Here is the capital structure of Microsoft. What part of the $117.67 share price (to the nearest dollar) is represented by cash?
a. $21
b. $11
c. $17
The correct answer and explanation is:
To determine the portion of Microsoft’s $117.67 share price represented by its cash holdings, we can follow these steps:
- Identify Total Cash Holdings: As of Microsoft’s latest financial statement, the company reported total cash, cash equivalents, and short-term investments amounting to $107.26 billion. citeturn0search6
- Determine Shares Outstanding: The number of shares outstanding as of October 24, 2024, was approximately 7.434 billion shares. citeturn0search20
- Calculate Cash Per Share: By dividing the total cash holdings by the number of shares outstanding, we get: Cash per share=$107.26 billion7.434 billion shares≈$14.43 per share\text{Cash per share} = \frac{\$107.26\, \text{billion}}{7.434\, \text{billion shares}} \approx \$14.43\, \text{per share}
- Round to the Nearest Dollar: Rounding $14.43 to the nearest dollar gives us $14.
Given the options provided:
a. $21 b. $11 c. $17
None of these options exactly match the calculated $14 per share. However, $11 is the closest to $14.
Explanation:
The cash per share metric indicates how much of the company’s share price is backed by its cash and liquid assets. In this case, approximately $14 of Microsoft’s $117.67 share price is attributable to its cash holdings. This means that about 11.9% of the share price is represented by cash.
It’s important to note that while cash holdings contribute to the company’s valuation, the share price also reflects other factors such as earnings potential, assets, liabilities, market conditions, and investor sentiment. Therefore, the remaining portion of the share price ($117.67 – $14 = $103.67) represents the market’s valuation of Microsoft’s non-cash assets and future growth prospects.
In summary, while the exact cash per share is $14, the closest provided option is $11. This highlights the significance of Microsoft’s substantial cash reserves in its overall valuation, but also underscores that a significant portion of the share price is based on the company’s operational performance and future potential.