why microsoft has negative retained earning ( around 30Billion )?

Question

I happened to pass by yahoo finance and found a strange thing about microsoft. It is maintaining a huge negative retained earning in its balance sheet. Normally a well-run company has a positive retained earning in its balance sheet,
like Motorola who has 8Billion retained earning. Microsoft makes more than 5Billion more profit than Motorola every quarter. But why does it keep a negative retained earning? What's the reason behind it?

Answer 1

This is an insightful observation and an extremely interesting question!

We begin by explaining that Microsoft's retained deficit (or negative retained earnings) is not the result of a history of losses. On the contrary, it exists because Microsoft has been so financially successful that its market value (cap value) far exceeds its book value.

Microsoft's financial statements explain the answer, as follows (see link, below)

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Cash and equivalents and short-term investments totaled $23.41 billion and $34.16 billion as of June 30, 2007 and 2006, respectively. Equity and other investments were $10.12 billion and $9.23 billion as of June 30, 2007 and 2006, respectively. Our investments consist primarily of fixed-income securities, diversified among industries and individual issuers. Our investments are generally liquid and investment grade. The portfolio is invested predominantly in U.S.-dollar-denominated securities, but also includes foreign-denominated securities in order to diversify financial risk. As a result of the special dividend paid in the second quarter of fiscal year 2005 and shares repurchased, our retained deficit, including accumulated other comprehensive income, was $29.46 billion at June 30, 2007. Our retained deficit is not expected to impact our future ability to operate or pay dividends given our continuing profitability and strong cash and financial position.
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In short, Microsoft gives three reasons for the retained deficit:

(1) Microsoft has a substantial amount of foreign investments, which, as a result of the falling dollar, contributed to the retained deficit;

(2) Microsoft declared and paid a "special dividend" in the second quarter of fiscal year 2005, which contributed to the retained deficit; and

(3) Microsoft repurchased a substantial number of its shares, which contributed to its retained deficit.

Please re-post if you have additional questions.

Hope this helps.

Answer 2

It is paying dividends out of retained earnings and cash flow nothing wrong with negative net worth. Assets are at cost not value so they could still be worth a lot.