Free Cash Flow
A firm's free cash flow can also be a strong indicator of the company's financial position. It reveals how much cash a company has after maintaining or expanding its asset base. In Microsoft's case, the free cash flow fell last year as the capital expenditure of the company almost doubled.
However, despite the fall, free cash flow indicated the company was still generating good amounts of cash. At the same time, this fluctuation suggests the years to come will report higher income levels owing to the investments made at present. This, therefore, suggests the company will be able to sustain the rates at which it has been growing its dividends over the past few years.
Finally, a company's historical trends can help forecast its future performance as well. Since 2003, Microsoft Corporation has been paying dividends each year since 2003 and the payout per share has been increasing for the past eight years.
These trends show dividend sustainability is not an issue for Microsoft, making it an excellent stock for your investment.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MSFT's revenue growth has slightly outpaced the industry average of 11.0%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- MSFT's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MSFT has a quick ratio of 2.31, which demonstrates the ability of the company to cover short-term liquidity needs.
- Compared to its closing price of one year ago, MSFT's share price has jumped by 40.04%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has significantly increased by 61.17% to $9,514.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 39.74%.
- You can view the full analysis from the report here: MSFT Ratings Report