Annual Report on: Google(GOOG) By Richard Hong

Transcription

1 Annual Report on: Google(GOOG) By Richard Hong

2 Introduction Name of Chief Executive Officer: Larry Page Location of Home Office: Mountain View, California Ending date of latest fiscal year: December 31, 2012 Main geographic area of activity: International (primarily USA) Description of Principal Products/Services: 1. Search Engine: One of the most used search engine in the world. 2. Advertisement for Businesses (Adwords, Adsense): Provides effective way of advertising for businesses that targets suitable audience for specific businesses. 3. Google Android Operating System for Mobile Phones: A popular operating system for touch screen mobile devices. 4. Gmail: Service 5. Google Map: Online service of directions and locating stores.

3 Audit Report Company s Independent Auditors: Ernst & Young LLP Auditors opinion about the company: Based on the COSO criteria, the auditors state that Google has maintained effective internal control over financial reporting as of December 31, Auditors state that the financial statements are fairly accurate and present the financial condition of Google effectively as of December 31, 2012.

4 Stock Market Information Most recent price of company s stock: $ Twelve month trading range of the company s stock: $ $ Dividend per share: no dividend Date of the Information: May My opinion about the company stock as an investment: In my opinion, the stockholders should sell the company s stock now. Google s stock price hit a record high price of few weeks ago and it is declining since then. It will be very hard to see any stock price that will go beyond the 900 range. Also Apple s new phone that is about to debut in the market might affect Google s android devices. There are no definitive signs of higher stock price and the stock price now is already high. Hence, I believe that Google s stock is a sell today.

5 Income Statement 2012 Dec Dec 30 Gross Profit 29,541,000 24,717,000 Income from Operations 12,760,000 11,742,000 Net Income 10,737,000 9,737,000 *All numbers in thousands The format of this Income Statement is a single-step format. By the looking at the numbers, I can see a general rise in gross profit, net income, and income from operations. Because all the numbers rise, I may be able to predict that there is a growth for Google. Net income, which subtracts all expenses for the company from gross profit, is still high. Also Google seems to have increase in income from operations which is a good signal about the current financial status of Google.

6 Balance Sheet Asset = Liabilities + Shareholder s equity 2012 $93,798 $22,083 $71, $72,574 $14,429 $58,145 There were general increase in every account. Compared to other other accounts, the liabilities account did not increase that much. The most changed one is the asset account. Asset increased by $21,224 (in thousands) that shows company s growth. Because liabilities did not increase as much as asset did, Google seems to be operating a profitable business without increasing liabilities.

7 Statement of Cash Flows Operating Activities Net Income 10,737 9,737 Net Cash All Operating Act. Investing Activities Net Cash from Investing Act. Financing Activities Net Cash from Financing Act. 16,619 14,565 (13,056) (19,041) Cash Flows from operations are more than the net income for both years, 2012 and The company currently seems to be growing through operating activities. Google s primary source of financing is loaning. Overall, cash has increased over the past two years.

8 Accounting Policies Significant policies for Google are Nature of Operations, Basis of Consolidation, Use of Estimates, and Revenue Recognition. Nature of Operations: Google was incorporated in September 1998 in California and also re-incorporated in the State of Delaware in August Google generates revenue primarily from effective advertisement in Google s website and sale of phones (after acquisition of Motorola). Basis of Consolidation: The consolidated financial statements include the accounts of Google and all subsidiaries. All intercompany balances and truncations have been eliminated. Uses of Estimates: The preparation of consolidated financial statements in conformity with U.S Generally Accepted Accounting Policies (GAAP) requires Google to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Revenue Recognition: Google recognize revenues when the services or products have been provided or delivered, the fees Google charge are fixed or determinable, Google and Google s customers understand the specific nature and terms of the agreed upon transactions. Because Google follows the U.S GAAP, the accounting policies are more rule-based than other accounting policies like IFRS.

