Microsoft Corporation

Revenue and profit rest mainly on business spending on cloud and productivity software, and all three segments were profitable. Segment profits depend partly on how the company allocates shared costs, including AI infrastructure, between them.

Microsoft makes most of its money selling cloud services and software to businesses: in fiscal 2026 its Productivity and Business Processes segment (Office and other productivity software, LinkedIn and Dynamics) earned operating income of $83,879 million on revenue of $139,996 million, and Intelligent Cloud (Azure and server products) earned $56,972 million on revenue of $137,791 million.^[1][2] The smaller More Personal Computing segment (Windows, devices, XBOX and search advertising) earned $14,386 million on revenue of $54,052 million.^[3] Microsoft Cloud revenue, which runs across several of these businesses, was $214.4 billion, up from $168.9 billion a year earlier.^[4] The two largest product lines were server products and cloud services at $129,425 million and Microsoft 365 Commercial products and cloud services at $101,997 million.^[5] The company says that, even as it moves to cloud subscriptions, licensing software still generates a substantial portion of its software revenue.^[6]

First because every other finding is read against Microsoft's revenue and profit sources; the evidence is clear and all three segments are profitable.

Operating cash still covers the building programme, but the gap is narrowing, cash balances are falling and the company itself links future funding to capital markets. One year of accelerated spending cannot show what return the new capacity will earn.

So far Microsoft is paying for its expansion from operating cash, but spending is rising faster: in fiscal 2026 cash from operations rose $46.8 billion to $182.9 billion, while additions to property and equipment rose $51.4 billion.^[1][2] Additions to property and equipment were $115,948 million, against $64,551 million and $44,477 million in the two years before; cash from operations in the same three years was $182,935 million, $136,162 million and $118,548 million.^[3][4] A further $26.7 billion of equipment purchases was still unpaid at the year-end, against $6.9 billion a year earlier.^[5] Cash, cash equivalents and short-term investments fell to $76.8 billion from $94.6 billion; the company says these, its operating cash flows and access to capital markets will be sufficient for at least the next 12 months and for the foreseeable future.^[6][7] It also warns that its AI investments need substantial and increasing capital expenditure and continued access to capital, and are being made ahead of fully developed revenue streams.^[8]

Second because capital spending is growing faster than operating cash and the company says it is made ahead of fully developed revenue, which makes funding the build-out the central financial question for Microsoft; the figures are firm, but the outcome is not yet known.

These commitments fix much of the cost of future datacenter capacity, which reduces flexibility if AI demand grows more slowly than planned; the company itself warns that overestimating demand could leave infrastructure underused and lead to impairments. The report does not show how the leases not yet started relate to the lease total in the obligations table.

Microsoft's largest obligations are its datacenter commitments, not its bonds: at the end of fiscal 2026 contractual payments totalled $743,821 million, including $443,506 million for operating and finance leases (with interest) and $194,060 million of purchase commitments, against $46,136 million of debt principal.^[1][2] Of the total, $241,922 million falls due in fiscal 2027, including $169,008 million of purchase commitments and $29,848 million of construction commitments.^[1] The company says the purchase commitments mainly relate to datacenters and include open purchase orders and take-or-pay contracts.^[3] The report separately discloses $329.1 billion of leases, mainly for datacenters, that had not yet begun; they start between fiscal 2027 and fiscal 2033, run for 1 to 20 years, and some depend on contractual conditions being met. It does not say whether any of these are already included in the obligations table, so the two figures should not be added together.^[4] Finance lease liabilities already on the balance sheet rose to $66,594 million from $46,172 million.^[5]

Needs attention: lease and purchase commitments, mainly for datacenters, far exceed Microsoft's debt and fix much of the cost of future capacity; placed just after finding 2 because these are the obligations that funding has to meet.

OpenAI is at once a customer, a partner, a source of technology and an investment, so a change in its position could affect Microsoft's revenue, receivables and reported profit together. The report does not give the carrying value of the investment or how much of the contracted backlog relates to OpenAI.

Microsoft's main related party is OpenAI, in which it holds an equity-method investment representing about 25% on an as-converted basis.^[1] In fiscal 2026 Microsoft recorded $24.1 billion of revenue from commercial arrangements with OpenAI, including revenue-sharing payments, and OpenAI owed it $6.0 billion at the year-end.^[2] Microsoft has committed $13.0 billion of funding to OpenAI, of which $11.9 billion had been paid.^[2] The investment also moves reported profit: other income included $6.5 billion of net gains from OpenAI in fiscal 2026, mainly a dilution gain after OpenAI's recapitalisation in October 2025, after net losses of $4.8 billion in fiscal 2025.^[3][4] The company warns that some partners are also significant Azure customers and that the benefits it expects from these relationships may not be realised or sustained.^[5]

Needs attention: OpenAI is at once a large customer, a debtor, a partner and an investment that swings other income; placed below findings 2 and 3 because it touches a narrower part of the business than the build-out as a whole.

Operating profit grew strongly, but part of the jump in net income came from investment gains that may not recur and can reverse, as the OpenAI losses a year earlier show. The adjusted figures are the company's own non-GAAP measures.

Most of Microsoft's profit comes from its operations: operating income was $155,237 million in fiscal 2026, up 21%, while net income rose 31% to $133,749 million.^[1] Net income was lifted by other income of $10,697 million, against a net expense of $4,901 million a year earlier, including gains of $4,385 million on investments and $1,867 million on derivatives.^[2] Excluding OpenAI gains and losses, the company's adjusted net income was $128,786 million, up 22%; OpenAI added $4,963 million after tax in fiscal 2026, after reducing net income by $3,620 million in fiscal 2025.^[3] Operating expenses also included impairment and other related expenses in the XBOX business, for which the report gives no amount.^[4]

Placed here because net income grew much faster than operating income on OpenAI and other investment gains, which a reader must separate before judging any trend in this report; it complements finding 4 by showing the effect on the income statement as a whole.

An adverse outcome could require a large cash payment and raise the tax charge, although the company says its provisions are adequate. The report does not say how its provisions relate to the IRS claim or when the dispute may be resolved.

Microsoft faces a large unresolved US tax claim: for tax years 2004 to 2013 the IRS is seeking an additional $28.9 billion plus penalties and interest, mainly over intercompany transfer pricing.^[1] Microsoft disagrees and says it will contest the claim through the IRS appeals office and, if necessary, the courts, and that its tax provisions are adequate.^[2] At 30 June 2026 it carried $25.8 billion of gross unrecognised tax benefits, mostly in long-term income taxes, and $9.4 billion of accrued interest on uncertain tax positions, up from $8.2 billion.^[3][4] The auditor made these uncertain tax positions a critical audit matter because the unresolved transfer-pricing issues are complex and subjective.^[5] The effective tax rate was 19%, against 18% a year earlier, kept below the US rate by its Irish operations, which generated 81% of foreign income before tax.^[6][7]

Needs attention: a disputed IRS claim, which the auditor treats as a critical audit matter, could require a large cash payment; placed below findings 2 to 5 because it is a single contingent matter rather than an exposure running through the business, and the company says its provisions are adequate.

Cash generation supports the reported profits. Part of the fiscal 2026 increase came from lower tax payments and deferred taxes, which may not repeat, particularly if the tax dispute goes against the company.

