Company Introduction
History of the development of Microsoft Corporation
• April 4, 1975: Microsoft was founded by Bill Gates and Paul Allen under the name MicroSoft
• January 1979: Company moved to Bellevue, Washington
• 1980: Company operating system with Unix version, called Xenix
• November 1980: Received an agreement to supply the CP/M operating system used in personal computers from IBM
• August 1981: Microsoft retains ownership of MS-DOS
• 1983: Market expansion with the release of the Microsoft Mouse In that year, co-founder Paul Allen resigned due to health reasons
• August 1985: Release of Microsoft Windows, graphical expansion for MS-DOS
• March 13, 1986: The stock price increased sharply, helping the company's management to become billionaires and millionaires.
• April 2, 1987: Release of OS/2 version to original equipment manufacturers (OEMs)
• 1990: Introduced the Microsoft Office suite of office applications
• May 26, 1995: Expanding product line to computer network and World Wide Web
• January 13, 2000: Bill gates awarded the CEO position to Steve Ballmer
• January 2007: Released Microsoft Office 2007 and subsequent version Windows – Vista
• June 27, 2008: Bill Gates retires and holds the position of technical advisor of the company
• February 12, 2009: Opening a retail store under the Microsoft brand
• Year 2010: improved mobile operating system Windows Mobile
• October 2012: Release of Windows 8 operating system
• July 2012: Selling 50% stake in MSNBC.com
• March 29, 2013: Xbox One console launch
• February 4, 2014: Steve Ballmer stopped keeping the word CEO and replaced it with Satya Nadella On the same day John W Thompson took over as Chairman, replacing Bill Gates
• April 25, 2015: Microsoft acquires Nokia devices and services for $7.2 billion
• January 21, 2015: Announced the release of the Microsoft Surface Hub Interactive whiteboard
• March 1, 2016: Announced merger of PC and Xbox divisions
• February 20, 2019: Microsoft Corp provides network security service AccountGuard[CITATION Tha21 \l 1066 ]
Organizational structure
Microsoft, founded by Bill Gates and Paul Allen on April 4, 1975, revolutionized computing by adapting the programming language of mainframe computers for personal use The company's initial profit of $16,000 surged to $7.5 million by its fifth year, leading to global expansion and partnerships with major computer manufacturers, ultimately generating nearly $150 million in revenue by 1985 Microsoft went public while maintaining a remarkable 25% profit margin on sales Today, the company employs over 115,000 individuals and continues to innovate within the computing industry.
Bill Gates is no longer the primary leader of Microsoft Corporation; the current chairman is John W Thompson, and the CEO is Satya Nadella Gates now serves as the company's technical advisor.
Vision, mission
Vision: “to help people and businesses throughout the world realize their full potential.”
“to empower every person and every organization on the planet to achieve more.”
Microsoft aims to empower individuals and businesses globally to reach their full potential by developing transformative technology Their focus is on creating innovative software, services, and hardware that enhance how people work, play, and communicate, ultimately providing new opportunities, increased convenience, and greater value in everyday life.
-The tenets central to accomplishing their mission include:
Broad Customer Connection: Connecting with customers, understanding their needs and how they use technology, and providing value through information and support to help them realize their potential.
A global and inclusive strategy fosters a multicultural workforce that drives innovative decision-making, catering to a diverse range of customers and partners This approach not only aims to reduce technology costs but also demonstrates leadership in supporting the communities where employees live and work.
Excellence: In everything Microsoft does.
Trustworthy Computing: Deepening customer trust through the quality of oun products and services, our responsiveness and accountability, and our predictability in everything we do.
Business areas
Microsoft's mission is to empower individuals and organizations globally to achieve greater success The company drives digital transformation for the intelligent cloud and edge, operating in 190 countries with a dedicated workforce of 182,268 employees.
Microsoft is present in most countries and has branches in 190 countries and is classified into 6 regions:
Over the past 40 years, this business has created numerous job opportunities worldwide, establishing a strong foundation for sustainable growth It specializes in the development, manufacturing, and trading of software copyrights, while also offering a diverse range of computer-related products and services.
In the rapidly evolving tech landscape, essential categories such as business software, developer tools, and educational applications are crucial for enhancing productivity The integration of advanced technologies like artificial intelligence, machine learning, and cloud computing is reshaping the future of work Additionally, the rise of smartphones, tablets, and laptops, along with innovations in mixed reality and virtual reality, is transforming user experiences As gaming continues to gain traction, developers and IT professionals play a vital role in driving these advancements across various platforms, including Windows operating systems and servers.
Global Report
In fiscal year 2021, total revenue rose by $25.1 billion, reflecting an 18% increase fueled by growth across all segments The Intelligent Cloud segment saw revenue growth primarily from Azure, while the Productivity and Business Processes segment benefited from increased sales of Office 365 Commercial and LinkedIn Additionally, the More Personal Computing segment experienced revenue growth, largely driven by the gaming sector.
