Microsoft earned USD 134bn in a year and ended it holding less cash

A bigger profit and a smaller cash line in the same year

Microsoft sells software, cloud computing and related services: Windows, Office, the Azure cloud, LinkedIn and Xbox, among others. Its fiscal year runs from July to June, so FY2026 ended in June 2026 and is set here against FY2025. The figures are for the whole group, in US dollars, under US accounting rules (US GAAP).

Revenue reached USD 332bn, up 17.8% from USD 282bn. Net profit rose faster, by 31.3% to USD 134bn. A company that keeps 40.3% of its revenue as net profit looks like a machine that comfortably funds itself.

The cash line went the other way. It stood at USD 30.2bn at the end of FY2025 and at USD 20.9bn at the end of FY2026, a fall of USD 9.3bn, or 30.8%. In the same year the company booked USD 134bn of profit.

Nobody should read this as a company in trouble. A balance of USD 20.9bn is still large in absolute terms. The point is narrower and more useful: profit and cash measured different things this year, and they moved in opposite directions.

Profit records the sale, cash records the payment

Profit is booked when revenue is earned and costs are matched to it. Cash moves when someone actually pays. In a growing business the two drift apart for familiar reasons. Customers pay after delivery, so receivables swell. Stock is bought before it is sold. New capacity is paid for up front and then depreciated slowly, a little each year, so the income statement feels only a slice of a cost the bank account has already paid in full.

For Microsoft, some of these causes are weaker than for a typical company. Much of its revenue comes from subscriptions, often billed in advance, which tends to bring cash in early rather than late. It holds little physical stock. So I would not put the gap down to slow-paying customers or a full warehouse without evidence.

That leaves several plausible routes, and each would explain a falling cash line in a very profitable year. One is capital spending: servers, data centres and the land and power to run them, paid now and depreciated over years. Another is money returned to shareholders through dividends and share buybacks. A further one is acquisitions or debt repayment. The most mundane is the treasury team moving money out of cash into short-term investments. A dollar placed in government bills that count as short-term investments rather than cash equivalents leaves the cash line without leaving the company.

Any of them, or a mix, fits a falling cash line in a year of rising profit. The balance sheet does not split the outflow between them; the investing and financing sections of the cash flow statement would.

The rest of the balance sheet narrows it down

The wider balance sheet does help. Total assets rose from USD 619bn to USD 758bn while cash fell. Whatever left the cash line did not vanish. It was turned into other assets: equipment, investments, receivables or something else on the asset side. That points more towards investment, in capacity or in securities, than towards money simply being spent.

Equity grew by USD 98.9bn, to USD 442bn. That is less than the USD 134bn of net profit for the year. Profit adds to equity; dividends and buybacks take away from it, and a few other items move it too. The difference suggests that a meaningful part of the year's profit went back to shareholders rather than staying in the business.

Meanwhile the equity ratio, equity as a share of total assets, rose from 55.5% to 58.3%, up 2.8 pp. The company is funded more by its own capital than a year earlier, not less. Margins improved as well: operating margin moved from 45.6% to 46.8%, and net margin from 36.1% to 40.3%, a widening of 4.2 pp.

Put together, the accounts describe a business earning more, keeping a stronger balance sheet and holding less of its wealth as cash at the year end. That combination fits a company converting cash into long-lived assets and shareholder returns. It does not fit a company whose customers stopped paying. Capital expenditure is the line I would watch first.

What to check in your own company

The scale is different, the mechanism is not. You can do this tomorrow with your last two balance sheets and your income statement.

Build a cash bridge. Start with cash at the beginning of the year. Add net profit. Add back depreciation, because it reduced profit without costing cash this year. Subtract the increase in receivables and in stock. Subtract what you paid for equipment and other investments, including any money parked in deposits that do not count as cash. Subtract dividends and loan repayments, add new borrowing. You should land on closing cash. If you do not, your finance team owes you an explanation for the difference, and that difference is usually the most interesting line in the exercise.

Then run a growth test. Compare how fast your receivables and stock grew with how fast sales grew. If they grew faster, each extra unit of revenue is tying up more cash than the last. Finally, divide your cash plus unused credit lines by the monthly cash your growth consumes. The result is the number of months you can keep growing at this pace without new money. Write that number down before a bank asks for it.

Microsoft can afford a cash line that falls while profit rises, because its balance sheet grew stronger at the same time. Most companies learn the difference between profit and cash the other way, on the day payroll is due.