Reported profit has consistently turned into cash: cash from operations was $182,935 million, $136,162 million and $118,548 million in the last three years, against net income of $133,749 million, $101,832 million and $88,136 million.^[1][2] The main items added back in fiscal 2026 were depreciation, amortisation and other charges of $38,534 million, stock-based pay of $12,405 million and deferred income taxes of $14,189 million, while investment and derivative gains of $11,047 million were taken out.^[1] The company says the increase came mainly from more cash received from customers and less cash paid in income taxes, partly offset by more cash paid to suppliers.^[3] Income taxes paid fell to $21,188 million from $28.7 billion, and advance payments from customers added $9,361 million through unearned revenue.^[4][5]

Placed after the funding, obligation and profit findings because it is this operating cash that pays for the build-out; the evidence of consistent conversion is strong, so it supports rather than questions the findings above it.

The backlog gives unusual visibility of future revenue for a software company. But the report does not say what drove the 84% rise or how concentrated it is among a few large customers, such as OpenAI, and commitments can be renegotiated, so how durable it is cannot be judged.

Microsoft has a large and fast-growing book of contracted revenue: $684 billion was allocated to remaining performance obligations at 30 June 2026, of which $678 billion was commercial.^[1] Commercial remaining performance obligation rose 84% in the year.^[3] The company expects to recognise about 30% over the next 12 months, and the commercial portion has a weighted average duration of about 2.3 years.^[1][2] Unearned revenue, part of this total, was $75,712 million, up from $67,265 million.^[4] The company notes that estimating these amounts involves significant judgement, including possible renegotiation of commitments.^[5]

Moved in from the later questions for a software company: contracted future revenue is the main evidence of recurring demand; placed below finding 7 because what drove its sharp rise and how concentrated it is are not disclosed (see finding 20).

Growth came from more usage and higher revenue per user in cloud services rather than from acquisitions, so it says something about underlying demand. One year's growth rates cannot show how long AI-driven demand will last.

Revenue is growing: it rose $50.1 billion, or 18%, to $331,839 million in fiscal 2026, which the company attributes mainly to Microsoft Cloud.^[1][2] Azure and other cloud services revenue grew 41% on demand across the platform.^[3] Microsoft 365 Commercial cloud revenue grew 17%, from both more paid seats (up 6%) and higher revenue per user from add-ons such as Microsoft 365 Copilot.^[4] Currency movements added 2%, and acquisitions played little part: $1,743 million was spent on acquisitions and similar purchases in fiscal 2026, against $69,132 million in fiscal 2024.^[5][6] More Personal Computing revenue fell, driven by XBOX.^[1]

Placed below the build-out, OpenAI and tax findings because the growth it describes is clear and well documented and adds little uncertainty; finding 8 shows how much of that demand is already contracted.

Operating margins still widened because operating expenses grew more slowly than revenue, but rising depreciation from the build-out is already lowering gross margins. The report does not say where cloud gross margins are expected to settle.

Margins are mixed: gross margin grew 16% against revenue growth of 18%, while operating income grew 21%.^[1] The company says the gross margin percentage fell slightly and the Microsoft Cloud gross margin percentage fell to 66%, because of continued investment in AI infrastructure and growing AI usage, partly offset by efficiency gains.^[2] The effect is clearest in Intelligent Cloud, where cost of revenue rose 44% against revenue growth of 30%.^[3] Depreciation expense rose to $34.3 billion from $22.0 billion and $15.2 billion in the two years before.^[4] The company warns that its cloud and AI investments will continue to increase operating costs and may reduce operating margins.^[5]

Shows the first cost of the AI build-out in the income statement; placed after finding 9 because operating margins still widened, so the effect so far is confined to gross margin.

With server assets growing this fast, the assumed lives are one of the largest judgements behind reported margins: shorter lives for AI equipment would mean higher depreciation each year. The reports do not show how long AI servers actually stay in use, so whether six years is right cannot be judged from them.

Microsoft depreciates its servers and network equipment on a straight-line basis over estimated useful lives of two to six years.^[1] It has lengthened these lives twice: server lives went from three to four years from fiscal 2021, which the company says raised operating income by $2.7 billion and net income by $2.3 billion in that year, and server and network equipment lives went from four to six years from fiscal 2023.^[2][3] The equipment these lives apply to has grown fast: servers, network equipment and software at cost were $215,874 million at 30 June 2026, against $132,836 million a year earlier, and depreciation expense rose to $34.3 billion from $22.0 billion.^[4][5] Useful lives are not among the critical accounting estimates the company lists, and the report gives no figure for how profit would change if the lives were shorter.^[6]

Not stated in the reports: The report does not say how much profit would change if server lives were shorter, or whether the lives used suit AI equipment.

A company-specific question in place of the inventory question, which does not suit a software company. Needs attention because server assets are growing fast on lives the company has lengthened twice, but placed below findings 7 to 10 because it is an accounting judgement behind the cost already shown in finding 10 and the reports give no figure for its effect.

Securing scarce components appears to require Microsoft to commit large sums to its supply chain, which ties part of its cash to suppliers' performance. The report does not name the suppliers or the counterparties to these receivables, or say when they are repaid.

Microsoft depends on a small number of suppliers for key datacenter parts: it says there are limited suppliers for certain critical components, that these are in short supply, and that it has already experienced shortages of semiconductors, networking equipment, power systems and cooling equipment.^[1][2] It is also putting its own money into the supply chain: receivables from activities to help purchase server components rose to $27.8 billion from $8.2 billion, and cash used in other investing rose $22.2 billion, which the company says was mainly to help purchase components.^[3][4] A further $11.3 billion of investments was restricted under a supplier agreement, as noted in the finding on cash and liquidity.^[5] It also relies on third parties, including colocation facilities, leased datacenters and other cloud providers, for parts of its operations; the report does not name its main suppliers or set out the terms of the component arrangements.^[6]

Not stated in the reports: The report does not name the main suppliers or explain the terms of the component-purchase receivables.

Needs attention: the reports show shortages of key components and steeply rising receivables from arrangements to help purchase them; placed below finding 11 because the terms and counterparties are not disclosed, so the size of the risk is harder to judge. The same receivables appear in finding 14 as a liquidity item.

The customer base is broad, with one large exception in OpenAI. The report does not name other large Azure customers or say how much of the contracted backlog they account for.

No single customer accounted for more than 10% of revenue in any of the last three years.^[1] The largest disclosed relationship is OpenAI, from which Microsoft recorded $24.1 billion of revenue in fiscal 2026.^[2] The company warns that strategic partners and other customers may change their purchasing, so that expected consumption may be delayed, reduced or decline over time.^[3] Sales are spread across direct sales to enterprises, public bodies and smaller businesses and a broad partner network; customers in the United States generated $170,794 million of revenue and those elsewhere $161,045 million.^[4][5]

Mixed: the customer base is broad, with OpenAI the one large exception; placed below finding 12 because the OpenAI dependence is already covered in finding 4, and this finding adds the breadth of the rest.

Large liquid holdings, continuing operating cash flow and a AAA rating support near-term needs. Balances are falling as the build-out absorbs cash, and the report does not describe any committed bank credit lines.

