...Introduction Microsoft, founded by Bill Gates and Paul Allen in 1975, is unmistakably the most widely recognised software developer in the world. It came up with MS –DOS in 1980 and provided it as an operating system for IBM’s new personal computers. The company went public on March 13, 1986 at $25.75 per share and as of June 30, 1999, one share was almost worth $13000. The company had the highest market value of approx. $460 billion in 1999. The revenue and operating income grew an avg. of 43% and 49% per year respectively. However, Microsoft has always been conservative in its accounting choices. This case explores Microsoft's overall financial reporting strategy by examining the company's treatment of two accounting issues--software capitalization and revenue recognition. For both issues, the company selects accounting methods that are relatively conservative. It also discusses the issue of managing analysts' expectations and Microsoft's tendency to provide analysts with very conservative expectations for the future. Ultimately, it provides a forum to discuss possible reasons for Microsoft's accounting and disclosure choices and also discusses the Securities and Exchange Commission's investigation (in 1999) into Microsoft's accounting practices. Accounting Strategy for Software Development Cost During the period 1986-1999, Microsoft’s annual outlays for research and development ranged from 11% to 17% of revenue. The research and development costs are expensed as incurred...
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...controversial accounting issue in the software industry—software capitalization and revenue recognition • Discuss various incentives that motivate managers to select one accounting method over another • Learn how to use accounting analysis method to better reflect economic reality Microsoft’s Financial Reporting Strategy Introduction • Phenomenal financial success over the past years Founded in 1975 by Bill Gates and Paul Allen Went public in 1986 at $25.75 per share. Revenue and operating income grew an average of 43% and 49% per year. Stable growth in stock price ( Exhibit 5 ) Report higher than expected financial performance Asset totaling $37 billion,book value of equity equal to $28 billion and market value about $460 billion on June 30,1999. Microsoft’s Financial Reporting Strategy Introduction • Conservative accounting policies GAAP allow managerial discretion in accounting policies In two key areas, Microsoft choose a rather conservative method of reporting (1) Software development costs (2) Revenue recognition Microsoft’s Financial Reporting Strategy Software development costs • FASB’s guideline (SFAS NO.86) Require capitalization once technological feasibility has been established. • Microsoft’s policy Expensed as incurred FASB’s guideline does not materially affect the company • Note From 1986 to 1999, annual outlays for R&D ranged from 11% to 17% of revenue.(Exhibit 2) Microsoft’s Financial Reporting Strategy Software revenue recognition • Guidance on the...
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...The first case Microsoft’s Financial Reporting Strategy Brief Summary Under the background that Microsoft Corporation announced to be under investigation by the Securities and Exchange Commission (SEC) for certain accounting practices, this case explores the Microsoft’s financial reporting strategy related to two policies through two accounting issues – software capitalization and revenue recognition. Analyzing the performance of its stock, annual income statement, balance sheets, cash flow and some other data, the company was found that it selects relatively conservative accounting methods. In addition, it discusses the issue of managing analysts’ expectations and the reasons why Microsoft choose conservative strategy. Furthermore, it talk about the related practices of the investigation held by the SEC. Capitalization policy When we talk about the capitalization policy, we suppose that, ignoring any potential tax effects, Microsoft start to capitalize 70% of its R&D reported expenses after technological feasibility was established and the average life was two year. Exploring the capitalizing R&D Expenses on Microsoft’s fiscal 1997, 1998 and 1999, it is required to collect research and development expenses from prior years, with the number of years of historical data being a function of the amortizable life. The following table provides this information for each of the years and the procedure of estimating the value of the research asset, and the amortization...
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...Building Your |Chapter 4 – Brain Teasers: Using|Chapter 5 – Cases to Accompany | |Financial Accounting Research |Business Vocabulary: Defining |FARS to Untangle the Mystery |FARS [Related Assignments at End| |System (FARS) Through Cases 2nd |Terms and Solving Problems |[See Introduction and Example |of Cases] | |Edition by Wallace [Chapter 1 |Through FARS [See Introduction |pp. 4-1 to 4-7] | | |and 2 where noted] |and Example pp. 3-1 to 3-7] | | | |FASB, Standard Setting; GAAP; |Table 3.1 Accounting Standards; |1: How Many Standards Have Been |Case 12: Emerging Issues: The | |Governance; FARS [Chapter 1 – |Table 3.39 Regulated Industry; |Issued by FASB?; 2: Dissents |Agenda of FASB; [Case 8 Related:| |The Financial Accounting |Table 3.40 Specialized Industry |Portending Future?; 32: What |Does It Matter Where Guidance Is| |Research System (FARS) Primer.] |Considerations |Makes One GAAP Preferable to |Located?]; [Case 12 Related: Are| | | |Another?; 30: When Can Analogies|Accounting Rules to Blame?] | | | |Be Used?; 31: What Are the 10 | | | | ...
