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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Frank Ellis Morris who wrote (36884)	1/19/2000 8:18:00 PM
From: johnd	Read Replies (2) \| Respond to of 74651

I think Microsoft's increasing flow ratio could be part of the problem. Here's a look at Microsoft's flowie history for the past two years: 12/99 0.40 9/99 0.37 6/99 0.34 3/99 0.29 12/98 0.34 9/98 0.27 6/98 0.34 3/98 0.29 12/97 0.34 9/97 0.31 As you can see, the direction of Microsoft's flowie has turned eerily upward in the past few quarters. The root problem appears to be receivables. Accounts receivable have been growing faster than sales for more than a year now. As I've explained in the past, a rising flow ratio causes operating cash flow to suffer. Take it one step further, and you can see that a rising flow ratio directly impacts (negatively) free cash flow. That's not good, folks. At this point, this matter isn't of grave concern. But it is something to keep our eye on in future quarters. Another factor that might have weighed on the stock today was the heavy dose -- $773 million -- of investment income that was included in Microsoft's bottom line. Three months ago, Microsoft's guidance called for about $400 million in investment income, so this number came in much higher than expected. At $773 million, investment income made up nearly 32% of this quarter's net income. Most investors would prefer to see Microsoft making its profits from software sales rather than stock trading. Between the rising flow ratio and the higher-than-expected investment income, I think the flow ratio is of much greater concern. Let's keep our eye on those receivables in the quarters ahead. To get the Microsoft earnings from the horse's mouth, including the earnings release and conference call replay, head over to the Microsoft Investor Relations website.