Thoughout four years, revenue has steady increased 152% since 2018, with $57.728 billion changed.
In fiscal year 2021, there was an increase of $6.2 billion, or 13%, primarily fueled by growth in commercial cloud services and gaming This growth was partially offset by a decrease in depreciation expenses resulting from revised estimates of the useful lives of server and network equipment.
Thoughout four years, cost of revenue has steady increased 136% since 2018, with $13.827 billion changed
In fiscal year 2021, Microsoft experienced a significant revenue increase of $18.9 billion, representing a 20% growth, fueled by advancements across all business segments and adjustments in the estimated useful lives of server and network equipment Additionally, the gross margin percentage saw an improvement due to these changes in asset lifespan.
The gross margin percentage experienced a slight decline, primarily due to reduced margins in the More Personal Computing segment However, the commercial cloud sector saw a notable increase of 4 percentage points, reaching 71%, attributed to improvements in Azure's gross margin and adjustments in the estimated useful lives of server and network equipment, although this was partially offset by a shift in the sales mix towards Azure.
Microsoft start to have higher gross margin than the average since 2018 with steady-state growth by 160% from $72.007 billion to $115.856 billion
In fiscal year 2021, cash from operations rose by $16.1 billion to reach $76.7 billion, primarily driven by a boost in cash inflows from customers, although this was partially countered by higher cash outflows to suppliers and employees.
In fiscal year 2021, cash used for financing rose to $48.5 billion, an increase of $2.5 billion This growth was primarily driven by a $4.4 billion surge in common stock repurchases and a $1.4 billion rise in dividends paid However, these increases were partially mitigated by a $1.8 billion decline in debt repayments and a $1.7 billion reduction in cash premiums paid for debt exchanges.
In fiscal year 2021, cash used for investing rose by $15.4 billion to reach $27.6 billion, driven primarily by a $6.4 billion increase in cash allocated for company acquisitions and intangible asset purchases Additionally, there was a $5.2 billion rise in investments in property and equipment, while cash from net investment transactions decreased by $4.1 billion.
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period
Diluted earnings per share (EPS) is calculated using the weighted average number of common stock shares, accounting for the impact of dilutive potential common shares, such as outstanding stock options and stock awards, during the reporting period This computation utilizes the treasury stock method to reflect the potential dilution accurately.
Table 2 The components of basic and diluted EPS
From the statement above, we have concluded for this chart:
In the current year, net income and diluted EPS saw a significant boost due to a tax benefit stemming from the India Supreme Court's ruling on withholding taxes, contributing an increase of $620 million to net income and $0.08 to diluted EPS This improvement surpasses the average EPS of the Computer Software industry and is approximately double that of fiscal year 2021.
Thoughout three years, EPS has increased 3.01 since 2018, much higher than the average of Computer Software industry with the impressive change of 2021’s EPS, which is 8.12, much higher than 2020 and 2019.
2.6 ROE (Return on equity) & ROA (Return on asset)
In 2021, net income growth led to a significant increase in ROE and ROA, rising by 6.78% and 4.22%, respectively, and surpassing 2020 figures by 38% Both metrics are more than twice the average ROE and ROA of the Computer Software industry, exceeding the industry averages by 2.26 times for ROE and 2.10 times for ROA.
The chart illustrates the return on assets distribution for over 1,210 companies in the U.S Information Technology sector, with 572 companies providing significant data The average return on assets stands at -0.9%, accompanied by a standard deviation of 17.4%.
Microsoft Corporation's Return on Assets of 22.1% ranks in the 93.5% percentile for the sector.
The chart illustrates the return on common equity distribution among over 1,210 U.S Information Technology companies, with 563 yielding significant values The average return on common equity for these firms is -3.5%, accompanied by a standard deviation of 31.7%.
Microsoft Corporation's Return on Common Equity of 49.1% ranks in the 95.5% percentile for the sector.
Vietnam Report
Since its entry into the Vietnamese market in 1997, Microsoft has significantly transformed lives and integrated technology into various social activities over the past two decades The company's impactful contributions have led to numerous positive developments in Vietnam.
Accompanying promoting IT development in many socio-economic fields:
On July 7, 2016, Vietnam Posts and Telecommunications Group (VNPT) and Microsoft signed a strategic cooperation agreement aimed at enhancing information and communication technology in Vietnam This partnership underscores Microsoft's commitment to assisting the Vietnamese government and organizations in strengthening their IT capabilities By aligning with Vietnam's IT development plan for 2020, Microsoft aims to support the nation in building a robust IT infrastructure that optimizes technology deployment for businesses and organizations across the country.