Microsoft held $76,843 million of cash, cash equivalents and short-term investments at the year-end, down from $94,565 million, mostly in highly liquid investment-grade securities.^[1][2] Of its short-term investments, $3.8 billion was restricted under a supplier agreement, part of $11.3 billion of restricted investments in all.^[3] It also had $27.8 billion of receivables from arrangements to help purchase server components, up from $8.2 billion.^[4] Current assets of $207,710 million exceeded current liabilities of $168,825 million.^[5][6] Its long-term unsecured debt was rated AAA, and the company says its cash, operating cash flows and access to capital markets will be sufficient for at least the next 12 months.^[7][8]

Placed here as the counterpart to finding 2: the reports show ample liquidity and a top credit rating, so it is less pressing than the findings above, though falling balances and restricted investments (see finding 12) keep it in view.

Bond repayments are small next to the company's cash generation and do not depend on refinancing. The larger fixed payments are the lease and purchase commitments for datacenters, not the debt.

Debt repayments are modest: $9,250 million of principal falls due in fiscal 2027, none in fiscal 2028 and $2,001 million in fiscal 2029, out of $46,136 million in total.^[1] The current portion of long-term debt rose to $9,227 million from $2,999 million.^[2] Microsoft issued no new debt in fiscal 2026 or fiscal 2025 and repaid $3,000 million in fiscal 2026.^[3] The debt is senior and unsecured; the only borrowing-condition terms described are in derivative agreements, which require an investment-grade rating and minimum liquidity of $1.0 billion, and with a AAA rating no collateral was required.^[4][5][6]

Placed below finding 14 because debt maturities are small, spread out and do not depend on refinancing; the larger fixed payments are the commitments in finding 3.

On the figures shown, earnings and cash comfortably exceed borrowings and interest. The growth is in lease obligations, and additional leases not yet started will come on top.

Microsoft's total debt was $40,294 million at the year-end, down from $43,151 million; for comparison, operating income was $155,237 million and cash from operations $182,935 million in fiscal 2026.^[1][4][5] Lease liabilities add to this: finance lease liabilities were $66,594 million, up from $46,172 million, and operating lease liabilities $21,925 million.^[2][3] Interest expense was $3,051 million, up from $2,385 million, which the company attributes mainly to higher finance lease interest.^[6][7]

Placed after finding 15 because debt is small against earnings and cash; it mainly confirms that leases (see findings 3 and 33), not borrowings, are the obligation to watch.

The auditor issued an unmodified opinion and found internal controls effective; its two critical audit matters point to the areas that depend most on management's judgement. A critical audit matter is not a qualification of the opinion, and an audit does not guarantee that every figure is right.

The auditor, Deloitte & Touche LLP, issued an unmodified opinion: it found that the financial statements present fairly, in all material respects, the company's financial position.^[1] It did report two critical audit matters, which are areas that involved especially challenging, subjective or complex judgement rather than findings of error.^[2] The first is revenue recognition for certain customer agreements, where the audit effort was extensive because of the judgements involved and the volume of transactions.^[3] The second is uncertain tax positions on transfer-pricing issues unresolved with the IRS.^[4] Deloitte has audited the company since 1983 and also found its internal control over financial reporting effective.^[5][6]

The unmodified opinion underpins every figure in this report, but it sits low because nothing adverse was reported and its tax matter is covered in finding 6.

The quantified legal exposure is small against the company's earnings, but the claims over AI training and output are new and unquantified, so the overall exposure cannot be measured from the reports.

Management says it believes resolving the claims against the company will not have a material adverse impact, although its view may change; the amounts it quantifies are accrued legal liabilities of $553 million at 30 June 2026, with up to about $400 million more reasonably possible.^[5][1] A year earlier the figures were $541 million and about $600 million.^[2] The main named matter is a fine imposed on LinkedIn in October 2024 by the Irish Data Protection Commission under EU data protection rules (GDPR), which LinkedIn has appealed; the report does not give the amount.^[3] The company also faces copyright and other claims over AI training, inference and output, which it does not quantify.^[4]

Mixed because the claims over AI training and output are unquantified; placed below the larger financial findings because the amounts quantified are small, and the material tax dispute is in finding 6.

This report is a picture at 30 June 2026. Developments since then, including any change in AI spending plans or in the OpenAI relationship, are not covered.

The reports do not say: the annual report, with an audit report dated 29 July 2026, is the latest on the site and describes no material developments after 30 June 2026.^[1][2] The only later events it records are routine: a dividend of $0.91 a share, $6,759 million in total, payable on 10 September 2026, and the annual shareholder meeting on 8 December 2026.^[3][4]

Not stated in the reports: The reports on the site do not cover any period after the year-end, so later results and developments are not available.

Placed near the end as a reminder of the report's date: the reports give nothing beyond routine items after the year-end, so there is little to weigh.

These gaps limit how far the reports can show the concentration and future cost of the AI build-out. None of them by itself shows a weakness in the business.

The report does not explain what drove the 84% rise in commercial remaining performance obligation to $678 billion, or how much of it relates to OpenAI or other large customers.^[1] It mentions extensions of the OpenAI partnership in October 2025 and April 2026, but the financial statement note describes only the October 2025 agreement, and the carrying value of the OpenAI investment is not shown separately.^[2][3] The cash flow statement shows deferred income taxes of $14,189 million for fiscal 2026 while the tax note shows deferred taxes of $14,424 million; the two match for the earlier years and the difference is not explained.^[4][5] The report gives no amount for the XBOX impairment and does not split capital spending between maintaining and expanding capacity.^[6] Nor does it show how the $329.1 billion of leases not yet started relate to the $443,506 million lease figure in the obligations table, or quantify the penalties and interest the IRS is seeking.^[7][8][9]

Last in the initial 20 because it gathers the open questions of the findings above it; marked Needs attention because several of those gaps concern the largest exposures, in findings 3, 4 and 8.

Operating cash still covers capital spending, but the cash left after it fell even as operating cash grew, and assets taken on through finance leases and component purchases come on top. The calculated figure is the site's, not the company's, and leaves out those other commitments.

The reports do not publish a free-cash-flow figure, so the site has calculated one: cash from operations less additions to property and equipment was $66,987 million in fiscal 2026, against $71,611 million in fiscal 2025.^[1][2] In the three years before, cash from operations and additions to property and equipment were $136,162 million and $64,551 million (fiscal 2025), $118,548 million and $44,477 million (fiscal 2024), and $87,582 million and $28,107 million (fiscal 2023).^[1][2][3][4] These additions are not the whole cost of new capacity: the company also obtained $24,608 million of assets in exchange for new finance lease obligations in fiscal 2026, against $20,511 million a year earlier.^[5] In addition, cash used in other investing rose $22.2 billion, which the company says was mainly to help purchase components.^[6]

Not stated in the reports: The reports do not publish a free-cash-flow figure.

Placed just below the opening findings because the cash left after capital spending is what pays for distributions and the commitments in finding 3; it extends finding 2 over a longer period, so it ranks below it.

The asset values rest on the company's own assumptions about how long servers last and what its businesses will earn, and its tests have found no goodwill impairment so far. The report gives no headroom figures, so a reader cannot see how sensitive these values are to slower AI demand.

