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| | Microsoft?
Description of the Business
Microsoft sells the Windows Operating System and the Office software. These software products are used all around the World. In addition they are operating the MSN.com website. The Microsoft brand is one of the strongest in the World.
Analysis of Competitors
The main competitors of Microsoft are:
- Google
- Redhat
- SUN
For the XBox the main competitors are
- Nintendo
- Sony
Competitive Advantages
MSFT has the intellectual properties of the Windows operating system and the Office software. This software is used on the majority of PC's all around the world and provides MSFT with a stable cash flow and high profit margins.
Financial Analysis
Their balance sheet is strong. The return on equity is 39% and the return on assets is 21%.
Their net income / tot assets is about 0.23 and their net income/non current assets is 0.45.
These are all indications that Microsoft has a sustainable competitive advantage and they can increase revenue as the number of people around the world using computers is increasing.
Risks
Their main risk is that they have to decrease prices of the Windows and Office software, because of increase competition of open source software or regulatory pressures.
Due to their high profit margins and stable cash flows we assign a low risk rating to MSFT
Valuation Calculation
Their future cash flow value is $20.
Their strong balance sheet provides an additional value of $5 and the intellectual property ownership of the Windows and Offices software has a value of $7 per share.
The total value of MSFT is $32 a share.
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