On November 25, 2016, the Ministry of Finance hosted a Signing Ceremony for a Memorandum of Understanding with Microsoft Corporation, marking the beginning of a Technology Cooperation Program between the Department of Informatics and Financial Statistics and Microsoft Vietnam for the period 2016-2020 This initiative follows the successful collaboration from 2014 to 2016 and will concentrate on four key areas over the next five years.
The Ministry of Natural Resources and Environment, in collaboration with Microsoft Vietnam, has established a five-year program focusing on enhancing the Finance sector's technological capabilities This partnership involves regular updates on IT trends and technologies, aimed at assisting the Ministry of Finance in developing IT regulations and fostering skilled IT personnel within the Finance sector.
In January 2016, a cooperation agreement was signed with the University of Medicine and Pharmacy Hospital of Ho Chi Minh City to enhance IT infrastructure through cloud computing This collaboration aims to leverage Microsoft's advanced technology and solutions, thereby optimizing the deployment of examination, diagnosis, and treatment services at the hospital.
In March 2014, the Ministry of Information and Communications (TT & TT) and Microsoft signed a Memorandum of Understanding to establish a long-term partnership aimed at achieving common goals in four key areas These focus areas include modernizing IT infrastructure, enhancing security and network protection, advancing cloud computing applications, and developing IT human resources in Vietnam This collaboration also involves the Vietnam Computer Emergency Response Center (VNCERT) to strengthen cybersecurity efforts.
A cooperation agreement has been signed with the Vietnam Information Security Association (VNISA) to enhance information security and safety in Vietnam This agreement represents a significant advancement in the long-term collaboration between the two parties, focusing on building a safer and healthier IT industry through effective and practical measures.
- Signed a cooperation agreement with Viettel Group in September 2014: to improve cloud-based
Microsoft and Viettel Group have entered into an agreement to enhance IT infrastructure and services for Vietnamese government agencies This collaboration will deliver a comprehensive range of cloud computing solutions, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS), ensuring efficient cloud service management for various ministries and agencies across Vietnam.
In August 2014, a Memorandum of Understanding was established between the Department of Information and Communications of Ho Chi Minh City and relevant stakeholders to advance the Smart City model, CityNext This collaboration focuses on key areas such as developing IT infrastructure for Smart Cities, enhancing information security, promoting cloud application development, and providing training for IT personnel Additionally, the partnership aims to implement e-government management applications in socio-economic sectors, foster the growth of the Information Technology and Electronics Industry in Ho Chi Minh City, and raise awareness about compliance with Intellectual Property rights.
Strengthening partner channel in Vietnam
- May 2016: FPT International Telecommunications Company (FTI, under FPT Telecom) was granted the Gold Partner Certificate by Microsoft for providing Cloud solutions and services in Vietnam.
In June 2015, Microsoft Vietnam and CMC Telecommunication Infrastructure Joint Stock Company established a Memorandum of Understanding, designating CMC Telecom as a strategic partner to deliver Microsoft's Level I cloud computing services in Vietnam.
In June 2013, Microsoft Vietnam and HPT Information Technology Services Joint Stock Company forged a strategic partnership aimed at enhancing software and IT services for businesses This collaboration marks a significant milestone, providing mutual benefits to both companies and the broader domestic business landscape As a result of this agreement, HPT has become Microsoft's exclusive strategic partner for optimal software and IT solutions in Vietnam, recognized as a National System Integrator (NSI) Under this partnership, Microsoft will serve as a senior advisor and trusted technology partner to HPT, facilitating the development of innovative software and services tailored for enterprises.
In September 2013, Microsoft appointed Petrosetco as its official distributor for equipment, solutions, and technology products in the Vietnam market This partnership enables Petrosetco to distribute a wide range of Microsoft's comprehensive technology offerings across Vietnam, Laos, and Cambodia.
In December 2014, Microsoft and Mobile World entered a strategic partnership to advance their 'Cloud First, Mobile First' initiative This collaboration aims to enhance the availability of high-quality genuine products for Vietnamese consumers, marking a significant step toward delivering authentic, copyrighted offerings The Memorandum of Understanding emphasizes both companies' commitment to providing competitive and superior experiences in the Vietnamese market.
First Microsoft Press Day in Vietnam
In October 2013, a significant event titled "Experience a Big World" took place in Da Nang, Vietnam, bringing together reporters, journalists, and news agencies nationwide The event showcased the launch of Windows 8.1, highlighting Microsoft's dedication to advancing the PC revolution and enhancing productivity for tablets and mobile devices Attendees were engaged by concise presentations and dynamic product demonstrations, allowing them to explore the Windows ecosystem, including Windows Phone 8 and Microsoft Office 2013 Notably, Windows 8.1 was supported by multiple partners such as Sony, Asus, HP, Lenovo, and Nokia, emphasizing its broad compatibility and innovative features.
