Running the Numbers ...

[matthew_heusser at mcgraw-hill.com]

Folks:

  Yesterday, I took a look at Microsoft's financials.

    http://www.microsoft.com/msft/ar.htm#

  I'm going to assume the audience hasn't had any accounting classes,
so if you feel this post is a  bit slow, I apologize.  Anyway, Check this out
...

   Most businesses are sold for considerably more than the sum of thier
assets.  In other words, if you buy a TGIFridays resturant, then try to
sell the building, food, chairs, tables, etc, you'll lose a heap of cash.  This
difference between value of assests and purchase cost is called
GOODWILL, and is symbolized in intangibles - things like the current
customer base, the ability to generate revenue, the "Value" of the
employees (you don't have to spend 2 months hiring employees and
ramping up to speed), the reputation of the establishment in the community, etc.

  On the books, Goodwill is typically depreciated over 40 years.

  According to Microsoft's Year 2000 Annual Report, every share of the
company is worth, in total, about $40 Billion (That's called Market
Capitalization,
or "Market Cap" for those of us trying to sound cool.)

   However, Microsoft has $52 Billion in Assests, about $1 Billion in
Liabilities,
and about $40 Billion in market cap.  (From what I can tell, the assets are
physical assets - buildings, computers, vehicles, and cash in the bank.
They don't seem to put a price on intellectual capital like code, which
could be sold separately.)

   Now, once we take our $52 billion and subtract liabilities, then
we can say that microsoft's total asset value is $51 Billion(*).  But
out Market Cap is only $40 Billion.  That makes MSFT mighty attractive
to a good corporate raider to buy & sell the thing piecemeal, but, more
interesting ...

   It means that Microsoft's total GOODWILL VALUE is NEGATIVE
11 BILLION dollars.  That's right, people think it's reputation, value of
employees, and business model is worth NEGATIVE dollars.  I just
think that's funny.

   If you agree, feel free to circulate this around the internet.   I think this
would make much better spam than the fake virus warnings and mrs.
fields cookie recipies, because I think this one is actually true ...

regards,

Matt H.
(*) - This is a simplification.  The reality is that microsoft has about
3.5 billion in Accounts Recievable [money people owe us], and
if we were to liquidate the company, we'd probably end losing
around 30% of that money to non-payment or collection agencies;
but I'm going to assume we can sell intellectual capital for that much,
or make it up in buildings (which are depreciated even though they
go up in value.)