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...Strategic Initiative Microsoft The beginning of the computer generation started in 1975 with Paul Allen and Bill Gates. Throughout the years the company has developed into one of the top leading company within the computer, IT, gaming system, and music environment. With any major company its progress is the development of a strategic plan implemented into the development and increase of revenues. For a Microsoft the profit margins have developed and improved through the years alone with it is planning and developing products. The discussion of Microsoft’s strategic planning, financial planning, and the risks the business takes to increase it financial gains. Strategic Planning Microsoft has witnessed important progress up until fiscal year 2012 in terms of revenue, cash flow, and ensuring the liquidity of its assets to reassure investors over their interests. The Microsoft Investor Relations Annual Reports (2013) website states that the fruition of Microsoft’s performance manifested in the past few years with its continual revenue growth, which rose 12% from 2010 to reach $69.9 billion in 2011, and continued to rise to a record $73.7 billion in 2012. Furthermore, cash flow from operations went up $2.9 billion in the 2011 fiscal year to reach $27 billion, and climbed another $4.6 billion to reach $31.6 billion in fiscal year 2012. The Microsoft Investor Relations Annual Reports (2013) website states that the measures taken to facilitate liquidity proved to be...
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...Microsoft greatly impacted the way people around the world used computers, and created the goal for every desk in every home to have a computer. A large part of their plan to accomplish this goal was through hiring the smartest and most motivated employees. Steve Ballmer, the company’s COO, was quoted as saying “We want smart people, who work hard, and who get things done.#” To get the best employees, you have to offer the candidate something enticing. Microsoft saw their benefit as giving employees the opportunity to change the way people live and do business, and in turn, change the world. They recruited from the top schools, and when they saw a candidate they liked, they got them. Microsoft was an intense culture, who pushed their employees to be the best. However, as Microsoft matured and experience changes in their company due to explosive growth, they found it increasingly hard to and retain and motivate the extraordinary people that had worked their way up to senior levels within the company. In Microsoft’s early days, they experienced the benefits of being one of the leaders in technology advancement. One of their best attributes was their reputation that made it appealing to top new developer candidates. Microsoft preferred creative, smart and motivated individuals to experienced and knowledgeable candidates when recruiting for new hires. They therefore recruited the top talent of top universities like Harvard, MIT and Yale. They looked for individuals...
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...The University of Illinois Executive MBA Case Summaries Accy 401, EMBA; Fall 2000 Accounting courses are usually separated into five general categories. Two, taxes and auditing, are usually quite technical and often focus on CPA preparation. The other three categories are more general: 1. Financial accounting deals almost strictly with financial statement preparation. It focuses on pronouncements issued by the Financial Accounting Standards Board (FASB) and the SEC, and on accounting concepts such as materiality, matching revenues and expenses, relevance, and consistency. It also considers highly technical details about consolidated financial statements, leases, pensions, income taxes, and inventory valuation methods that are often found on the CPA exam. 2. Financial accounting from a management perspective covers many of the same topics as financial accounting but it does so from the view of a manager using financial accounting information to help make decisions or to report an organization’s performance to others. This is the typical focus of an MBA financial accounting course, or a financial accounting course in a non-degreed program for executives. It is the primary focus of Accy 401, EMBA. 3. Cost and managerial accounting deals almost exclusively with accounting as a tool to help manage and understand a business. These courses focus on areas such as fixed and variable costs, how costs behave over time (e.g., the learning curve), cost...