Signing a Cooperation Agreement with the Ministry of Education and Training: In
In November 2013, the Ministry of Education and Training (MoET) partnered with Microsoft to enhance the application of information technology in education from 2013 to 2018 This collaboration aimed to equip educators and leaders with IT skills, enabling them to effectively manage, teach, and learn at both basic and advanced levels The initiative focused on building a modern educational framework and facilitating various educational cooperation activities across Vietnam during this period.
Donating Office 365 to NGOs in Vietnam: In December 2013, Microsoft Vietnam launched the
Corporate Governance (Policy)
Board of Director
Microsoft company has an independent Chairman of the Board who is appointed annually by the independent members of the Board The roles of Chairman and CEO are separated since 2000.
The Independent Chairman plays a crucial role in ensuring effective oversight of management by the Board, fostering communication between management and Board members, engaging with shareholders, and guiding discussions on essential governance issues Meanwhile, the CEO is primarily responsible for driving the operational leadership and strategic direction of the corporation.
- Board believes its leadership structure is acceptable because it effectively allocates authority, responsibility, and oversight between management and therefore the independent members of the Board
4.1.1 The Board of Directors provides operational and strategic oversight
The Board oversees business affairs and integrity, works with management to determine theCompany’s mission and long-term strategy, oversees risk management, performs the annual
Chief Executive Officer (“CEO”) evaluation, oversees CEO succession planning, and oversees internal control over financial reporting and external audit In addition, Board committees focus on the following
Audit Financial reporting; internal and external audit; cybersecurity, including with the Regulatory and Public Policy Committee; certain other risks not otherwise assigned
Compensation and benefits; success and development plans; human capital management, including with the Regulatory and Public Policy Committee
Board effectiveness, director qualifications and continuing education, shareholder engagement, governance framework
Corporate social responsibility; government relations activity and political activities and expenditures; certain legal, regulatory, and compliance matters
Table 4 Provide Board of Director
4.1.2 Management drives Microsoft strategy and operations
Each part of the corporate has separate responsibilities, is closely connected with one another, and always updates the knowledge continuously in order that the corporate can operate smoothly by:
The Senior Leadership Team is responsible for fulfilling the organization's mission by developing and implementing strategies, fostering a strong Microsoft culture, and driving innovation in product creation They ensure accountability and manage risks while aligning the company's structure, operations, personnel, policies, and compliance initiatives with the overarching mission and strategic goals.
The Senior Leadership Team comprises leaders from engineering, business, sales, marketing, and key central functions such as finance, legal, and compliance Members regularly present to the Board, attending quarterly sessions and engaging with administrators outside of formal meetings.
Representatives from the Company’s Corporate, External, and Legal Affairs group frequently present to the Board and its committees, discussing critical topics such as public policy, regulatory matters, government affairs, compliance, and legal risk management.
Microsoft's Enterprise Risk Management group plays a crucial role in anticipating, identifying, assessing, and prioritizing risks, supporting directors in effective risk governance through regular reporting and discussions Additionally, the internal audit function offers objective audit, investigative, and advisory services to assure senior leadership and the Board that the company is managing risks appropriately Furthermore, the Tax and Treasury departments maintain regular communication with the Board to ensure transparency and informed decision-making.
The Corporate Development team collaborates with various departments to support the Board in overseeing strategic acquisitions Additionally, the Board and its committees engage closely with the Company's human resources representatives to enhance governance processes.
Human Resource Overview of Microsoft
Microsoft implements stringent screening processes for all employees, interns, and contingent staff, ensuring that all candidates undergo pre-screening before employment The background checks for potential hires typically encompass various components, conducted in compliance with legal regulations.
All Microsoft employees must complete essential security awareness training upon joining the company, followed by annual refresher courses This training equips employees with a foundational understanding of Microsoft's security approach Additionally, role-based security training is mandatory before granting specific access related to job responsibilities Security training is updated annually and whenever there are significant changes to systems or policies.
Microsoft employees are required to complete Standards of Business Conduct training, which covers essential topics such as business ethics, employee safety, privacy, and anti-harassment policies, emphasizing a zero-tolerance approach to unethical behavior Upon completion, employees must affirm their commitment to the Microsoft code of business conduct, with compliance monitored at the organizational level This training is updated and refreshed annually to ensure ongoing adherence to these critical standards.
Microsoft manages employee transfers and terminations as part of its standard operations, ensuring timely revocation of inappropriate access when an employee changes roles or leaves the company To streamline access modifications, Microsoft employs standardized procedures and automated processes that integrate the Human Resources Information System (HRIS) with the Identity Management (IDM) system This automated coordination is vital for maintaining operational consistency, protecting Microsoft's online services and data, preventing privilege creep, and mitigating risks linked to insider threats.
