Interpreting an Income Statement Microsoft Corporation”s 2002 annual report included the following income statement information.
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Microsoft Corporation |
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(In millions, except earnings per share) |
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Year Ended June 30 |
2000 |
2001 |
2002 |
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Revenue |
$22,956 |
$25,296 |
$28,365 |
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Operating expenses: |
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Cost of revenue |
3,002 |
3,455 |
5,191 |
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Research and development |
3,772 |
4,379 |
4,307 |
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Sales and marketing |
4,126 |
4,885 |
5,407 |
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General and administrative |
1,050 |
857 |
1,550 |
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Total operating expenses |
11,950 |
13,576 |
16,455 |
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Operating income |
11,006 |
11,720 |
11,910 |
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Losses on equity investees and other |
57 |
159 |
92 |
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Investment income (loss) |
3,326 |
36 |
305 |
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Income before income taxes |
14,275 |
11,525 |
11,513 |
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Provision for income taxes |
4,854 |
3,804 |
3,684 |
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Income before accounting change |
9,421 |
7,721 |
7,829 |
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Cumulative effect of accounting change |
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(net of income taxes of $185) |
375 |
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Net income |
$9,421 |
$7,346 |
$7,829 |
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Basic earnings per share: |
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Before accounting change |
$1.81 |
$1.45 |
$1.45 |
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Cumulative effect of accounting change |
0.07 |
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$1.81 |
$1.38 |
$1.45 |
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Diluted earnings per share: |
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Before accounting change |
$1.70 |
$1.38 |
$1.41 |
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Cumulative effect of accounting change |
0.06 |
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$1.70 |
$1.32 |
$1.41 |
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Weighted average shares outstanding: |
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Basic |
5,189 |
5,341 |
5,406 |
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Diluted |
5,536 |
5,574 |
5,553 |
Required Ratios often are used to assess changes in financial statement information over time. Use Microsoft”s income statements to answer the following questions. Express your answers as percentages.
A. What was the ratio of net income to net revenues each year?
B. What was the ratio of cost of revenues (cost of goods sold) to net revenues each year?
C. What was the ratio of operating expenses to net revenues each year?
D. What was the percentage change in net income between 2000 and 2001, and between 2001 and 2002? (Hint: Divide the increase in net income from 2000 and 2001 by the net income for 2000.)
E. Did Microsoft”s operating results improve between 2000 and 2001? Between 2001 and 2002? Explain your answers.