Microsoft Corp Current Debt

MSFT Stock   32.50  0.98  3.11%   
The current year's Long Term Debt is expected to grow to about 45 B, whereas Net Debt is forecasted to decline to about 10.7 B. . Microsoft Corp's financial risk is the risk to Microsoft Corp stockholders that is caused by an increase in debt.
Given that Microsoft Corp's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Microsoft Corp is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Microsoft Corp to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Microsoft Corp is said to be less leveraged. If creditors hold a majority of Microsoft Corp's assets, the Company is said to be highly leveraged.
As of June 13, 2024, Total Current Liabilities is expected to decline to about 89.5 B. In addition to that, Non Current Liabilities Total is expected to decline to about 86.8 B
  
Check out the analysis of Microsoft Corp Fundamentals Over Time.

Microsoft Corp Total Assets Over Time

Microsoft Corp Assets Financed by Debt

Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Microsoft Corp's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Microsoft Corp, which in turn will lower the firm's financial flexibility.

Microsoft Net Debt

Net Debt

10.72 Billion

At present, Microsoft Corp's Net Debt is projected to decrease significantly based on the last few years of reporting.

Understaning Microsoft Corp Use of Financial Leverage

Microsoft Corp financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Microsoft Corp's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Microsoft Corp assets, the company is considered highly leveraged. Understanding the composition and structure of overall Microsoft Corp debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it. Financial leverage can amplify the potential profits to Microsoft Corp's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Microsoft Corp's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Last ReportedProjected for Next Year
Net Debt11.3 B10.7 B
Long Term Debt37.8 B45 B
Short and Long Term DebtB5.4 B
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Other Information on Investing in Microsoft Stock

Microsoft Corp financial ratios help investors to determine whether Microsoft Stock is cheap or expensive when compared to a particular measure, such as profits or enterprise value. In other words, they help investors to determine the cost of investment in Microsoft with respect to the benefits of owning Microsoft Corp security.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.