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...Organizational Analysis Microsoft is a technology leader focused on helping people and businesses throughout the world realize their full potential. Microsoft Vision According to the Microsoft web page global diversity and inclusion are integral parts of Microsoft’s vision, strategy and business success. In essence is the recognition of the fact that leadership in the global market place requires a corporate culture and business environment where the best and brightest diverse minds with varied perspectives, skills and experience work together to meet the consumers demand. This culture attracts, develop and retain the best talents out there. It also aids Microsoft to be more innovative in developing their products and services and lastly but not the least serve the needs of an increasing global and diverse customer and partner base.[1] According to Steve Ballmer CEO Microsoft has its vision as “to help people and businesses throughout the world realize their full potential.” The animating vision for the company is not to build a brand new world; it is simply, to build Microsoft. Microsoft Mission Microsoft has its mission as to provide full commitment to its customer. They deliver this by striving to create technology that is accessible to everyone of all ages and abilities. Microsoft is one of the industry leaders in accessibility innovation and in building products that are safer and easier to use. Values/Philosophy Microsoft as a company, and individual, value integrity...
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...INTRODUCTION: 3 II. ANAYLYSIS OF INDUSTRY AND NINTENDO COMPANY: 3 1. Industry circumstances: 3 2. Key success factor: 3 3. Competitively important resources and capabilities of Nintendo: 4 III. ISSUES AND RECOMMENDATIONS FOR NINTENDO: 6 Table of Figure Figure 1: Estimated Industry Revenue by Platform Holder 8 Figure 2: Estimated Console Software Dollar Sales 8 INTRODUCTION: This paper will provide a general look inside the market supremacy in the console segment of the video game industry. It also shows the strategic issues and recommendations for Nintendo company. ANAYLYSIS OF INDUSTRY AND NINTENDO COMPANY: 1. Industry circumstances: Sales of video game consoles, software, and accessories reached a record high of $23.1 billion in 2008, which was 19 percent greater than 2007 industry revenues. Growth in the industry had fluctuated significantly over the past few decades and had been driven by technological and society trends, among other factor. Despite the increasing intensity of competition, the video gaming industry as a whole had continued to grow through the end of 2008 in the face of the downturn in the general world economy. However, as the recession lingered into 2009, the video game industry became affected, with industry revenues declining from $1.7 billion recorded in June 2008 to $1.2 billion in June 2009. Sales of consoles were affected...
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...The simulation positioned users of the software as a CEO of East-West Transportation a freight transportation company. The simulation took users through each division of the company, that if which being Consumer Goods, Coal, Chemical, and Forest Products. The simulation aided in the differentiation between the four market structures. It also taught students to identify and interpret cost and revenue curves for each market. The Consumer Good’s Division of East-West Transportation Inc operates as a perfect competitive market. A perfect competitive market structure has “a large number of buyers and sellers” (Colander, 2004). With this type of market structure, no company controls the market price. The CEO develops the market price to determine the output of production to maximize profits. The CEO, implements the output where MR equals MC. Therefore, the profit maximizes at a point where P equals MR equals MC. The CEO evaluates the study and determines at this point, East-West Transportation Inc will continue to operate. Even with losses at every level of production, the continuation of production allows the company to recover the variable costs but not fixed costs. Shutting down the operations the company would incur losses equal to the fixed costs, which is higher than the continuation of production. The Coal Division of East-West Transportation Inc is a “regional monopoly” (University of Phoenix, 2009). A monopoly structure firm has control over setting prices and therefore...
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...be valid. Our assumptions are as follows: The technology industry is in a state of flux with the duration of the above listed items completely mismatched within companies. The mismatched time horizons are causing more volatile stocks, stemming in part from, less stable financial performance for software companies. We believe that faster development cycles and Internet-based distribution channels have accelerated parts of the business, while R&D cycles and contract duration have not yet been adjusted - or even recognized as an issue within many companies. Below are the specific areas we would like to have addressed in an MBA research project: POTENTIAL RESEARCH TOPIC #1 Does rapid implementation and niche software solutions lead to accelerated market penetration and faster "time to peak" revenue performance for today's young software companies? HERE IS OUR PREMISE It is our contention that investors are constantly "looking for the next Microsoft" by chasing rapidly...