Operation of Microsoft
Microsoft operates several regional centers to manage customer contract processing, credit collections, information processing, and vendor logistics The Ireland center serves the EMEA region, while Singapore supports Japan, India, Greater China, and Asia-Pacific In North America and Latin America, operations are handled by centers in Fargo, Fort Lauderdale, Puerto Rico, Redmond, and Reno Additionally, Microsoft maintains data centers across the Americas, Europe, Australia, Asia, and the Middle East and Africa.
Microsoft enhances product quality and usability for global customers by localizing its offerings to align with local languages and cultural norms This process involves adjusting the user interface, modifying dialog boxes, and translating text to ensure a seamless experience for users in various international markets.
Microsoft primarily relies on third-party contract manufacturers for its devices, allowing flexibility to switch vendors if necessary However, certain components in some products are sourced from a limited number of qualified suppliers, restricting Microsoft's ability to change manufacturers quickly if these vendors become unavailable or fail to meet requirements.
Extended disruptions at these suppliers could lead to a similar disruption in our ability to manufacture devices on time to meet consumer demand.
Microsoft assesses and manages risk across the enterprise
Risk management involves the identification, assessment, and response to potential threats that may affect a company's or customers' goals At Microsoft, this process is tailored to proactively address emerging threats and ensure continuous security for their cloud systems and users.
Microsoft's risk management strategy is integrated with the Enterprise Risk Management (ERM) framework, which facilitates a comprehensive approach to managing risks across the organization This framework collaborates with management to identify key risks and establish accountability, ensuring that the most significant threats to Microsoft are effectively addressed.
Microsoft's Enterprise Risk Management (ERM) framework standardizes risk management principles across the organization, allowing business units to perform consistent and comparable risk assessments independently This coordinated approach enables the aggregation and consolidated reporting of risk information for management oversight ERM equips Microsoft’s business units with unified methodologies, tools, and objectives for effective risk management Various engineering groups and units within Microsoft utilize these resources to carry out individual risk assessments as part of their respective risk management initiatives, all under the guidance of ERM.
Figure 2 Microsoft 365 risk management program
Risk management activities fall into four phases: identification, assessment, response, and monitoring and reporting.
The risk management process in the Microsoft 365 environment begins with the identification of potential risks, including internal and external threats, as well as vulnerabilities across key control areas This identification is informed by various sources, such as interviews, vulnerability scans, attack simulations, audit findings, and incident management activities.
Assessment : Each identified risk is assessed using three metrics: impact, likelihood, and control deficiency [CITATION Mic22 \l 1033 ]
Impact denotes the potential harm that could affect the service, business, or Microsoft if a particular risk materializes For Microsoft, this impact may manifest as reputational damage, customer loss, or legal and compliance issues.
Likelihood defines the probability of the potential risk being realized and is calculated by analyzing the probability and frequency with which it will occur.
Control deficiency measures the effectiveness of implemented mitigation controls
The Trust team utilizes a verified list of risks associated with Microsoft 365 to assign specific risks to the impacted services Established guidelines aid in selecting the suitable risk response strategy, which is determined by evaluating the risk score and the effectiveness of existing controls The strategies for responding to risks are classified into four distinct categories.
Tolerate: Areas of low-risk exposure with a low level of control.
Operate: Areas of low-risk exposure where controls are deemed adequate.
Monitor: Areas of high-risk exposure where controls are deemed adequate and should be monitored for effectiveness.
Improve: Areas of high-risk exposure with a low level of control that are top priorities in addressing.
Effective monitoring and reporting of identified risks are essential for stakeholder awareness This includes implementing strategies such as security monitoring, regular risk reviews, penetration testing, and vulnerability scanning These activities provide valuable data for reporting key performance indicators, creating informative dashboards, and generating formal reports, which ultimately guide future risk management decisions.
Financial risk management
Mitigate the risk by derivatives
According to Microsoft's 2021 annual report, the company employs derivative instruments to mitigate risks associated with foreign currencies, interest rates, equity prices, and credit, aiming to enhance investment returns and diversify its portfolio A key objective of holding these derivatives is to effectively minimize and manage the economic impacts of these exposures Additionally, Microsoft's derivatives programs include strategies that qualify for hedge accounting treatment, although some contracts are not designated as hedging instruments.
Foreign currency risk affects anticipated transactions, assets, and liabilities, prompting Microsoft to assess its foreign currency exposures daily This regular evaluation aims to optimize the cost-effectiveness of its foreign currency hedge positions Historically, Microsoft utilized option and forward contracts to hedge a portion of its expected international revenue for up to three years, categorizing these instruments as cash flow hedges.
