Financial Perspective

During the course of this class, we have covered and studied Microsoft and IBM from a financial perspective. We have studied their Income and Cash flows statements along with their respective balance sheets. This has allowed us to have a more broad in-depth perspective about the state of current affairs in these companies. Needless to say, these are to two of the worldЎ¦s biggest and more renowned companies and in a sense, role models to follow when it comes to ethics and financial execution.

With this in mind, we now move on to answer a very interesting question, to say the least; which company is better managed from the perspectives of profitability, asset utilization, risk management, cash flow management. We will first examine Microsoft in all of these phases. Microsoft net assets have been declining over the past years mostly impart to upping the expenditure in all fronts of their business. One quick look at their balance sheet and this becomes very, very clear. At the end of their FY Ў¦06 they had $40,104,000 millions in net tangible assets down from $44,307,000 from FY Ў¦05 and down from $71,141,000 from FY Ў¦04. While this decline looks staggering, we would need to closely examine so additional factors to better understand the reason for the decline.

Looking at the income statement we can see that MicrosoftЎ¦s total revenueЎ¦s has increase over the same period of time as well as their Operating income. So, what does this means? Upon a longer revisal of their fiscal report, we can attribute to mainly six factors.

These are:

„X Continuous bigger spending in charities.

„X Avoiding acquiring long term of long term dept, which means paying everything off with their capital. These include acquisitions.

„X Delays in the launch of the Windows Vista operating system

„X Ongoing copyright infringement lawsuits

„X Software piracy

„X Stiff competition in all of their LOB(Line of business)

We will discuss three of these factors in greater detail as these are the oneЎ¦s that affect the four criteriaЎ¦s in our judgment of which company is better managed. First we go over the continuous spending in charities. Microsoft has a strong policy of charity and to give to non profit organizations around the world. It has consistently donated well over 500 million dollars along with time, effort and people from their organization. All of this with full support from Microsoft boards of Directors. This a great cost for even a big company like Microsoft to incur in.

Another truly amazing stat in MicrosoftЎ¦s balance sheet is that they hold zero long term debt. This in simpler words means that all of their profits covert into retained earnings. This is an astounding recurring feat and one that the Microsoft executives deserve a lot of praise for keeping it that way. Last but not least, Software piracy. Microsoft has been battling software pirates from the greater part of the last decade. While it has made some progress and they continue to not to communicate their best estimate, they consistently point us to the instead referring me to piracy cost estimates from the Business Software Alliance, which said companies lost about $34 billion in potential revenue from piracy in 2006. To combat this and in boost windows sales, In a February 16, 2007 article, Microsoft CEO Steve Ballmer revealed to Wall Street analysts that the company might "dial up" the intensity of anti-piracy technology baked into Windows Vista as part of an effort to squeeze more revenue from China, India, Brazil, Russia and other emerging markets.

With these points discussed, we will like the state that Microsoft although it has major problems with software development, piracy, Xbox losses and etcЎK still produces a lot of revenue and more importantly a lot of operating margin. It is still the hands down market leader when it comes to operating systems in the PC market and a powerhouse in the global sense.

Now we move into IBM. This company is easily one of most recognized market brands in corporate America. The Group's principal activity is to provide business and information technology services. The Group operates through five segments: Global Services segment provides IBM software and hardware and global outsourcing services. Hardware Product segment comprises of Systems and Technology Group which provides business solutions requiring advanced computing power and storage capabilities and Personal Systems Group which sells personal computers, business and computing solutions for retail stores. Software segment consists of middleware and operating systems software.