Microsoft's largest asset is now its property and equipment, at $313,076 million net at the year-end against $204,966 million a year earlier; servers, network equipment and software alone cost $215,874 million.^[1][2] Goodwill was $119,651 million and intangible assets $18,609 million; the company's annual tests, which rest on its own forecasts of cash flows and long-term growth, found no goodwill impairment in the last three years.^[3][4][5] The report does not show by how much the estimated values exceed the carrying amounts, and the company warns that overestimating demand could leave infrastructure underused and lead to impairments.^[6]

Not stated in the reports: The report does not show how far estimated fair values exceed carrying values in the impairment tests.

Placed here because the build-out has made property and equipment Microsoft's largest asset, whose value rests on the server lives in finding 11 and on future demand; the evidence is partial because no headroom figures are given.

The XBOX figures do not yet show the acceleration the company described, and an unquantified impairment was recorded in the business. The goodwill test passed and Activision Blizzard's own results are not reported, so the reports cannot show whether the deal has met its aims.

The reports do not show Activision Blizzard's own results, so the deal can be judged only through XBOX: Microsoft bought the games publisher for $75.4 billion in October 2023, saying it would accelerate growth in its gaming business.^[1][2] In fiscal 2024 the deal added 44 points to growth of 50% in XBOX content and services revenue.^[3] Since then XBOX revenue has fallen: it was $21,790 million in fiscal 2026, down 7%, against $23,455 million in fiscal 2025 and $21,503 million in fiscal 2024, a year that included Activision Blizzard only from October 2023.^[4][5][1] The deal created $51,001 million of goodwill, which the company attributes to expected synergies and assigned to More Personal Computing, whose goodwill was $62,340 million at the year-end.^[6][7][8] Fiscal 2026 costs included impairment and other related expenses in the XBOX business, of an amount not given, although the annual goodwill test found no impairment.^[9][10]

Not stated in the reports: The reports do not give Activision Blizzard's own results, the synergies achieved or the amount of the XBOX impairment.

Needs attention because XBOX revenue is falling and an impairment was recorded in the business Microsoft's largest acquisition joined; placed below less worrying findings such as finding 14 because More Personal Computing is the smallest segment and its goodwill test passed, so the effect on the group is smaller than that of the build-out findings.

Profits are growing, while the asset base, especially property and equipment, is also expanding quickly as the build-out proceeds. The reports give no return measure, and much of the new capacity has not yet run for a full year, so one year's figures cannot show what it will earn.

The reports do not state a return on capital, so only its parts can be shown: operating income rose to $155,237 million in fiscal 2026 from $128,528 million, while total assets rose to $758,376 million from $619,003 million.^[1][2] Property and equipment, where most new capital is going, rose to $313,076 million net from $204,966 million, and shareholders' equity to $442,387 million from $343,479 million.^[3][4] The company warns that if AI adoption is slower than expected, or customers use Azure for AI less than it anticipates, it may not achieve the returns it expects on these investments.^[5]

Not stated in the reports: The reports do not state any return-on-capital measure.

Tests whether the capital in findings 2 and 3 is producing earnings; placed below finding 23 because, although it is the main question about the build-out, the reports give only its inputs and no return measure.

Operating cash is backed by growing profits, but part of the fiscal 2026 increase comes from taxes and supplier payments falling due later, which may reverse. The report does not say when the deferred taxes will become payable.

Operating cash rests mainly on profit, with net income of $133,749 million in fiscal 2026, but timing items also helped.^[5] The largest was deferred income taxes: the cash flow statement adds back $14,189 million of tax charged against profit but not yet payable, after deducting $7,056 million in fiscal 2025.^[1] Working-capital movements also added cash: accounts payable contributed $5,268 million, against $569 million a year earlier, and other current liabilities $6,847 million, against $5,922 million.^[2][3] Against this, the growth in receivables used $12,737 million, against $10,581 million a year earlier; lower tax payments and advance payments from customers are covered in the finding on profit and cash.^[4]

Tests how much of the rise in operating cash in finding 7 may not repeat; placed here because the timing items are moderate next to profit. The deferred-tax figure differs between two statements, as finding 20 records.

Operating cash covered both capital spending and distributions in both years shown, and debt is small and rated AAA. Capital spending is rising quickly, so continued cover depends on operating cash keeping pace; the figures do not show future Board decisions.

On the figures shown, distributions are paid from operating cash: in fiscal 2026 Microsoft paid $26,445 million of dividends and spent $22,271 million repurchasing shares, while cash from operations was $182,935 million and additions to property and equipment $115,948 million.^[1][2][3] A year earlier it paid $24,082 million of dividends and $18,420 million for repurchases, against cash from operations of $136,162 million and additions to property and equipment of $64,551 million.^[1][2][3] The dividend declared rose to $3.64 a share from $3.32, and $40.6 billion remained of the current $60 billion repurchase programme.^[4][5] The company says it intends to keep paying dividends, subject to declaration by its Board.^[6]

Supportive: distributions were covered by operating cash, so it is less pressing than the build-out findings, though continued cover depends on them (see finding 2).

Microsoft is putting most of its cash into datacenters while still raising distributions, and has made no large acquisition since fiscal 2024; with cash balances falling, keeping this balance depends on operating cash keeping up. The report sets no ranking or targets for these uses.

Reinvestment comes first by a wide margin: in fiscal 2026 additions to property and equipment were $115,948 million, while acquisitions and similar purchases took $1,743 million and debt repayments $3,000 million.^[1][2][3] Shareholders received $26,445 million in dividends, and the cash flow statement shows $22,271 million spent repurchasing shares.^[4] The report gives two other repurchase figures: $16.7 billion bought back under the repurchase programme, and $5.6 billion of shares bought to settle employees' tax on vesting share awards, which the programme table leaves out.^[5][6] Cash and cash equivalents fell by $9,307 million over the year.^[7] The company says it will keep investing in its products and technology and in acquisitions that fit its strategy, but does not say how it ranks these uses against each other.^[8]

Not stated in the reports: The report does not say how management ranks these uses of cash or set targets for them.

Shows management's priorities behind findings 2 and 26; placed after them because it describes choices rather than a new exposure.

The costs growing fastest follow from the AI build-out and will keep rising as new datacenters and leases come into use. Whether the company can recover them depends on AI demand and pricing, which the company itself describes as uncertain.

The costs rising fastest are those of running cloud services: cost of revenue rose 21% with the growth of Microsoft Cloud, and cost of revenue for services rose to $94,276 million from $74,330 million.^[1][2] Lease costs are also climbing: total finance lease cost was $7,950 million, against $4,825 million and $2,534 million in the two years before, and operating lease cost $6,968 million, against $5,524 million.^[3] Operating expenses grew more slowly: research and development rose 9%, driven by compute capacity, AI talent and data, general and administrative expenses rose 10%, partly on higher legal costs, and advertising expense rose to $2.7 billion from $2.1 billion.^[4][5][6] On recovering these costs, the company says the cost of AI products is highly uncertain, including training, inference, component and energy costs, and that its margins could suffer if these stay high or if AI prices fall.^[7]

Adds which costs are driving the margin change in finding 10; placed here because the margin effect itself is already in the initial findings.

Much of the revenue comes from subscriptions and agreements billed in advance, which supports continuity of demand, but Azure's consumption-based revenue can change with customer usage. Without renewal or retention rates the reports cannot show how many customers stay.