Foreign currency risks associated with certain non-U.S dollar-denominated investments are hedged using foreign exchange forward contracts that are designated as fair value hedging instruments
Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.
The Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar are key currencies frequently hedged As of June 30, 2021, the total notional amounts of foreign exchange contracts sold reached approximately $6.1 billion, a slight decrease from about $6.7 billion on June 30, 2020.
Certain options and forwards, although not classified as hedging instruments, are utilized to manage fluctuations in foreign exchange rates affecting accounts receivable, cash, intercompany positions, and other foreign currency exposures As of June 30, these strategies are outlined in Table 5.1.
2021, the total notional amounts of these foreign exchange contracts purchased and sold were
$14.2 billion and $23.4 billion, respectively The total notional amounts of foreign exchange contracts purchased and sold as of June 30, 2020 were $11.9 billion and $15.6 billion, respectively.
Interest rate swaps serve as fair value hedging instruments that enable the conversion of fixed interest rates into floating rates, effectively mitigating interest rate risks linked to specific fixed-rate debt.
Microsoft manages interest rate risks in its fixed-income portfolio by utilizing various financial instruments, including exchange-traded options, futures contracts, and over-the-counter swaps and options These tools help the company adjust the average maturity of its portfolio to align with specific broad-based fixed-income indices, thereby optimizing economic returns It is important to note that these contracts are not classified as hedging instruments.
As of June 30, 2021, the total notional amounts for fixed-interest rate "other contracts" were $2.4 billion in purchases and $763 million in sales, compared to $1.8 billion in purchases and $757 million in sales as of June 30, 2020.
Microsoft's equity investments portfolio is exposed to market price risk, which may involve holding options, futures, and swap contracts that are not classified as hedging instruments To mitigate this price risk, Microsoft occasionally employs equity derivatives such as puts, calls, swaps, and forwards, designating them as hedging instruments.
Microsoft's fixed-income portfolio is well-diversified, primarily comprising investment-grade securities To manage credit exposures and enhance portfolio diversification, the company utilizes credit default swap contracts, which are categorized as “Other contracts” in the financial tables, rather than being designated as hedging instruments.
5.1.5 Credit-Risk-Related Contingent Features
Certain Microsoft counterparty agreements for derivative instruments mandate that the company maintain an investment-grade credit rating for its long-term unsecured debt and a minimum liquidity of $1.0 billion If Microsoft fails to meet these criteria, it must post collateral, akin to standard practices for over-the-counter derivatives As of June 30, 2021, Microsoft held a AAA rating for its long-term unsecured debt and had cash investments exceeding $1.0 billion, thereby eliminating the need for collateral.
Table 5 The notional amounts of Microsoft's outstanding derivative instruments measured in U.S dollar equivalents
Not Designated as Hedging Instruments
Table 6 Presenting Microsoft’s derivative instruments
Gross amounts of derivatives offset in the balance sheet
Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $395 million and $335 million, respectively, as of June
30, 2021, and $399 million and $399 million, respectively, as of June 30, 2020.[ CITATIONMic21 \l 1066 ]
Monitoring thousands of bank accounts, and providing just-in-time cash manahement on a
on a global basis by The Microsoft Treasury
The Microsoft Treasury department manages the company's assets, including cash, investments, and accounts receivable, functioning as an in-house bank for operations in 190 countries With a centralized treasury supporting around 450 subsidiaries across 118 countries and overseeing over 1,300 bank accounts globally, Microsoft faces significant risks related to counterparty exposure, currency fluctuations, and fraud The department transfers approximately one billion dollars monthly to facilitate foreign operations, but unpredictable events like geopolitical conflicts and natural disasters have led to challenges such as frozen funds and strict forex controls Consequently, mitigating risks associated with external funds and ensuring timely payments to local employees and partners are critical priorities for Microsoft.
To mitigate long-term risks, Microsoft's treasury department has enhanced its role by creating strategic contingency plans for accounts payable, payroll, collections, and local finance amid potential political, economic, or environmental crises Jim Scurlock, head of cash management, noted past incidents that hindered cross-border money movement, prompting the company to focus on minimizing global cash levels and mitigating counterparty and sovereign risks to protect liquidity As a result, Microsoft Treasury has launched an initiative to lower cash reserves while developing a contingency action plan for treasury groups to address operational-risk events effectively.
Furthermore, on 11/2019, according to [ CITATION Aus19 \l 1066 ] Microsoft also chose BNY,
BNY Mellon has been appointed as the global custodian for Microsoft's Treasury Group, managing $130 billion in assets The firm will provide a comprehensive range of services, including custody, collateral management, performance measurement, and liquidity services, specifically tailored to meet Microsoft's cash portfolio requirements Key areas such as global custody, derivatives processing, institutional accounting, and foreign currency management will be addressed through BNY Mellon's robust platform By utilizing an array of APIs and seamless integration with third-party technology providers, Microsoft can optimize its resources and adopt industry best practices Furthermore, BNY Mellon's extensive intellectual capital and experience in large-scale implementations will enhance its ability to align technological solutions with Microsoft's business needs.
