Report Published as on 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 | 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. |
| $ 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% | – | – |
Non-operating Revenue in Millions of USD – Other Income
| Total Revenue | $ 1,25,843.00 |
| Non-permissible Operating revenue | $ 2,003.94 |
| % of non permissible revenue | 1.59% |
| 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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