Microsoft DCF Analysis

Use complete fiscal years with comparable cost definitions

Fiscal years ended June 30, 2025 and June 30, 2026. The issuer release labels these statements unaudited and recasts certain prior-period presentation. Amounts use the monetary scale stated in each table caption. Source: annual financial statements. Reported lines retain the issuer’s scope; derived ratios use the displayed denominators.

The fiscal-year labels are not calendar years. Cost of revenue combines product and service costs; gross profit still precedes research and commercial support. A cloud growth assumption should therefore carry both service-delivery costs and the engineering and selling resources required to sustain it.

Depreciation allocates previously funded assets through earnings, while cash property additions fund capacity on their own timetable. Build payment, delivery, commissioning and utilization as separate steps. A later useful-life assumption can change the earnings pattern without reducing the amount originally paid for equipment.

Link segment economics to the capacity case

The same annual results release supplies the recast segment presentation below. These are complete-year results, not the adjacent quarter-only columns.

Do not apply Intelligent Cloud’s growth to every segment or allocate group capex by revenue share without an operating rationale. Capacity funding may precede the revenue it supports, while enterprise billing and collections can follow their own schedule. Reconcile the three segment cases before imposing a group terminal margin.

Trace earnings into cash and reinvestment

Reconciliation source: annual earnings and cash-flow statements. Subtotals below are checkpoints, not extra amounts to add. Grouped adjustments are calculated from the disclosed cash-flow lines.

The operating-balance group includes receivables, deferred/unearned revenue, tax and non-current items. It is not just an ordinary inventory-and-payables adjustment. Unearned-revenue cash timing can support a year’s inflow without proving a higher perpetual operating margin.

The residual is after displayed cash property additions, before other investing or financing. Equipment obtained through leases has a different funding schedule. Reconcile that schedule and the chosen lease convention before calling the result enterprise free cash flow or subtracting debt-like claims in the equity bridge.

Test investment timing against a fixed operating-cash basis

Illustration: increase the FY2026 cash property-payment basis by 5%, holding operating cash unchanged. This isolates a funding stress; it is not guidance about capacity demand, supplier terms or future depreciation.

The immediate cash reduction is $5,797.4 million. Model any later contribution from that capacity and the operating costs it requires rather than treating the investment as automatically value-creating. Conversely, delaying a payment does not establish that the underlying capacity obligation has disappeared.

Keep interim reporting separate from the annual basis

For the separate three months ended June 30, 2026, the July 29 results release reports revenue of $90,007 million and operating income of $40,603 million. These Q4 figures are part of the complete FY2026 total, not an additional period to add or annualize.

The latest released complete reporting period used here is FY2026. A forward valuation should roll the annual closing balances and investment commitments to its stated valuation date, keeping any later operating assumptions separate from these reported results.

Turn the financial basis into a DCF case

Start an enterprise case with operating earnings after explicit operating tax, add appropriate non-cash allocations and deduct reinvestment and operating funding. A reported operating-cash case requires an additional financing and tax reconciliation. The terminal case must fund the capacity and product investment needed for its cloud and productivity growth, rather than inheriting the latest accounting margin without a cash explanation.

The Microsoft company analysis explains the wider operating context. Use the company forecast tool and DCF calculator with explicit assumptions. Use the historical financials to define an explicit operating and reinvestment case, then supply valuation-date capital costs, claims and diluted shares. Check that each cash claim is counted once before deriving a per-share value.