Microsoft Corporation (NASDAQ: MSFT) is the fourth-largest stock, with a $416.73 billion market capitalization. It maintained a return on equity (ROE) above 20% until the end of the 2014 fiscal year. However, Microsoft's net income was lowered in 2015 due to $7.5 billion in goodwill and asset impairment charges and $2.5 billion in restructuring plans. Despite these setbacks, it has kept a 34.57%10-year average ROE, which ranged from a 14.36% low in June 2015 to a 52.48% high in June 2008. Its software and services industry alone has a 16.1% average ROE. While the company's ROE is currently lower than the industry average, it is not likely to remain at this level.

Microsoft's Return on Equity

Over the past three years, Microsoft's ROE has decreased by over 50% due to nonrecurring expenses and items. Microsoft reported a $77.85 billion revenue and a $21.86 billion net income for the fiscal period ending in June 2013. It also had $78.94 billion in total shareholders' equity. Microsoft has an ROE of 30.09%, according to Morningstar, though ROE calculations may deviate from the net income divided by shareholders' equity calculation due to figure rounding in financial statements.

During the 2014 fiscal year, Microsoft had $86.83 billion in total revenue, $22.07 billion in net income and $89.78 billion in shareholders' equity. Its ROE was 26.17% at the end of the 2014 fiscal year. For the fiscal year ending in June 2015, it had $80.08 billion in total stockholders' equity, $93.58 billion total revenue and $12.19 billion in net income.

While Microsoft's revenue has increased 20% over the past three years, its expenses have increased in tandem. However, its fall in net income was due to nonrecurring items, so its 14.36% ROE from 2015 should normalize. During the 2016 fiscal year, Microsoft is expected to report $92.55 billion in total revenue, which is slightly less than its 2015 figure. However, the company will continue to buy back its shares until the end of 2016. If its expenses revert to the mean, its ROE will likely follow.

Microsoft gradually bought back its shares between 2006 and 2015. It had 10.53 billion shares in the fiscal period ending in June 2006, compared to its current 8.18 billion shares outstanding. The share buybacks may have caused its ROE calculations to fluctuate. However, since it did not decrease its shares outstanding by 2.35 billion instantaneously, its ROE calculations will not be substantially affected from year to year.

Competitors' Return on Equity

Microsoft's main competitors include Oracle, Alphabet and Apple. Over the past 10 years, Oracle has maintained a steady ROE ranging from a 20.8% low in May 2015 to a 27.64% high in May 2008. Its 10-year average ROE is 24.34%, which is 10% less than Microsoft's average ROE from the same period.

Alphabet's ROE is currently at the low end of an on-going fluctuation, similar to Microsoft. Based on 10-year data, Alphabet's ROE ranged from a 15.06% low during the 2014 fiscal year to a 23.73% high in December 2005.

Apple, the largest company by market capitalization as of Jan. 28, 2016, has a 10-year average ROE of 34%, which is in line with Microsoft. However, Apple has outpaced Microsoft in ROE over the past three years. Apple's yearly ROE from 2013 to 2015 was 30.64, 33.61 and 46.25%, respectively. The ROE growth was caused mainly by annual revenue growth, which also led to high net income growth.

Things to Consider

Microsoft's recent net income drop is a rare occurrence. Its net income and ROE will likely rebound in 2016. Microsoft's 2015 annual revenue is at its highest level over the past 10 years, which indicates it is capable of high growth. Consequently, Microsoft has a high average 10-year ROE, which trumps those of Alphabet and Oracle.