is undeniably positive. This positive cash flow affirms Microsoft's adeptness in generating cash from its fundamental business operations, thus ensuring liquidity and reducing the risk of insolvency. An analysis of historical data for the last two decades reveals a consistent upward trajectory in Microsoft's operating cash flow, barring minor fluctuations. For instance, in 2003, the CFO was around $15.797 billion, and since then, it has shown remarkable growth almost every year, reaching a peak of $89.035 billion in 2022 before the slight dip to $87.582 billion in 2023. This positive cash flow, especially amidst economic uncertainties, is a strong indicator of the company's financial health and sustainable business model. Adding 1 point for positive CFO is justified due to Microsoft's impressive cash-generating ability over an extended period.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) is crucial, as it indicates the efficiency with which a company is using its assets to generate earnings. A higher ROA reflects better profitability.

For Microsoft (MSFT), the ROA decreased from 0.2082 in 2022 to 0.1863 in 2023. This decline implies that the company was less efficient in utilizing its assets to generate profit in 2023 compared to the previous year. Given the Piotroski scoring, a decrease in ROA does not meet the criterion for adding a point, thus scoring 0. Historically, Microsoft's ROA has fluctuated, but the recent decline is notably below both its past performance and the industry median ROA of 0.715 for 2023. This suggests that Microsoft's asset utilization in 2023 was less effective relative to the industry standard, despite high operating cash flows, which were $87.582 billion in 2023.

Operating Cashflow are higher than Netincome?

This criterion compares the operating cash flow with the net income to check if the company is generating sufficient cash flow to cover its net income. A higher operating cash flow indicates a healthy cash-generating capability.

In 2023, Microsoft's operating cash flow stands at $87.582 billion while its net income is $72.361 billion. The operating cash flow is indeed higher than the net income, resulting in 1 point for this criterion. This is a good trend as it suggests efficient cash management and signifies strong cash-generating capability, indicating that Microsoft has enough cash flow to cover its net income and reinvest in its operations. Looking at the historical data, Microsoft's operating cash flow has shown a consistent upward trend since 2003, moving from $15.797 billion to $87.582 billion in 2023.

Liquidity of Microsoft (MSFT)

Leverage is declining?

Change in Leverage measures a company's change in debt ratio. A decrease indicates improved financial health and less risk.

For Microsoft (MSFT), the leverage ratio decreased from 0.1604 in 2022 to 0.1328 in 2023. This declining trend in leverage indicates a reduction in financial risk and improved financial stability for the company. Historically, leverage has fluctuated, but the recent sustained decrease from 0.3155 in 2017 to 0.1328 in 2023 highlights significant deleveraging. This is positive for Microsoft, reflecting stronger balance sheet management, potentially increasing investor confidence.

Current Ratio is growing?

The Current Ratio is a measure of a company's liquidity, indicating its ability to cover short-term obligations with its current assets. A higher ratio often implies stronger liquidity.

In 2023, Microsoft's Current Ratio slightly decreased to 1.7692 from 1.7846 in 2022. Despite being minor, this decrease indicates a reduced capability to cover short-term liabilities with current assets and doesn’t score a point in Piotroski's framework. Notably, Microsoft's current ratios are higher than the industry median for the comparison years, hovering around 1.82-2.08 for Microsoft vs. 1.53-1.79 for the median, showing Microsoft's superior liquidity management.

Number of shares not diluted?

Evaluating the change in shares outstanding is crucial for understanding shareholder value implications. A decrease suggests share buybacks, potentially signaling management's confidence in the company's prospects.

Microsoft's shares outstanding declined from 7,496 million in 2022 to 7,446 million in 2023, indicating a decrease of 50 million shares. This trend is positive under the Piotroski F-Score framework, earning Microsoft 1 point. Historically, Microsoft has consistently reduced its outstanding shares over the past 20 years, from 10,882 million in 2003 to 7,446 million in 2023, aligning with the company's strategic approach to enhancing shareholder value via buybacks.

Operating of Microsoft (MSFT)

Cross Margin is growing?

Change in Gross Margin is a critical indicator of a company's ability to manage its cost of goods sold (COGS) relative to its revenue. An increasing Gross Margin suggests the company is improving efficiency in production or has stronger pricing power.

The Gross Margin for Microsoft has increased from 0.684 in 2022 to 0.6892 in 2023. This 0.76% increase shows that Microsoft is improving operational efficiency or has managed to enhance its pricing strategies. Comparatively, the industry median Gross Margin for 2023 is 0.715, which is higher than Microsoft's Gross Margin. Despite the increase, Microsoft is still trailing the industry median, which suggests there is room for further efficiency improvements. Thus, for this criterion under the Piotroski F-Score, Microsoft earns 1 point.

Asset Turnover Ratio is growing?

Change in Asset Turnover Ratio evaluates a company's efficiency in using its assets to generate sales over time.

The asset turnover ratio for Microsoft (MSFT) has decreased from 0.5676 in 2022 to 0.5456 in 2023. This decline in the asset turnover ratio suggests that Microsoft was slightly less efficient in utilizing its assets to generate revenue in 2023 as compared to the previous year. Over the span of 20 years, Microsoft experienced highs and lows in its asset turnover ratio, with the highest ratio of 0.8888 in 2008 and periodic similar lower years, for instance, in 2017 at 0.4138. Despite recent dips, the consistent increase from 0.4415 in 2018 to 2022's value reveals a general efficiency-enhancing trend. However, for 2023, the conclusion is clear: 0 points should be added for this criterion.