Use comparable periods
Microsoft reported revenue of $281,724 million in 2025 and $245,122 million in 2024. Operating income was $128,528 million and $109,433 million respectively.
Do the arithmetic
Revenue increased $36,602 million; operating income increased $19,095 million. Dividing the profit increase by the revenue increase gives an incremental operating margin of about 52.17%.
Ask what the ratio leaves out
Our follow-up questions concern capital spending, recurring revenue and competition. Operating income is not free cash flow, and one year’s incremental margin is not a forecast.
This is our application of revenue-quality questions, not Gurley’s analysis or recommendation of Microsoft. These are dated historical figures, not a current stock valuation.
Source: Microsoft 2025 annual report, summary results of operations ↗