Risk Analysis: Is Microsoft Corporation a Value Trap or Safe to Buy?
NMS · Technology · Software - Infrastructure
Is Microsoft Corporation a safe investment right now?
Microsoft Corporation's Altman Z-Score of 9.19 places it in the safe zone. Our DCF model estimates intrinsic value at $286.65, suggesting the stock is overvalued by 46%. Moat rating: 4.6/5 stars.
Could Microsoft Corporation go bankrupt? Altman Z-Score analysis
Z-Score of 9.19 is above 3.0, indicating the company is financially healthy by this metric.
- Below 1.8 — Distress Zone (high bankruptcy risk)
- 1.8 to 3.0 — Gray Zone (elevated uncertainty)
- Above 3.0 — Safe Zone (financially healthy)
What drives MSFT's Z-Score?
| Component | Formula | Value | Weight | Contribution |
|---|---|---|---|---|
| A · Working Capital / Total Assets | WC / TA | 0.0673 | 1.2 | 0.08 |
| B · Retained Earnings / Total Assets | RE / TA | 0.3381 | 1.4 | 0.47 |
| C · EBIT / Total Assets | EBIT / TA | 0.1728 | 3.3 | 0.57 |
| D · Market Cap / Total Liabilities | MCap / TL | 12.7511 | 0.6 | 7.65 |
| E · Revenue / Total Assets | Rev / TA | 0.4138 | 1.0 | 0.41 |
How has MSFT's financial health changed over time?
| Year | Z-Score | Zone |
|---|---|---|
| 2016 | 20.85 | Safe |
| 2017 | 16.17 | Safe |
| 2018 | 12.79 | Safe |
| 2019 | 11.92 | Safe |
| 2020 | 11.47 | Safe |
| 2021 | 11.67 | Safe |
| 2022 | 11.26 | Safe |
| 2023 | 11.06 | Safe |
| 2024 | 10.85 | Safe |
| 2025 | 9.19 | Safe |
Source: Calculated from MSFT's latest 10-K filing on SEC EDGAR.
What is Microsoft Corporation actually worth?
What assumptions go into this valuation?
| Parameter | Value | Source |
|---|---|---|
| FCF Growth Rate (Stage 1) | 16.0% | 70% analyst consensus + 30% historical |
| Analyst EPS Growth (This Year) | 22.6% | Consensus (54 analysts) |
| Analyst EPS Growth (Next Year) | 13.1% | Consensus |
| Historical 5Y FCF CAGR | 11.7% | SEC EDGAR |
| Terminal Growth Rate | 2.5% | Long-term GDP proxy |
| Discount Rate (WACC) | 10.1% | CAPM (Rf=4.3% + 1.11*5.5%) |
| Net Cash / (Debt) | $-33,816M | Balance sheet |
| Base FCF (TTM) | $53.6B | Trailing 12 months |
| Shares Outstanding | 7,425,629,076 | Latest |
How sensitive is the valuation to growth rate changes?
| Growth Rate | 8% WACC | 10% WACC | 10.1% WACC | 13% WACC |
|---|---|---|---|---|
| 0% | $116.29 | $85.93 | $84.83 | $62.01 |
| 2.5% | $134.62 | $98.72 | $97.43 | $70.52 |
| 5.0% | $155.66 | $113.34 | $111.81 | $80.19 |
| 7.5% | $184.37 | $132.96 | $131.10 | $92.88 |
What does MSFT's free cash flow history look like?
| Year | FCF | Growth |
|---|---|---|
| 2018 | $25.0B | — |
| 2019 | $31.4B | +25.6% |
| 2020 | $32.3B | +2.8% |
| 2021 | $38.3B | +18.6% |
| 2022 | $45.2B | +18.2% |
| 2023 | $56.1B | +24.1% |
| 2024 | $65.1B | +16.1% |
| 2025 | $59.5B | +-8.7% |
Source: FCF data from SEC EDGAR filings. Price via Yahoo Finance.
Does Microsoft Corporation have a durable competitive advantage?
Moat rating: 4.6/5.
What makes up MSFT's moat score?
ROIC Stability
ROIC variability over the past decade. Score: 4/5.
Gross Margin Trend
Gross margin trajectory over the past decade. Score: 5/5.
Switching Costs
Estimated customer lock-in based on margin level. Score: 5/5.
How stable is MSFT's return on invested capital?
| Year | ROIC | Trend |
|---|---|---|
| 2016 | 22.2% | — |
| 2017 | 13.5% | Declining |
| 2018 | 13.4% | Stable |
| 2019 | 14.5% | Rising |
| 2020 | 16.2% | Rising |
| 2021 | 18.8% | Rising |
| 2022 | 21.6% | Rising |
| 2023 | 25.9% | Rising |
| 2024 | 27.1% | Rising |
| 2025 | 22.9% | Declining |
Source: ROIC calculated from SEC EDGAR filings.
Is Microsoft Corporation's dividend safe?
Can Microsoft Corporation afford its dividend?
Payout ratio is 21.3%. FCF covers the dividend 3.9x. 24 consecutive years of payments.
Microsoft Corporation's key financial metrics
| Metric | Latest | 1Y Ago | 3Y Ago | Trend |
|---|---|---|---|---|
| Revenue | $211.9B | $198.3B | $143.0B | Rising |
| Net Income | $72.4B | $72.7B | $44.3B | Rising |
| Free Cash Flow | $59.5B | $65.1B | $45.2B | Rising |
| Gross Margin | 68.9% | 68.4% | 67.8% | Stable |
Common questions about Microsoft Corporation
Is Microsoft Corporation at risk of going bankrupt?
Microsoft Corporation's Altman Z-Score of 9.19 places it in the safe zone. This metric uses balance sheet ratios to predict bankruptcy probability within 2 years. A score below 1.8 signals distress, while above 3.0 indicates safety.
What is Microsoft Corporation's intrinsic value based on DCF?
Our DCF model estimates Microsoft Corporation's intrinsic value at $286.65 per share. The current margin of safety is -45.9%. This estimate is based on historical free cash flow trends and a risk-adjusted discount rate.
Does Microsoft Corporation have a competitive moat?
Microsoft Corporation receives a moat rating of 4.6 out of 5 stars, based on ROIC stability, gross margin trends, and estimated switching costs. A rating above 3.5 suggests a durable competitive advantage.
Is Microsoft Corporation's dividend safe?
Our dividend safety analysis examines payout ratio, free cash flow coverage, and the company's streak of consecutive dividend payments to determine whether the current payout is sustainable.
Important disclaimer
This is not financial advice. All data is sourced from SEC EDGAR public filings. Always consult a qualified financial advisor before making investment decisions.
Last updated: Apr 20, 2026. Data may not reflect the most recent quarter if SEC filings have not yet been processed.
MSFT analysis methodology: How we calculate fair value, Z-Scores, and moat ratings