The reports give no recurring-revenue total or renewal rates; the nearest measure is the split between service and other revenue, which includes cloud services, subscriptions, support and advertising, at $267,143 million in fiscal 2026, and product revenue at $64,696 million.^[1] During the year $194,184 million of billings were deferred as unearned revenue, mainly under volume licensing programmes, while $185,737 million of earlier billings was recognised as revenue.^[2][3] Not all cloud revenue is contracted: Azure revenue depends mainly on consumption-based services, recognised as customers use them, while subscription services are recognised evenly over the contract.^[4][5] For Microsoft 365 Commercial, the company says revenue depends mainly on growth in its installed base and in revenue per user; contracted future revenue is covered in the finding on the order book.^[6]

Not stated in the reports: The reports do not give renewal rates, customer retention or a recurring-revenue total.

Recurring revenue is a key durability test for a software company, but finding 8 already covers the contracted backlog; this finding adds the revenue mix and the missing renewal rates.

Growth is concentrated in the two business segments, which provide most of the profit, while the consumer segment is flat with gaming in decline. Segment profits depend partly on how the company allocates shared AI and other costs between segments.

Both business-focused segments strengthened in fiscal 2026: Productivity and Business Processes grew revenue 16% and operating income 20%, and Intelligent Cloud grew revenue 30% and operating income 28%.^[1][2] In Intelligent Cloud, operating income grew more slowly than revenue as cost of revenue rose 44%.^[2] More Personal Computing was flat, with revenue down 1% and operating income up 2%.^[3] Within it, XBOX weakened, with revenue down 7% and hardware revenue down 29% on lower console sales, while search advertising revenue rose 9% and Windows OEM revenue 5%.^[4][5][6][7]

Adds the direction of each segment shown in finding 1; placed here because the weakening segment is the smallest, and the XBOX decline is covered in finding 23.

Fast growth at very large scale supports the company's claims for its cloud business. But the reports give no market-share figures or comparisons with competitors, and the company itself describes AI as a fast-changing market in which some partners are also competitors.

The company says its main advantages are scale and integration: large datacenters run at lower cost per unit and use resources better, Azure lets customers combine their own datacenters with its public cloud, and developing most products in-house gives it differentiation and technical control.^[1][2][3] The reported results show the scale of its cloud business: Microsoft Cloud revenue rose 27% to $214.4 billion and Azure and other cloud services revenue 41% in fiscal 2026.^[4][5] But the company also says barriers to entry in many of its businesses are low, and that its AI products compete with those of other hyperscalers, open-source offerings and frontier model providers, some of which are also its partners.^[6][7]

Not stated in the reports: The reports give no market-share figures or comparisons with competitors.

Sets the company's claimed advantages against its own warnings; placed here because the claims are the company's own and the growth evidence is already in finding 9.

Higher revenue per user alongside more users indicates customers are accepting added-cost features such as Copilot, but the reports do not separate price rises from sales of extra features. The company's own warnings show that AI pricing is not yet settled.

The reports give no list-price changes, but revenue per user is rising in several businesses while customer numbers also grow: Microsoft 365 Consumer cloud revenue grew 28% on higher revenue per user and 7% more subscribers, and search advertising revenue excluding traffic acquisition costs grew 12% on higher volume and revenue per search.^[1][2] In Microsoft 365 Commercial cloud, seats grew while revenue per user rose with add-ons such as Microsoft 365 Copilot, as the revenue growth finding describes.^[3] The company aims to charge for cloud and AI products through pricing models that reflect their value while remaining competitive.^[4] It warns that competition may force price reductions, that operating systems licensed at low or no cost may reduce its Windows margins, and that AI prices could fall through competition or commoditisation.^[5][6][7]

Not stated in the reports: The reports do not give price changes or separate price effects from volume and product mix.

Matters for recovering the AI costs in finding 28; placed here because the reports give only indirect evidence of pricing.

Annual lease payments are small next to earnings, but the long terms fix much of the cost of datacenter capacity for more than a decade, which reduces flexibility if demand falls short. The report does not say how many leases can be ended early.

Most lease commitments are long and fixed: finance leases, by far the larger type with $89,686 million of payments due, have a weighted average remaining term of 13 years, against 6 years for operating leases, whose payments total $24,706 million.^[1][2] Of the finance lease payments, $55,490 million falls after fiscal 2031.^[2] Some leases can be ended within 1 year or extended by up to 5 years, but the report does not say how many.^[3] Payments due in fiscal 2027 are $7,121 million for finance leases and $6,082 million for operating leases; for comparison, operating income was $155,237 million in fiscal 2026, and the larger leases not yet started are described in the finding on datacenter commitments.^[2][4]

Adds how long and how fixed the leases are; placed here because the size of all commitments is in finding 3 and lease liabilities in finding 16.

Fewer staff producing more revenue shows higher output per employee, and the company's references to capacity constraints indicate that demand is currently pressing on capacity. But the reports give no utilisation rates, so whether the new capacity will be fully used cannot be checked.

The reports give no datacenter utilisation figures; the company says it is managing infrastructure capacity constraints, and that demand above available capacity limits its ability to serve customers on time.^[1][2] Capacity is growing fast: servers, network equipment and software at cost rose to $215,874 million from $132,836 million in the year.^[3] Output per employee has risen: Microsoft employed about 223,000 people full-time at the end of June 2026, against 228,000 two years earlier, while revenue rose to $331,839 million from $245,122 million.^[4][5][6]

Not stated in the reports: The reports give no datacenter capacity or utilisation figures.

Utilisation links the build-out to its returns (see finding 24); placed here because the reports give only indirect evidence.

The comparison with depreciation is context only: depreciation reflects past spending and the useful lives the company assumes, so it cannot show how much of this year's spending maintains capacity and how much expands it.

The reports do not split capital spending between maintenance and expansion; the company says only that it will keep investing to support growth in its cloud offerings and in AI training and other infrastructure.^[1] Additions to property and equipment were $115,948 million in fiscal 2026; for comparison, depreciation expense, which spreads the cost of existing assets over their lives, was $34.3 billion.^[2][3] At cost, servers, network equipment and software rose to $215,874 million from $132,836 million, and buildings and improvements to $182,749 million from $137,921 million.^[4]

Not stated in the reports: The reports do not say how much capital spending maintains existing operations and how much is for expansion.

Not disclosed: the split would show how much of the spending in finding 2 is discretionary; it sits below findings with evidence to assess, and finding 20 also records the gap.

Delivering new capacity on time and on budget is central to the AI plan, but the reports give no evidence either way beyond the company's list of risks.

The reports give no timetables or budgets for individual datacenter projects; they disclose only the total committed, $34.6 billion for construction of new buildings and improvements, mainly datacenters.^[1] The company lists the risks to delivery: limits on power and delays in power connections, land, permits and local opposition, and shortages of skilled labour and contractors, any of which it says could delay projects or raise costs.^[2][3][4]

Not stated in the reports: The reports do not say whether major projects are on schedule or within budget.

Not disclosed: project delivery matters for the build-out, but the reports give no schedules or budgets beyond a list of risks, so it sits below findings with evidence to assess.

