Microsoft Corporation (MSFT)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $33.32 | $32.81 | $32.33 | |
| Terminal Growth% | 0 | $33.52 | $33.01 | $32.52 |
| +1% | $33.73 | $33.21 | $32.71 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $23.14 (overvalued by 0.98%) - 10 hours ago
- babsle16 created a new valuation of $23.76 (undervalued by 7.32%) - 25 days ago
- GordonGekko created a new valuation of $23.15 (undervalued by 22.03%) - 2 months ago
- swampler created a new valuation of $21.71 (undervalued by 10.37%) - 2 months ago
- SethWellbourne created a new valuation of $21.68 (undervalued by 24.03%) - 3 months ago
- savov created a new valuation of $22.46 (undervalued by 22.53%) - 3 months ago
- savov created a new valuation of $22.46 (undervalued by 22.53%) - 3 months ago
- savov created a new valuation of $23.09 (undervalued by 25.97%) - 3 months ago
- rileyj98 created a new valuation of $25.50 (undervalued by 49.47%) - 3 months ago
- afi created a new valuation of $25.48 (undervalued by 53.03%) - 3 months ago
- balli created a new valuation of $25.47 (undervalued by 68.12%) - 3 months ago
- thecatpreacher created a new valuation of $25.47 (undervalued by 68.12%) - 3 months ago
- rs12345 created a new valuation of $15.23 (overvalued by 0.26%) - 3 months ago
- rs12345 created a new valuation of $12.79 (overvalued by 16.24%) - 3 months ago
- rs12345 created a new valuation of $15.23 (overvalued by 0.26%) - 3 months ago
- rs12345 created a new valuation of $15.34 (undervalued by 0.46%) - 3 months ago
- freecashsurfing created a new valuation of $27.14 (undervalued by 37.7%) - 6 months ago
- GordonGekko created a new valuation of $25.34 (undervalued by 32.46%) - 6 months ago
- GordonGekko created a new valuation of $25.79 (undervalued by 25.19%) - 6 months ago
- GordonGekko created a new valuation of $25.26 (undervalued by 27.13%) - 6 months ago
- sridhariyer27 created a new valuation of $24.16 (undervalued by 6.81%) - 8 months ago
- GordonGekko created a new valuation of $30.86 (undervalued by 40.53%) - 8 months ago
- TheCrunchBlog created a new valuation of $30.86 (undervalued by 25.6%) - 9 months ago
- GordonGekko created a new valuation of $32.67 (undervalued by 18.28%) - 9 months ago
- GordonGekko created a new valuation of $31.85 (undervalued by 14.16%) - 10 months ago
- GordonGekko created a new valuation of $28.82 (undervalued by 6.27%) - 1 year ago
- acoy created a new valuation of $25.84 (overvalued by 15.14%) - 1 year ago
- KiwiEMH created a new valuation of $30.46 (undervalued by 1.77%) - 1 year ago
- lancewiggs created a new valuation of $16.30 (overvalued by 45.36%) - 1 year ago
- andrew created a new valuation of $23.54 (overvalued by 22.62%) - 1 year ago
- contrarian created a new valuation of $32.81 (undervalued by 7.75%) - 1 year ago
- KiwiEMH created a new valuation of $34.73 (undervalued by 25.15%) - 1 year ago
- matrixxx created a new valuation of $32.50 (undervalued by 18.14%) - 1 year ago
- GordonGekko created a new valuation of $31.17 (undervalued by 13.3%) - 1 year ago
- TheCrunchBlog created a new valuation of $33.01 (undervalued by 19.99%) - 1 year ago
- KiwiEMH created a new valuation of $27.29 (undervalued by 1.0%) - 1 year ago
- Ashkat created a new valuation of $46.69 (undervalued by 71.09%) - 1 year ago
- KiwiEMH created a new valuation of $27.21 (overvalued by 0.29%) - 1 year ago
- jeremy created a new valuation of $35.04 (undervalued by 15.19%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 194,240 |
| Net Debt (Long-term borrowings less cash): | -23,411 |
| Equity Value: | 256,208 |
| Number of Shares Outstanding: | 9,313,000,000 |
| Calculated value per share: | $33.01 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/07/as-microsoft-assesses-their-options-what-about-the-core/
Microsoft grew revenues from US$36.8 billion in 2004 to US$51.1 billion in 2007 – an 11.5% compound annual growth rate. Our assumptions of revenues for the next three years are US$60.0 billion in 2008 growing to US$74.0 billion in 2010 – a 13.1% compound annual growth rate. We have projected EBITDA margins to be flat at 40%. We have used a terminal growth rate of 4.5%. We calculated this terminal growth rate based on year three growth of 10.4% dropping to a 4% stable growth rate by year 10. We used a terminal capital expenditure number of US$3.0 billion. We have used a WACC (discount rate) of 10.5%. Both the terminal growth rate and WACC have a material impact on the valuation.