Aswath Damodaran 451
Microsoft: Dividends?
! By this estimation, Microsoft could have paid $ 2 , 127 Million in
dividends/stock buybacks in 1996. They paid no dividends and bought back
no stock. Where will the $ 2 , 127 million show up in Microsoft’s balance sheet?
It will show up in the cash balance. (The more common answer, which is
retained earnings, focuses on the wrong side of the balance sheet.) This excess
cash cannot be going into projects (since it is after cap ex) or R&D (since net
income is after R&D). Microsoft’s cash balance at the end of 1996 was $ 8
billion.
Microsoft kept doing this (paying out little or no dividends while generating
billions in FCFE) through 2003, accumulating a cash balance of $ 43 billion by
the end of that year. Finally, in 2004, Microsoft paid a huge dividend (of $ 5
billion).