Receivables have risen roughly in step with revenue and the allowance is small next to them, so the reports show no evidence of collection difficulty. They give no ageing of receivables or days to collect, so a gradual slowing would not be visible.

Accounts receivable rose to $80,876 million at the year-end from $69,905 million, while revenue for the year rose 18%.^[1][2] The allowance for doubtful accounts, the company's estimate of amounts it may not collect, rose to $1,040 million from $944 million.^[1] Year-end receivables are seasonally high because revenue peaks in the fourth quarter with multi-year contracts; payment terms are generally 30 to 60 days.^[3][4] Long-term receivables were $5.5 billion, against $5.2 billion, and financing receivables $3.7 billion, against $4.3 billion; $6.0 billion was owed by OpenAI.^[5][6][7]

Not stated in the reports: The reports do not give the age of receivables or the average time customers take to pay.

Supportive and placed low because the figures show no collection problem; the OpenAI receivable is covered in finding 4.

Revenue is spread across many countries, which limits dependence on any one foreign market, with the United States the largest. The reports give no breakdown below this, so exposure to particular regions such as Europe or China cannot be measured.

Revenue is split roughly evenly between the United States and the rest of the world, and both are growing: US revenue was $170,794 million, $144,546 million and $124,704 million in the last three years, and revenue from other countries $161,045 million, $137,178 million and $120,418 million.^[1] No country other than the United States provided more than 10% of revenue.^[2] The US figure is approximate, because it includes billings to PC makers and some multinational organisations whose geographic source cannot practicably be determined.^[3] By tax jurisdiction, income before tax was $103.6 billion in the United States and $62.3 billion abroad in fiscal 2026, and currency movements increased reported revenue.^[4][5]

Not stated in the reports: The reports do not break down revenue outside the United States by region or country.

Supportive and placed low because revenue shows no concentration beyond the home market; finding 13 already gives the US and non-US totals.

Expansion is lowering margins where AI infrastructure is heaviest, in Azure, while efficiency gains help elsewhere. Without per-unit figures or segment assets, the reports cannot show whether each new unit of capacity earns more or less than before.

The reports give no profit per customer, user or product line; below group level the only margin measures are segment results and the Microsoft Cloud gross margin percentage, which fell to 66%.^[1] By segment, the company says the gross margin percentage rose slightly in Productivity and Business Processes on efficiency gains in Microsoft 365 Commercial cloud, fell in Intelligent Cloud on AI infrastructure spending and a shift in sales towards Azure, and rose in More Personal Computing on a shift to higher-margin businesses.^[2][3][4] Assets are not allocated to segments, and the company says it cannot separately identify the depreciation in each segment's profit, so returns per segment cannot be worked out from the reports.^[5]

Not stated in the reports: The reports give no profitability per customer, user or product line.

Placed below finding 38 because the reports give little unit-level data and the margin trend is already covered in finding 10.

The reports show no threat to continued operation. This describes the present position, not the eventual return on the AI investments.

No: the reports contain no going-concern warning, and the auditor issued an unmodified opinion on the financial statements.^[1] Management says existing cash, short-term investments, operating cash flows and access to capital markets will be sufficient for at least the next 12 months and for the foreseeable future.^[2] The company reported net income of $133,749 million and cash from operations of $182,935 million in fiscal 2026.^[3][4]

Supportive and placed low because the reports show no doubt about continued operation; it is kept so the reader sees this was checked, with liquidity covered in finding 14.

This supports reliance on the reported figures. Changes to metrics and presentation mean some year-on-year comparisons need care.

None is disclosed: management and the auditor both concluded that internal control over financial reporting was effective at 30 June 2026.^[1][2] The company did recast some prior-period amounts in its cash flow statement to match the current presentation, which it says changed no totals.^[3] It also changed some business metrics during the year, dropping Microsoft 365 Consumer subscribers as a reported metric.^[4]

Reliable reporting underpins every figure above, but this finding adds little because nothing adverse is disclosed and the audit opinion is in finding 17; it leads the last group because the findings below it are narrower or less evidenced.

The outlook depends on assumptions largely outside the company's control, and the report itself describes how each could fail. Without guidance, a reader can test these assumptions only against later results, not against stated expectations.

The reports give no financial forecast; the outlook they describe rests on continued growth in demand for AI services, which is why the company keeps adding datacenter locations and server capacity.^[1] The company says the return on this spending depends on customers continuing to use Azure for AI workloads, on pricing those services high enough to recover its costs, and on the pace of AI adoption.^[2] It names what could undermine this: customers reducing, delaying or moving AI workloads to competitors or to their own equipment, and AI training, inference, component and energy costs that stay high or fail to fall.^[3][4] It also says it is managing capacity constraints and may change capacity allocations, priorities or pricing, and that higher interest rates, tighter credit or a lower credit rating could limit its ability to carry out its infrastructure strategy.^[5][6]

Not stated in the reports: The reports give no revenue, margin or spending guidance, so the size of the growth assumed cannot be checked.

The outlook rests on assumptions about AI demand, pricing and costs that the company itself calls uncertain (see findings 2 and 3); placed below finding 41 and the findings with figures because the reports give no guidance to test these assumptions against.

Microsoft is on both sides of technological change: its cloud business gains from the move to cloud and AI while older licence and hardware businesses lose ground. The reports cannot show whether AI will keep favouring large platforms or move towards cheaper open models.

Yes, the company says so: its AI products compete with those of the largest cloud providers, open-source offerings and frontier model developers, some of which are also its partners, in a market it calls rapidly evolving.^[1] Open-source software and open AI models, offered at little or no cost, also compete with its paid products.^[2] Change is already visible in older businesses: server products revenue grew 1% as customers continue to move to the cloud, and XBOX hardware revenue fell 29% on lower console volumes.^[3][4] Windows, still a substantial source of licence revenue, competes with smartphones and tablets that now do jobs once done on PCs.^[5] Where Microsoft is leading the shift, demand is growing: Azure and other cloud services revenue rose 41%.^[6]

Shows strong competition, including from partners, in the AI market where Microsoft invests most; placed here because the competitive claims are weighed in finding 31 and the evidence is largely the company's own description.

Security is part of what Microsoft sells, so incidents can cost it customers as well as money. The reports give no figures for the cost of incidents or of the response, so their financial effect cannot be measured.

Yes, incidents have occurred: the company says attackers have gained unauthorised access to its systems and data, and to those of customers, partners and suppliers.^[1] In the main incident it describes, beginning in late November 2023 a nation-state-linked attacker used a password spray attack on a legacy test account to reach Microsoft email accounts and then some source code repositories and internal systems; the company says this has harmed and may continue to harm its reputation and customer relationships.^[2][3] Management says it does not believe cybersecurity risks have materially affected the company or are reasonably likely to, while describing the threat environment as increasingly challenging.^[4] In response it launched the Secure Future Initiative in November 2023 and widened it in May 2024, and the board reviews cybersecurity at least quarterly.^[5][6]

Not stated in the reports: The report gives no cost of past incidents or of the Secure Future Initiative, and no measure of security-related outages.

Describes an actual breach, not only a risk, at a company whose cloud business depends on trust in its security; placed here because management says there has been no material effect and no cost is given.

