Shariah Stock Status report of Microsoft Corporation on 16th July 2020
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Shariah Stock Status Report :: MICROSOFT CORPORATION :: USA :: NASDAQ :: 2nd March 2021

TICKER

MSFT

Company Name

Microsoft Corporation

Shariah Compliance

COMPLIANT

DP RATIO

3.38 %

Business sector screening:

Microsoft Corporation Is an American Multinational computing conglomerate at the forefront of the global IT infrastructure market. The company derives revenues from the following areas:
Software: Consisting of Windows Apps, OneDrive, outlook, Skype etc.
PCs and Devices: Consisting of PCs and Tablets, Xbox
Entertainment: Consisting of gaming products
Business products: Consisting of Azure, Microsoft 365, Data Platform, Advertising and Licensing of softwares
Developer & IT: Consisting of .NET, Visual studio, Windows server, Windows Server
Others: Free products and educational content

The tricky areas from a Shariah perspective are:
Gaming: If they are producing gaming content classified for Mature or Adult audiences having themes such as Sex, nudity, Gory content, strong language etc.
Advertising: The kind of advertising services provided i.e. textual, pictorial, marketplace model with controls or generic advertising properties.

Since the revenue from non-permissible operating income of the company is less than 5%, MICROSOFT CORPORATION PASSES the BUSINESS SECTOR Screening

Segment break up

Operating Revenue in Millions of USD for Year. ended 30th June 2019

Segment Description

Segment Revenue

Non-permissible Revenue

% non-permissible revenue

Non - permissible segment classification

Comments

Server products and cloud services

$ 41,379

Office products and cloud services

$ 35,316

Windows

$ 22,294

Gaming

$ 11,575

$ 2,037

17.60%

Possible Adult content

There is no detailed revenue break up of revenue from gaming classified by its Maturity ratings. An email to Microsoft Investor relations received a response (on 23rd April 2020) stating they will not be able to disclose anything accept what is already disclosed in the Annual report (10K). Hence an alternate mechanism was used to ascertain non-permissible revenue from this segment. The Company has 1702 games listed on its website. Out of those 300 have been given an IARC rating of 17+. That would mean 17.60% of games are classified as 17+. Hence, we have considered 17.60% of revenue to be non-permissible.

Search advertising

$ 7,740

This segment consists of MSN advertising including both native and display ads. Since this is operated on the principle of an automated ad exchange with content regulation, it is deemed a permissible revenue stream.

LinkedIn

$ 8,077

Enterprise Services

$ 6,409

This segment has software sales to financial services firms. But since software is a neutral product, this is not considered Shariah non-permissible as per the rules of Islamicly Shariah board.

Devices

$ 6,457


Other

$ 3,768

TOTAL

$ 143,015

$ 2,037

1.42%


Total Revenue

$ 1,25,843.00

Non-permissible Operating revenue

$ 2,003.94

% of non permissible revenue

1.59%

Sector Compliance

PASS

Non-operating Revenue in Millions of USD - Other Income

Segment Description

Segment Revenue

Non-permissible Revenue

% non-permissible revenue

Non - permissible segment classification

Comments

Interest and dividends income

$ 2,680

$ 2,680

100%

Interest Income


Interest expense

-$ 2,591

Net recognized gains on investments

$ 32

$ 32

100%

Conventional investment income

Net gains (losses) on derivatives

$ 187

$ 187

100%

Conventional investment income

Net losses on foreign currency remeasurements

-$ 191

Other, net

-$ 40

TOTAL

$ 77

$ 2,899

Dividend Purification calculation

Revenue Description

Non permissible Revenue (millions of USD)

Non-permissible operating revenue

$ 2,037

Non-permissible non-operating revenue

$ 2,899

Total Non-permissible revenue

$ 4,936

Total Revenue of the Company (Gross)

$ 145,914

Dividend purification ratio

3.38%

Financial Ratio Screen:

(All figures in millions of USD for Period ended 31st December 2020)

Particulars

Amount

Remarks

3 years Average Market

$ 1,133,747

Total Debt

$ 72,041

Islamic Debts

Adjusted Debts

$ 72,041

LC1 Ratio

6.35%

- Within limits

Cash

$ 131,968


CC2 Ratio

11.64%

- Within limits

Accounts Receivables

$ 27,312


CC1 Ratio

2.41%

- Within limits

Since all the Ratios are within the limit, the stock passes the Financial ratios screen

Source:
All the above information is based on the website of the company and Annual financial report for June 2020.
Conclusion:
Given the above information, we believe MICROSOFT CORPORATION is a Shariah Compliant company as per the Shariah screening Criteria.

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