Yahoo Finance Analyzing Microsoft’s Financial Performance in Fiscal 2Q16
Why Investors Are Pleased with Microsoft's Fiscal 2Q16 Results
Microsoft’s margins expanded in 2Q16
With a market cap of $409 billion, Microsoft (MSFT) is a leading player in the enterprise software space. In this article, we’ll look at the company’s margins. For the six months ended December 31, 2015, Microsoft’s Intelligent Cloud segment contributed approximately 28% towards the company’s total revenues as compared to 23% for the six-month period ended December 31, 2014. Intelligent Cloud operating margins were 42% for the six-month period ended December 31, 2015, while its MPC and Productivity and Business Processes segments’ operating margins were approximately 30% and 55%, respectively, during the same period.
In fiscal 2Q16, Microsoft’s net margin grew to 24.4% as compared to 22.1% in fiscal 2Q15. Microsoft announced 1,000 layoffs in fiscal 1Q16, which contributed to the margin expansion.
This shows that if Microsoft’s cloud offerings continue to gain traction, it will not only improve the company’s top line but its bottom line as well.
Microsoft’s margins, cash, debt, and cash flow position
In 2Q16, Microsoft’s cash reserves stood at $96.5 billion. It generated operating cash flow worth $5 billion in 2Q16. Microsoft’s total debt as of 2Q16 stood at $43.7 billion. In the last couple of quarters, Microsoft’s debt has risen. The company has incurred high debt primarily to fund dividends and share buybacks. Oracle (ORCL) and Qualcomm (QCOM) have also resorted to debt to fund dividends and share buybacks.
Investors who wish to gain exposure to Microsoft could consider investing in the iShares Russell 1000 Value ETF (IWD) and the PowerShares QQQ Trust, Series 1 ETF (QQQ). IWD and QQQ invest 2.0% and 8.4% of their holdings in Microsoft, respectively. The funds invest 3.4% and 28.4% of their holdings, respectively, in application software.
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