Power and permits, as well as money, may limit how fast Microsoft can add AI capacity, and missing its climate goals could bring regulatory or reputational costs. None of these exposures is quantified in the reports.

The most immediate exposure is power: the company says the availability, reliability and cost of electricity are critical to its datacenters, and that limited power, delayed connections or higher energy costs could restrict its ability to add capacity.^[1] It also reports community opposition and state and local moratoriums on datacenter building.^[2] On climate goals, the 2026 report adds that AI has raised and will likely keep raising energy use and emissions, making its 2030 goals of being carbon negative, water positive and zero waste harder to meet; the 2025 report did not say this.^[3][4] The company also says changes in climate may raise the cost of powering and cooling its hardware.^[5]

Not stated in the reports: The report gives no figures for energy costs, emissions or the effect of power shortages on its building plans.

Electricity supply and permits may limit the build-out that dominates the opening findings; placed here because none of these exposures is quantified.

Spending is showing up in higher revenue per user, and expensing development costs keeps them out of the balance sheet. Because AI revenue is not reported separately, the reports cannot show whether AI products alone earn back their cost.

Microsoft spent $35,562 million on research and development in fiscal 2026, up 9%, equal to 11% of revenue against 12% a year earlier.^[1] The increase went mainly to computing capacity, AI talent and data, and also included impairment and other related expenses in the XBOX business.^[2] The clearest evidence of results is that Microsoft 365 Copilot and Microsoft 365 E5 lifted revenue per user, helping Microsoft 365 Commercial cloud revenue grow 17%.^[3] Development costs are almost all expensed as incurred: software costs are capitalised only after technological feasibility, which the company says generally occurs shortly before release.^[4] The company warns that new products may not produce significant revenue for several years, if at all, and the report gives no separate revenue or user figures for its AI products.^[5]

Not stated in the reports: The report does not give revenue, seat or usage figures for Microsoft 365 Copilot or other AI products.

Development spending is directed at AI products whose results are only partly visible; placed here because their revenue effect is already in finding 9 and AI revenue is not shown separately.

Prepaid and contracted revenue cushions the business against short downturns, while the consumer and device side moves more with spending. The reports cover years of growth, so they cannot show how AI cloud demand would behave in a recession.

Revenue is seasonal: the company says it is generally highest in the fourth quarter of its financial year, when more multi-year contracts are signed.^[1] Much revenue is billed in advance and spread over time: of $75,712 million of unearned revenue at 30 June 2026, $28,589 million is expected to be recognised in the quarter to 30 September 2026.^[2] The company says demand moves with global economic and geopolitical conditions, and that worse conditions, technology investment cycles or changes in customer spending could lower or delay IT spending.^[3][4] The consumer and device businesses are the most exposed: More Personal Computing revenue fell to $54,052 million from $54,649 million, with Devices revenue declining.^[5][6]

Contracted and prepaid revenue limits cyclical exposure (see findings 8 and 29); placed here because the consumer side, which is most exposed, is the smallest segment.

A stronger dollar can move reported results noticeably, as currency did in fiscal 2026 in the other direction. The sensitivity figures are the company's own hypothetical estimates at one date, and the cost of scarce components is not quantified.

Currency is the largest market exposure the company quantifies: it estimates that a 10% decrease in foreign exchange rates would reduce earnings by $13,653 million through revenue.^[1] Its main currency exposures are the euro, Japanese yen, British pound, Canadian dollar and Australian dollar, and in fiscal 2026 currency movements added 2% to revenue and operating income.^[2][3] Interest rates and equity prices affect mainly its investments: a 100 basis point rise in US Treasury rates would reduce their fair value by $1,201 million, and a 10% fall in equity prices would reduce earnings by $2,654 million.^[4][5] The report quantifies no commodity exposure; the nearest is the cost and supply of semiconductors, power systems and cooling equipment, which the company says have already been in short supply.^[6]

The currency sensitivity is material against earnings but is the company's own hypothetical estimate; exposure to interest rates on borrowings is small because debt is small (see finding 16).

The derivatives programme is large, but most of it sits outside hedge accounting, so its gains and losses pass through other income and add to its year-to-year swings. Without the share of revenue hedged, the protection it gives cannot be judged.

Only a small part of the company's derivatives are accounted for as hedges: designated foreign exchange contracts had a notional value of $1,492 million, used for certain euro-denominated debt, and designated interest rate contracts $1,179 million.^[1][2] Most are held without hedge accounting, including foreign exchange contracts sold with a notional value of $51,413 million, up from $43,307 million.^[1] These undesignated contracts produced gains of $592 million on foreign exchange and $1,864 million on equity in fiscal 2026, after losses of $938 million and $266 million a year earlier.^[3] The company says it hedges only a portion of its international currency exposure and that derivatives may still leave an impact on its results; it does not say how much of its foreign-currency revenue is covered.^[4][5]

Not stated in the reports: The report does not say what share of foreign-currency revenue or forecast cash flows is hedged, or for how long.

Tests the protection against the exposures in finding 48, so it follows it; the swings in other income it adds to are discussed in finding 5.

The tax benefits are small next to profit before tax but depend on international tax rules that the company says are changing. Government revenue may be large, but without a figure its importance cannot be judged.

The main policy benefits the reports show are in tax: earnings taxed at Ireland's lower rate reduced the fiscal 2026 tax charge by $4,301 million, or 2.6 percentage points.^[1] Smaller incentives were the research and development credit of $1,453 million and the foreign-derived intangible income deduction of $603 million, against a total tax charge of $32,185 million, an effective rate of 19.4%.^[2][3][4] The company also notes continuing international proposals, including a global minimum tax.^[7] It says it derives substantial revenue from government contracts, some of which allow the government to terminate without cause, but it does not give the amount.^[5] Trade policy matters too: US export controls restrict it from offering many products and services to certain entities in specified countries.^[6]

Not stated in the reports: The report does not say how much revenue comes from government customers.

The quantified tax benefits are modest, while government revenue and export rules are unquantified; the Irish tax position and the IRS dispute are covered in finding 6.

Each change is disclosed and explained, but frequent re-cutting of segments and metrics makes long-run trends harder to follow. With depreciation not shown by segment, the reports cannot show which segment bears most of the rising AI infrastructure cost.

The main measures are defined in the report, but they change often: in fiscal 2025 the company moved the commercial parts of Microsoft 365 into the Productivity and Business Processes segment and recast earlier periods, and in fiscal 2026 it dropped Microsoft 365 Consumer subscribers as a metric.^[1][2][3] Business lines have also been renamed, such as XBOX, formerly Gaming.^[4] The adjusted profit measures exclude only gains and losses on investments in OpenAI, and the report reconciles them to reported figures.^[5] Segment profits are harder to compare because the company says it is impracticable to identify how much depreciation each segment's results include.^[6]

The changes in measures are disclosed but limit how far segment trends and AI costs can be followed; placed here because the reliability of reporting is covered in finding 41.

Management did what it said it would on spending and dividends, but these were intentions, not measurable targets. Without targets, the reports cannot show whether results met management's own expectations.

