Let’s take another look at Microsoft’s Financial status. If you look on Yahoo Finance, or on MSN Money Central you can see Microsoft’s stock prices over the years. Like all public companies Microsoft has an investor section on their website. You can also request hard copies detailing the company’s financial status. In most countries publicly held companies like Microsoft are required to supply information to investors. This information is required to be accurate. It’s also required to be complete, within certain limits.
The issue is that not enough disclosure is damaging to the investor. If for example, the company is deeply in debt, and the investor is not told, the investor would be making an investment decision with out information which could have a significant affect on the company’s ability to make a profit, or even for that matter to survive.
At the same time much disclosure can damage the company. If a competitor knows who the company has signed a large contract with, the competitor knows who is buying the product, and who to target (I know of sales reps who regularly monitor the Investor page on their competitor’s web sites for press releases on large sales, so they can target the customers mentioned).
Any large publicly held company’s stock price is controlled by a relatively small number of large shareholders, the institutional investors. In the case of Microsoft there are also a small number of employee shareholders who hold a large amount of stock, including Bill Gates (executives are employees too). At Microsoft employee shareholders hold a very significant portion of the company’s shares both directly, and through their 401K plans. This is not uncommon at entrepreneurial companies.
Assume that I decide to invest in Microsoft, and that I’ve got a 5 million dollars. Since Microsoft’s current market cap is around $199 Billion US, my 5 million dollars is insignificant, and will have no real affect on the stock price.
Various large investors do have an affect on the share price. Assume that Bershire Hathaway (Warren Buffet’s company) decides to take a 20% share in Microsoft. This would tend to drive the share price upward.
But why would anyone invest in Microsoft, or for that matter any other company? Money of course. How much money can you make with Microsoft? It depends on how much you invest. In Microsoft’s last quarterly filing we see that they are paying a quarterly dividend of $0.13 per share. My $5 Million investment would equal 223,313 shares at Friday’s closing price of $22.39 per share, which would yield $29,030.69 per quarter, or about $116,122.00 per year. If you were to place the same money in a Bank of America checking account which pays 0.10% per year, you would earn $5,000.00, so investing in Microsoft stock would bring you a definite advantage.
Changes in stock prices could also earn you money, if you purchased at the right point. Microsoft may have closed at $22.39 on Friday, but it opened the day at $22.19, so assuming you bought $5 Million at open, in theory you could have sold it for $5,045,065.34 at close. This assumes that the stock price went up. It could also have gone down. Remember Black Friday in October 1929?
Stock price also has a significant affect on what a company can do. Assume that Microsoft wants to purchase a company. Rather than paying in cash, they could pay in stock. If Microsoft wants to make acquisitions using stock, the higher the price of their stock, the more acquisitions they can make. The correct acquisition can help boost the stock price, making more acquisitions possible. One acquisition that Microsoft made was Visio. This was an excellent acquisition, the Visio software is now a very useful part of Microsoft Office.