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    Microsoft Cash Flow Statement Solution

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    Daniel Tda
    Microsoft's 2010 cash flow statement shows that it generated $24.1 billion in cash from operations, exceeding its $11.3 billion used in investing activities. It reflected excess tax benefits from stock-based compensation in both operating and financing activities. Microsoft repurchased $11.3 billion of its own shares to increase shareholder value. The final net cash movement was a use of $571 million as Microsoft held a large cash balance and participated in financing activities to restructure its capital position for future stability.

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    Microsoft Cash Flow Statement Solution

    Uploaded by

    Daniel Tda
    42 views2 pages
    Microsoft's 2010 cash flow statement shows that it generated $24.1 billion in cash from operations, exceeding its $11.3 billion used in investing activities. It reflected excess tax benefits from stock-based compensation in both operating and financing activities. Microsoft repurchased $11.3 billion of its own shares to increase shareholder value. The final net cash movement was a use of $571 million as Microsoft held a large cash balance and participated in financing activities to restructure its capital position for future stability.

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    cashflow

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    Microsoftcashflowstatementsolution-1454544831765

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    Microsoft's 2010 cash flow statement shows that it generated $24.1 billion in cash from operations, exceeding its $11.3 billion used in investing activities. It reflected excess tax benefits from stock-based compensation in both operating and financing activities. Microsoft repurchased $11.3 billion of its own shares to increase shareholder value. The final net cash movement was a use of $571 million as Microsoft held a large cash balance and participated in financing activities to restructure its capital position for future stability.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    42 views2 pages

    Microsoft Cash Flow Statement Solution

    Uploaded by

    Daniel Tda
    Microsoft's 2010 cash flow statement shows that it generated $24.1 billion in cash from operations, exceeding its $11.3 billion used in investing activities. It reflected excess tax benefits from stock-based compensation in both operating and financing activities. Microsoft repurchased $11.3 billion of its own shares to increase shareholder value. The final net cash movement was a use of $571 million as Microsoft held a large cash balance and participated in financing activities to restructure its capital position for future stability.

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    Microsoft cash flow statement solution

    Attached is Microsoft’s 2010 comparative cash flow statement. Using the information found on
    the cash flow statement, answer the following questions.

    1. Why is the deferral of unearned revenue and recognition of unearned revenue included in
    the adjustments to reconcile net income to net cash from operations?

    The unearned revenue item adjustments are made to reflect the actual cash flows
    from revenues. Unearned revenue is an accrual based accounting adjustment,
    where revenues that are collected but are not earned are not recognized as
    revenue and therefore is not included in net income until a later date. Because net
    income is the starting figure, adjusting these amounts on the statement of cash
    flows is done to include the revenue received but not yet recorded in the income
    statement.

    2. Has Microsoft generated enough cash from operations to fund its operating activities?

    Yes. Microsoft generated $24,073million compared to its investing activities


    of $11,314million. After investing activities, it has $12,759million remaining.

    3. Why does Microsoft show excess tax benefits from stock-based compensation in both its
    operating activities and its financing activities?

    The excess tax benefits are reflected in net income, and are considered a cash
    item. However, as the tax benefits are related to the stock/shares of the company,
    they are more accurately reflected as a financing activity rather than an operating
    activity.

    4. What was the cash value of common stock repurchased by Microsoft in 2010? Why would
    Microsoft repurchase its shares?

    The cash value of common stock repurchased in 2010 was $11,269million. When
    a company has excess cash, it is not uncommon for it to repurchase its own shares
    as a way of reducing its equity (ie, reducing the number of shares held by the
    public) and increasing the value of its equity for existing and future investors (as
    earnings per share will increase due to the lower number of shares outstanding).

    Corporate Finance Institute Page • 1


    5. What was the final net cash movement for 2010? Why do you think Microsoft had this
    result?

    The final cash movement was a use of $571million. If you look at Microsoft’s cash
    balance, it is holding a significant amount of cash and cash equivalents
    ($5,505million in 2010). Therefore, it participated in more financing activities to
    restructure its capital (less equity, slightly more debt) to help it remain financially
    stable in future years.

    Corporate Finance Institute Page • 2

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