The reports set no numerical financial targets; the clearest commitment in the 2025 report was to keep investing in capital expenditure for cloud and AI, and additions to property and equipment rose to $115,948 million from $64,551 million.^[1][2] The 2025 report also said the company intended to keep returning capital through dividends, and dividends declared rose to $27.0 billion from $24.7 billion.^[3][4] Its one long-dated public goal, to be carbon negative, water positive and zero waste by 2030, is harder to reach by its own account: the company says AI is raising energy use and emissions and that it has seen major changes in what meeting the goals will take.^[5][6]

Not stated in the reports: The reports give no numerical targets for revenue, margins, spending or returns against which results can be compared.

Without numerical targets the reports allow only a limited test of delivery, so it sits low despite its link to the plans in finding 42.

Profit growth passed through to each share in full, with no net dilution of existing holders. This depends on continuing buybacks, which use cash that the build-out also needs.

Shares issued to employees were more than offset by buybacks: shares outstanding fell to 7,427 million at the year-end from 7,434 million, with 29 million issued and 36 million repurchased.^[1] Diluted earnings per share rose 32%, slightly more than net income at 31%, and stock awards added 24 million shares to the diluted share count, against 32 million a year earlier.^[2][3] The cost is real: stock-based pay was $12,405 million in fiscal 2026, up from $11,974 million, and the company also spent $5.6 billion buying back shares to settle employees' tax on vested awards.^[4][5] A further $24.8 billion of stock award costs had yet to be recognised at 30 June 2026.^[6]

Supportive and placed low because the reports show no net dilution; the cash the buybacks use is covered in findings 26 and 27.

The structure includes the usual independent checks, but combining the chair and chief executive roles concentrates authority. Whether oversight works in practice cannot be judged from the annual report alone.

Satya Nadella is both chairman and chief executive, and Sandra E. Peterson serves as lead independent director.^[1][2] The Audit Committee consists solely of independent directors and meets with management, internal auditors and the external auditor, and the board reviews cybersecurity at least quarterly.^[3][4] The main leadership change in the year was the appointment of Judson Althoff as Chief Executive Officer of the Microsoft Commercial Business in October 2025.^[5] Details of directors and committees are in the proxy statement, which is not on this site.^[6]

Not stated in the reports: The annual report does not give committee membership, meetings, attendance or board evaluation; committee activity and director details are in the proxy statement, which is not among the reports on the site.

The annual report shows the board's structure but not its activity, which is in the proxy statement; placed low because there is little to assess.

A long-serving leadership team gives continuity, but it also means a change at the top would be a significant event. The report does not say how succession is planned, so the key-person exposure cannot be judged.

The report names no individual as essential, but the leadership is long-serving: Satya Nadella has been chief executive since February 2014 and chairman since June 2021, and Amy Hood chief financial officer since July 2013.^[1][2] The company says effective succession planning and the smooth transfer of knowledge from key employees are important to its long-term success.^[3] It warns that failing to recruit and keep highly skilled workers and key leaders could hurt its ability to develop and deliver successful products.^[4]

Not stated in the reports: The report does not describe succession plans for the chief executive or other senior roles.

Placed below finding 54 because the reports show no dependence on a founder and say nothing about succession to assess.

Headcount fell slightly while revenue grew, which does not by itself show any staffing problem. Without turnover data the reports cannot show whether skills shortages are affecting delivery.

Microsoft employed about 223,000 people full-time at 30 June 2026, including 77,000 in product research and development, against about 228,000 two years earlier; the report gives no turnover or vacancy figures.^[1][2] The company says labour shortages, competition for talent, wage inflation or labour disputes could raise costs and delay the building of datacenters.^[3] It also says restrictions on the flow of talent, including US immigration policy, may limit its ability to staff research and development, and some employees are covered by collective bargaining agreements.^[4][5]

Not stated in the reports: The reports do not give employee turnover, vacancies or any measure of whether skills shortages have delayed projects.

Not disclosed: the reports give no turnover or shortage figures to assess; labour shortages as a risk to building datacenters are noted in finding 36.

Stock awards tie part of executive pay to the share price and to performance goals, but without the goals and amounts the link to results cannot be judged from the reports.

The annual report does not give executives' pay; it refers readers to the proxy statement, which is not on this site.^[1] It says only that the Compensation Committee approves stock awards for executive officers and certain senior executives: restricted stock units that vest over four years, and performance stock units that vest over three years in a number that depends on how far performance goals are met.^[2]

Not stated in the reports: Not covered by the reports on the site: executive pay and its performance measures are in the proxy statement.

Not covered: executive pay is left to the proxy statement, which is not on the site, so little can be said from the annual report.

The disclosure concerns changes in accounting estimates; it does not establish the amount of refunds, service credits or customer dissatisfaction. The reports do not show how often services failed or how customers rated them.

The reports give no figures on complaints, outages or service credits; the company says only that its AI and other software products have had, and may again have, quality or reliability problems.^[1] It warns that outages, loss of customer data or inadequate capacity could lead to contractual liability, customer claims and loss of users.^[2] It also says changes to its estimates of returns, credits and other variable consideration were not material in the years shown.^[3]

Not stated in the reports: The reports do not give complaint numbers, outage records, service credits or customer satisfaction measures.

Not disclosed: the reports give no measures of customer experience; the security incident that could affect it is in finding 44.

The report describes no controlling shareholder, but it also does not show who the largest holders are, so concentration of voting power cannot be checked from it.

The annual report does not name its largest shareholders, describe any controlling holder or set out minority protections; it refers to the proxy statement, which is not on this site.^[1] It reports 74,199 registered holders of record of its common stock.^[2]

Not stated in the reports: Not covered by the reports on the site: the largest shareholders and voting arrangements are in the proxy statement.

Not covered: ownership is left to the proxy statement; it sits near the end because the annual report shows no controlling holder.

A growing part of other income comes from revaluing equity stakes, most of which have no market price, so it rests partly on the company's judgement and can reverse, as earlier impairments show. The report does not name the investees beyond OpenAI, so exposure to particular AI developers cannot be seen.

Microsoft's stakes in other companies grew sharply in fiscal 2026: equity investments were recorded at $28,856 million at 30 June 2026, of which $27,240 million was held in equity and other investments, against $13,718 million and $12,673 million a year earlier.^[1][2][8] Most have no market price: $12.4 billion was carried at cost adjusted for observable price changes or impairments, against $2.9 billion, and $12.0 billion under the equity method, against $6.0 billion; the equity method also covers the approximate 25% stake in OpenAI, but the report does not say how much of that total OpenAI accounts for.^[3][9] The company says valuing stakes without a market price requires judgement about whether other trades in the same company's shares are orderly and comparable, and that it records an impairment when a periodic qualitative assessment finds sufficient indicators that fair value is below carrying value.^[4][5] These stakes moved profit: net unrealised gains on equity investments still held were $4,391 million in fiscal 2026, against $536 million in fiscal 2025, while impairments fell to $152 million from $951 million.^[6] This is in addition to the $6.5 billion of net gains from OpenAI in fiscal 2026, which the company records mainly in a separate line of other income.^[7]

Not stated in the reports: The report does not name the companies Microsoft has invested in, other than OpenAI, or say how much of the increase relates to AI developers.

A company-specific question in place of the promoter-holdings question, which does not fit Microsoft; placed last because these stakes are small next to its assets and the most important one, OpenAI, is in finding 4, though it shows a fast-growing, judgement-based source of other income.