THE BUSINESSWEEK 50 RANKINGS + 25

63

Microsoft

Microsoft has been an incredible profit engine, raking in some $12 billion in net income in fiscal year 2005 and again in 2006. But that didn’t seem to matter to investors. Its stock was stuck in a narrow price range in the mid-20s. Now, it seems, the winds are shifting. Its new operating system for PCs, Windows Vista, is out after a five-year wait, and analysts are high on the stock, with their average 12-month price target coming in at $35. Earnings forecasts are so buoyant that CEO Steve Ballmer cautioned analysts at a briefing on Feb. 15 that their expectations for sales next year of upgrades of Vista are “somewhat too bullish.” While Microsoft’s core PC software sales are robust, it faces challenges in online services, where its revenues are lagging, and in the video game market, where Nintendo’s Wii console has come on strong.

Overall Grade

A-

Market Data

MSFT

Market Value
(2/28/2007)

$275.4 Billion

Profitability*

34.0%

A

Sales Growth Rate**

10.1%

C

12-Month Sales

$46.1 Billion

12-Month Net Income

$11.9 Billion

Total Return Past 12 Months

6.4%

Past 36 Months

22.3%

Economic SectorInformation Technology
IndustrySystems Software
The overall sector letter grade reflects how the weighted average of the return on income, or return on equity, and sales growth grades compare with others in the same sector. For the overall grade as well as the ROE/ROI and sales growth grades, an "A" places a company in the top 7% of its sector and an "A-" in the top 14% of the sector. The actual ranking was done using the underlying numerical measures. Grades are for information only.
* For nonfinancial companies, three-year average pretax operating profit before interest and special items as a percentage of average invested capital. For financial companies, pretax profits as a percentage of average shareholder's equity.
*Three-year average annual sales growth based on the most recently reported 36 months, calculated using the least-squares method.

Steve Ballmer

Steve Ballmer, 50

CEO since 2000


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Data as of 2/28/07 provided by Standard & Poor's Compustat