Gross margin
In fiscal year 2021, Microsoft experienced a significant revenue increase of $18.9 billion, reflecting a 20% growth across all segments, alongside a change in the estimated useful lives of server and network equipment This adjustment also contributed to an increase in the gross margin percentage, highlighting the company's robust financial performance.
The gross margin percentage experienced a slight decline, primarily due to reduced margins in the More Personal Computing segment However, the commercial cloud gross margin percentage saw a notable increase of 4 points, reaching 71%, thanks to improved margins in Azure and adjustments in the estimated useful lives of server and network equipment, although this was partially offset by a shift in sales mix towards Azure.
Microsoft start to have higher gross margin than the average since 2018 with steady-state growth by 160% from $72.007 billion to $115.856 billion
In fiscal year 2021, cash from operations rose by $16.1 billion to reach $76.7 billion, primarily driven by higher cash inflows from customers, although this was partially countered by increased cash outflows to suppliers and employees.
In fiscal year 2021, cash used in financing rose by $2.5 billion to reach $48.5 billion, primarily driven by a $4.4 billion increase in common stock repurchases and a $1.4 billion rise in dividends paid This increase was partially counterbalanced by a $1.8 billion reduction in debt repayments and a $1.7 billion decrease in cash premiums paid for debt exchanges.
In fiscal year 2021, cash utilized for investing rose by $15.4 billion to reach $27.6 billion, primarily driven by a $6.4 billion increase in cash allocated for company acquisitions and intangible asset purchases Additionally, there was a $5.2 billion rise in investments in property and equipment, contrasted by a $4.1 billion decline in cash from net investment transactions, including purchases, sales, and maturities.
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period
Diluted EPS is calculated by taking the weighted average number of common shares and adding the impact of dilutive potential common shares, such as stock options and stock awards, during the reporting period, using the treasury stock method.
Table 2 The components of basic and diluted EPS
From the statement above, we have concluded for this chart:
EPS
In the current year, net income and diluted EPS saw a significant boost due to a tax benefit from the India Supreme Court ruling on withholding taxes, contributing an increase of $620 million and $0.08 to diluted EPS This growth surpasses the average EPS within the Computer Software industry and is approximately double that of fiscal year 2021.
Thoughout three years, EPS has increased 3.01 since 2018, much higher than the average of Computer Software industry with the impressive change of 2021’s EPS, which is 8.12, much higher than 2020 and 2019.
2.6 ROE (Return on equity) & ROA (Return on asset)
In 2021, the company's return on equity (ROE) and return on assets (ROA) rose by 6.78% and 4.22%, respectively, driven by a net income growth of 38% compared to 2020 These figures are more than double the average ROE and ROA of the Computer Software industry, exceeding the industry averages by 2.26 times and 2.10 times, respectively.
ROE ranking (MSFT)
The chart illustrates the return on assets distribution among over 1,210 U.S companies in the Information Technology sector, with 572 yielding significant values The average return on assets for these companies stands at -0.9%, accompanied by a standard deviation of 17.4%.
Microsoft Corporation's Return on Assets of 22.1% ranks in the 93.5% percentile for the sector.
ROA ranking (MSFT)
The chart illustrates the return on common equity distribution for over 1,210 companies in the U.S Information Technology sector, with 563 companies showing significant values The average return on common equity stands at -3.5%, accompanied by a standard deviation of 31.7%.
Microsoft Corporation's Return on Common Equity of 49.1% ranks in the 95.5% percentile for the sector.
Since its entry into the Vietnamese market in 1997, Microsoft has significantly transformed lives and integrated technology into various social activities over the past two decades The company's contributions have created numerous positive impacts in Vietnam.
Accompanying promoting IT development in many socio-economic fields:
On July 7, 2016, Vietnam Posts and Telecommunications Group (VNPT) and Microsoft entered into a strategic cooperation agreement aimed at enhancing information and communication technology in Vietnam This partnership signifies Microsoft's dedication to aiding the Vietnamese Government and organizations in strengthening their IT capabilities and optimizing technology deployment for local businesses As a trusted IT consulting leader worldwide, Microsoft has aligned its strategy with Vietnam's IT development plan for 2020, focusing on helping the country establish a robust IT infrastructure.
On November 25, 2016, the Ministry of Finance, in collaboration with Microsoft Corporation, signed a Memorandum of Understanding to enhance technology cooperation for the period 2016-2020 This partnership, facilitated by the Department of Informatics and Financial Statistics, follows the successful collaboration from 2014-2016 The upcoming five years will see a focused effort on four key areas of cooperation between the Ministry and Microsoft Vietnam.