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...Dramatically, on August 8, the day before the IPO, Netscape's lead IPO underwriters recommended to the Netscape board to increase the initial offering price to $28 per share from $14 per share, a 100% increase. At this new offering price, the Netscape's value would suddenly climb to more than $1 billion, which when held together with their 1995 revenue of some $16 million, to many seemed like a very optimistic firm value. Furthermore, the company was only 16 months old and had yet to turn a profit. The big question was: What yearly revenue growth rate is needed to support a firm value of $1 billion and an IPO price of $28 per share, and is this growth rate realistic? To answer this question we have performed NPV analysis for the period 1995-2005 based on Netscape's income statement and balance sheet for 1994/1995 together with a number of assumptions stated later in the text. We found that a yearly revenue growth of 59.4% was necessary to justify an IPO price of $28 per share and thereby a firm value of $1 billion. Even if Netscape was the indisputable leader of its kind in 1995 the number of competitors was on a steady rise. Microsoft, the most notable of these competitors, was only weeks away from launching their now famous Windows 1995 operating system which included an integrated and rivaling browser when Netscape went public in August 1995. Moreover, online computer service providers like America Online and Prodigy had created their own independent browser systems. Growing...
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...two college drop out students: Steve Wozniak and Steve Jobs with the motto of “Think Differently”. In the early 1980s, Steve Wozniak left the company and Steve Jobs hired John Sculley as the President of the company. After facing many failures, Apple launched its Macintosh computers for house hold users. In mid 1980s, Steve Jobs had to leave the company because of his controversial relations with the president. At that time John Sculley rejected the offer of Microsoft‘s CEO, Bill Gates to license the Macintosh operating system to Microsoft. After this refusal, Gates developed DOS operating system and in late 1980s, the competition between DOS and Macintosh decreased Apple’s sale, workforce and resignation of John Sculley. So, Apple’s current CEO planned to purchase NextStep operating system of Jobs in order to improve the Macintosh operating system. In late 90s Jobs again became the CEO of the company and be started surprising relations with Microsoft by developing a Macintosh version of office software. Apple also took cost saving measures like streamlining the product line, production of printers. Steve Jobs brought Apples’ focus on two concepts of consumer series with the prefix “I” for internet like iMac, iBook laptop and professional with prefix “power” such as PowerMac desktop and PowerBook laptop series. Under Jobs, Apple again becomes the innovator of computer market. His leadership leads the company to USB and Firewire ports, introduction of iPod and iTunes website put...
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...pressures within the internet and technology industry. Google must remain a differentiator among competitors to retain market share. The evolution of “search” capabilities on the internet has been the driving force from the beginning. In 2012 Google is the leading search firm with nearly ‘67% market share in search from home and work and 95% market share performed from mobile devices’ (Thompson, et al, 2013). For Google to remain profitable is to focus on the key business model that is still driving hard revenue and to reach into those verticals that are working, while leaving the losers behind. In the year of 2012 Google captured 67% of search in the U.S., with 29% of the balance going to Yahoo and Microsoft. Advertising revenues from search drove over $36 billion of $37 billion total net revenues in 2011. SWOT (strengths, weaknesses, opportunities, threats) analysis provides us with a clear understanding of how Google might best utilize their resources with regards to their revenue sources. Corporate responsibility has always identified Google with a young vibrant culture of “techies” that appreciated the distinction of Google from the rest of...
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...to going down in Q1, 2012. The main reasons include a fight with Apple on smartphone IP, the market reaction on the integration of the main OS suppliers (Android of Google and Microsoft Mobile) with cellphone manufacturers (Motorola and Nokia), and the launching of a new category of handset device, the tablets. Since those challenges, Peter Chou, the HTC´s CEO, recognize that is the moment to make important decisions in order to compete successfully and sustainably in the competitive mobile devices market. Among the HTC´s issues that Chou hope to resolve are: How to differentiate its strategy in a sustainable way?, What actions and strategy follow in order to manage uncertainty and to anticipate the changes of the acquisition of Motorola by Google and the alliance Microsoft-Nokia?, Will they need to develop their own OS or license another from the market?, How compete in the market of tablets? How important is for the company be leader in tablet?, and How face the Strategy IP be moving forward? Problem: HTC is a well know Taiwanese company, recognized as one of the best handset hardware manufacturer. At the beginning they were producing handset for well-known companies such as Microsoft, Compaq, Handspring (Treo) and even Google. Later they focused in carrier operators in the US, Europe and Asia. In the last few years they were trying to introduce their products...
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