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Shariah Stock Status Report :: MICROSOFT
CORPORATION :: USA :: NASDAQ :: 2nd March 2021

Shariah Stock Status Report :: MICROSOFT CORPORATION :: USA :: NASDAQ :: 2nd March 2021 Source: blog.islamicly.com

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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