FINANCIAL MANAGEMENT PAPER
Class Time: 3:20PM.
Case Study: Google
Company Name: Google Inc.
Traded As: NASDAQ:GOOG; NASDAQ: GOOGL
Industry: Internet, Computer Software, Telecom Equipment
Founded on: September 4, 1998
Founders: Larry Page, Sergey Brin
Headquarters: Mountain View, California, USA
Area Served: Worlwide
Revenue: $59.825 billion (2013)
Net Income: $12.92billion (2013)
Employees: 40, 829
Of the thousands of stocks one can invest in, there is only a handful that you can rely on. Google is one of those companies.
Google is an American Multinational Corporation founded by Larry Page and Sergey Brin. Google has a wide ...view middle of the document...
The company’s strong position in mobile and video has acted as a driver for market share gains in online advertising allowing the company’s revenues to grow 19.1%(qtr. vs. year ago qtr.) compared to the industry average of 13.34%. This indicates that Google is a leader in the tech market and has one of the largest market shares in online advertising. It should also be noted that Google’s Net Income (5 year average) has grown by 23.6% compared to the industry average of 23.13% giving the company a slight edge.
It can be seen from the financial ratio analysis that the company’s Net Profit Margin has increased from 12.51% in 2004 to 20.91 in the last quarter. This shows that the company makes more money out of every dollar it receives as revenue.
The company’s Return on Equity has declined over the years as the company has increased it’s equity from $36 billion to $87 billion to invest in future projects like home automation, robots, driverless cars etc. It should be noted that the company’s R&D expenditure has doubled over its life and such expenditure on R&D will improve future earning capacity of the company.
Google’s current ratio indicates that the company will be able to fulfill all it’s financial obligations. The current ratio in the last quarter was 4.63 which greater than the industry average of 2 but not too high that it would indicate that there is too much cash tied up in non productive assets. The company lost a good fraction of money because of it’s decision to back out of China. However, Google’s market share is 12 times larger than the next competitor, Yahoo!
Sources: Netmarketshare, Market Watch, webpronews, clickz, OneStat, and Websidestory.
It can be seen that Google has lower cash holdings compared to other tech companies indicating that they are investing their resources instead of leaving them ideal. CNBC contributor Andrew Busch confirms this ‘ They continue to spend, unlike Apple’ (qtd. In Lwitinn) . Apple’s cash holding are $159 billion compared to Google’s $54.7 billion.
Google’s share price has risen by 49% over the past year displaying the management’s competency to choose the right investments and handle them efficiently. The share price of Google is expected to grow further due to it’s current partnerships with Samsung, investments in Google Glass and DeepMind.
Google’s utilization of debt is minimal compared to other companies. The low debt ratio is good because it indicates that the percentage of funds utilized...