9 Financial Analysis Liquidity Ratios for 2011 Working Capital=Current Asset-Current Liabilities=52,758-8,913=$43,845 Current Ratio= Current Asset/Current Liabilities=52,758/8913=5.92 Receivable Turnover=net credit sales/avg account receivable=37905/20201=1.88 Average days sales uncollected=365/1.88=194.1days

10 Financial Analysis Liquidity Ratios part 2 for 2011 Inventory turnover: cost of good sold/avg inventory for the period=13188/5427=2.43 Average days inventory on hand=365/inventory turnover=365/2.43=150.2 Operating Cycle: Operating cycle: DIO+DSO- DPODIO=36.131, DSO=52.2, DPO= =72.1

11 Financial Analysis Liquidity Ratios for 2012 Working Capital : Total Current Asset: 60,454, Total Current Liabilities: 14,33760,454-14,337=46,117 Current Ratio: Total Current Asset: 60,454, Total Current Liabilities: 14,33760,454/14,337=4.22 Receivable turnover: [Net Credit Sales=$ 50,175]/[Average Accounts receivable=(5,427+7,885)/2=6,656] = 7.54 Average days sales uncollected: 365 days/receivable turnover>365/7.54=48.4 days

12 Financial Analysis Liquidity Ratios part 2 for 2012 Inventory turnover: 20634/270= Average days inventory on hand= 365days/76.42= 4.78 days Operating cycle: DIO+DSO-DPODIO=4.776, DSO=82.27, DPO= = Comments: Google seems to using its inventory and cash very well. One interesting number I see is the negative number for operating cycle. This means that the company s cash flow is in a very good situation. It also means that the companay is not paying for its inventory/materials until they are actually sold.

13 Financial Analysis Profitability Ratios Profit Margin: 2011: $37,905-13,188=$24, : $ 50,175-20,634=$29,54 Asset Turnover: 2011: total revenue/average assets for period=$37,905/75,824.5= : $ 50,175/$83,186=.60 Return on Assets: 2011: net income/total assets=$ 9,737/$72,574= : $ 10,737/$ 93,798=.11 Return on Equity 2011: net income/shareholder s equity-$9,737/58,145= : $ 10,737/71,715=.15 Comments: From the profitability ratios, I can conclude that Google Inc. is a very profitable company. Return on assets and equity are all in a very good position. Google s main revenue source, the effective advertisement, seems to be becoming more profitable as years go by. Profit margin also increased. Because of the acquisition of Motorola, Google s revenue increased by selling phones. This will generate even more revenue later on because Google can retain patents that they could not have before without Motorola.

14 Financial Analysis Market Strength Ratios Price/earnings per share: 2011: $549.5/8.34= : 707.4/6.52=108.5 No dividends for Google Inc. Comments: Google s stock seems profitable to have currently. The earnings per share is high compared to other companies. But there are no dividends for Google so there are no earnings related to dividends.

15 Financial Analysis Solvency Ratio Debt to equity 2011: Total liabilities/total shareholders equity=$14,429/58,145= : $22,083/$71,715=.31 Financing Gap 2011: 14,351/14,429= : 15,358/22078=.69 Looking at the solvency ratios, the company seems to be running very well. There are more equities than liabilities. Less liabilities means more profit later on. Specifically Google s Debt to Equity ratio proves Google s great solvency situation.

16 Industry Situation & Company Plans Google Inc. is considered a technology company. The technology field is booming right now and Google is part of that boom. There was a internet bubble crisis before but the internet era seems like it is back on a profitable business track. Along with Apple Inc., Google Inc has one of the largest market capitalization in the technology market. With the current trend and upward profit, Google Inc. will lead the technology field for quite awhile. Their search engine business became a dominant tool for the whole world which means that their revenue (advertisement) will continue to grow too. Future of Google is unimaginable due to various field that Google seems to be developing into. For example Google acquired Motorola to actually sell the phones (Google Phones) with their operating devices (android). This investment will gain Google some patents that they cannot have if they do not have the phone company. Profitability of the investment cannot be predictable because of numerous smart phone competitors. Google also plans to release Google glass. Google glass will be a new revolutionary device. Google also seems to be trying to change the way people listen to music, read books, and watch movies by offering them at Google Play. Reference 1: Reference 2: Reference 3: Reference 4:

17 Executive Summary In the age of digital technology, more and more services and products are becoming online. From Banking transactions to social networking, the internet provides what anyone asks for. Hence the dominant company of the internet era will inevitably be profitable and essential to the world. Google s net profit and working capital seems very good and the company s financial health is good compared to many others. Even with a big investment, Google maintains a profitable business. By starting new sectors in the technology field like glasses and new operating devices, Google will continue to revolutionize the way people communicate and transact with others. Google is one of the companies that is the dominant company of technology and will continue to be a profitable business.