From 2017, the Ministry of Natural Resources and Environment has engaged in a collaboration with Microsoft Vietnam, focusing on four key areas This partnership aims to keep the Finance sector informed about the latest technology and IT trends, enabling the Ministry of Finance to create effective IT regulations and enhance the development of IT human resources within the sector.
In January 2016, a cooperation agreement was signed with the University of Medicine and Pharmacy Hospital of Ho Chi Minh City to develop IT infrastructure utilizing cloud computing This partnership aims to enhance the application of Microsoft's comprehensive technology and solutions, thereby optimizing the deployment of examination, diagnosis, and treatment services at the hospital.
In March 2014, the Ministry of Information and Communications (TT & TT) of Vietnam signed a Memorandum of Understanding with Microsoft to establish a long-term partnership aimed at achieving shared objectives The collaboration focuses on four key areas: modernizing IT infrastructure, enhancing security and network protection, advancing cloud computing applications, and developing IT human resources in Vietnam, including expertise in infrastructure, security, and software application development This agreement also involved cooperation with the Vietnam Computer Emergency Response Center (VNCERT) to bolster cybersecurity initiatives.
A cooperation agreement has been signed with the Vietnam Information Security Association (VNISA) to enhance information security and safety in Vietnam This agreement signifies a significant advancement in the long-term collaboration between the two parties, aiming for more concrete, effective, and practical efforts to develop a secure and healthy IT industry in the country.
- Signed a cooperation agreement with Viettel Group in September 2014: to improve cloud-based
Microsoft and Viettel Group have partnered to deliver comprehensive cloud computing infrastructure and services to Vietnamese government agencies and ministries This collaboration encompasses a range of offerings, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS) for effective cloud service management.
In August 2014, a Memorandum of Understanding was established between the Department of Information and Communications of Ho Chi Minh City and relevant stakeholders to advance the Smart City model, CityNext This collaboration focuses on key areas such as developing IT infrastructure for Smart Cities, enhancing information security, and fostering cloud application development Additionally, it emphasizes the training of IT personnel, implementing e-government management applications in socio-economic sectors, promoting the growth of the Information Technology and Electronics Industry in Ho Chi Minh City, and raising awareness of Intellectual Property rights compliance.
Strengthening partner channel in Vietnam
- May 2016: FPT International Telecommunications Company (FTI, under FPT Telecom) was granted the Gold Partner Certificate by Microsoft for providing Cloud solutions and services in Vietnam.
In June 2015, Microsoft Vietnam and CMC Telecommunication Infrastructure Joint Stock Company established a strategic partnership by signing a Memorandum of Understanding, which designates CMC Telecom as a key provider of Microsoft's Level I cloud computing services in Vietnam.
In June 2013, Microsoft Vietnam and HPT Information Technology Services Joint Stock Company signed a significant agreement to enhance the development of software and IT services for businesses This partnership aims to provide substantial benefits to their customers and the broader domestic business sector As a result of this collaboration, HPT has become Microsoft's sole strategic partner in Vietnam for optimal software and IT services, recognized as a National System Integrator (NSI) Under this agreement, Microsoft will serve as a senior advisor and trusted strategic technology partner to HPT, facilitating the advancement of software and services for enterprises.
In September 2013, Microsoft appointed Petrosetco as its distributor for equipment, solutions, and technology products in the Vietnam market This partnership marked Petrosetco's official role in distributing a wide range of Microsoft's comprehensive technology products and solutions across Vietnam, Laos, and Cambodia.
In December 2014, Microsoft and Mobile World entered a strategic partnership to advance their 'Cloud First, Mobile First' technology initiative This agreement focuses on delivering high-quality genuine products to Vietnamese consumers, marking a significant step towards enhancing the availability of authentic, copyrighted products in the market The collaboration aims to provide consumers with superior experiences and competitive offerings, reflecting a commitment to effective and practical solutions in Vietnam's technology landscape.
First Microsoft Press Day in Vietnam
In October 2013, a significant event titled "Experience a Big World" took place in Da Nang, Vietnam, gathering reporters, journalists, and news agencies nationwide The event showcased the new operating system, Windows 8.1, highlighting Microsoft's dedication to advancing the PC revolution and enhancing productivity for tablets and mobile devices Attendees were engaged by concise presentations and compelling product demonstrations, exploring the Windows ecosystem, including Windows Phone 8 and Microsoft Office 2013 The new Windows 8.1 management system was presented through various partners, including Sony, Asus, HP, Lenovo, and Nokia, emphasizing its versatility and innovation.
Signing a Cooperation Agreement with the Ministry of Education and Training: In