Financial Analysis of Google Paper
An Analysis of Google It is rather difficult to think about web browsing without thinking about Google. Many people rely on Google to search and find any information they may be looking for. It is quite frequent you hear people say “Just Google it” to help find solutions. Many people rely on Google for many different aspects of learning and information. Google is a convenient and has many attributes that they offer to their users. One Google’s many attributes that is helpful for college students like us, is their scholarly browser. This browser has come in handy in the many papers we have prepared for lasses over the years.
With more and more professors asking for scholarly sources, Google makes it a hassle free to provide those sources. Some of Google’s other attributes that it offers its users are maps, image searches, web searches, email, shopping, and much more. Another reason we like Google is that they are a growing company. In a world full of information and data that vastly growing, we are in need of a speedy and up to date search engine to keep people informed and content. Google, who recently did a 2-for-l split in 2014, has stock symbols of AGOG and GOOGOL, which are classified as A shares. They two stocks are currently trading for $525. 5 (“Google A Shares”) and $534. 14 (“Google Inc. “) on May 5, 2014. In the last four years Google’s business conditions have continued to become better, showing consistent increase in stock prices each year. On May 6, 2010 the stock price was $249. 09 compared to one year later on May 6, 2011 the stock was $267. 38. Over the next year the stock price increased $30. 81 to $298. 19 on May 6, 2012. From the year 2012 to May 6, 2013 the stock price Jumped a shocking amount of $132. 15 to $430. 34. The stock price has recently increased by $103. 80 from the year 013 to May 6, 2014 to a current price of $534. 5 (“Google Inc. NASDAQ”). Google takes into much consideration its users satisfaction of its services and products. Google does this by having an easy to run customer service page. This page offers its users direct help with their Google accounts, Gamma, Docs or any other Google product. Also listed on this helpful support page is all of Google’s policies and principles, privacy and security tips, Google Headquarters, and telephone numbers to customer service help lines. Google frequently uses this information and feedback to analyze their products and services (“Contact”).
Google’s Business Operation and Corporate Development teams work on global, cross-functional projects that help the companies’ global business strategy. The teams at Google deliver insights to leaders that drive decision-making, execution and investments for some of Google’s most critical initiatives (“Business”). Google is currently available in 144 countries and holds 60% of the market share in worlds search engines. Google reaches a global business strategy by having twenty American based offices, thirteen Asia Pacific Region based offices, and five Middle East based offices, and many complex global partnerships (“International”).
Google has recently Just made a $2. 25 billion investment on data center and infrastructure spending, which is a huge area of costs for the company. Google is the most aggressive in advancing a clean energy agenda, and has mage fifteen wind and solar investments totaling more than $1 billion. Google and many other large companies like Apple, Backbone, and Microsoft are all gigantic consumers of energy, and is the reason that top companies such as Silicon Valley are in a race to be the leader of clean and renewable energies (“Google makes”). One of the most important strengths of Google is its brand equity.
Google is one of he most well-known and well-respected search engines. Another key strength for Google would be their customer responsiveness. Their customer responsiveness is a key element that will help increase their user base. One of Google’s biggest weaknesses is that you need a device and Internet to access Google’s features. Google wants to be mobile and easy to use, but still cannot be accessible to everyone, everywhere. They could solve this by making some features downloaded, but it is hard to make a search engine accessible without Internet.
A huge opportunity for Google is it’s overseas markets and advertising. Google can increase their capital by advertising in overseas markets to increase their user base. Google is also in a market that is constantly technologically growing. A great threat Google may face is other search engines. With a variety of search engines to choose from on the Internet, Google has to stay ahead of their competitors and offer as much as they can to their users. Another threat for Google recently has been social media. With Backbone and Twitter surpassing Google with Internet usage it has become an aspect that threatens Google’s future.
Backbone and Twitter are one of the main leaders in Internet advertisement (“The Makes”). Financial Analysis In this section, we will be taking a look at Google’s financial performance in recent years. All figures will be given in billions of dollars, with the exception of figures given on a per share basis. Given the recent uncertainty within the business community due to the economy, Google has done exceptionally well over they past four years. Their business continues to grow each year, and there is not much information that indicates a change in this trend anytime soon.
You do not need to look any farther than Google’s balance sheet to see what direction the company is moving in. In 2010, Google had total assets of $41. 6. By 2013, this figure had risen by $31. 33, to $72. 89. It may be surprising to know that Google’s long-term debt has not substantially grown over the past four years compared to most other large companies. Google had no long-tern debt in 2009, maintained debt at $2. 99 till 2013 when it had decreased by $. 75 to a current $2. 24 in long-term debt (“Google Inc. CLC”). By looking at Google’s income statement, their financial performance becomes even more impressive.
Moving forward, Google appears to have solid financial positioning. The above figures are very helpful in getting an idea of where the company sits, but in order to get an even better picture, it may also be worth taking a look at a few of the common financial ratios. One ratio that is especially telling about Google’s operations is its net profit margin. In 2010 Google had a net profit margin of 29% and decreased 8. 6% to a final net profit margin of 20. 4% Another important ratio used to determine a company’s ability to generate income is return on equity. Google has recently seen roughly a one percent decrease in this regard.
During the 2010 to 2014 period, their returns on equity were 18. 4%, 16. 7%, 15%, and 14% respectively. Another relevant measure to consider in the financial analysis of Google is the firm’s price to earnings ratio. Their price to earnings ratio has relatively remained the name during the four year time period. Google’s price to earnings ratios was 20. 3% starting in 2010 and 24. 6% ending in 2010 (“Google Value Line”). Google’s price to book ratio went from 72. 03 in 2010 to 130. 12 in 2013. This is a 58. 09 increase in their price to book ratio (“10 Year”).
Once again, Google does not issue dividends, so there are no dividend payout ratios or dividend yields for us to report on. Our figures are summarized below. Net Profit Margin 29% 25. 7% 21. 5% 20. 4% Return On Equity 18. 4% 16. 7% Price to Earning Ratio 20. 3 19. 1 19. 8 24. 6 Price to Book Ratio* 72. 03 89. 57 108. 7 130. 12 Figures given by Google’s Value Line Report Figures with * given by: http://www. Gracious. Com/financial/AGOG These figures show a positive trend for Google. With a relatively stable net profit margin, it is a promising indicator for Google’s future performance.
A higher profit margin indicates that a greater percentage of their sales are being turned into income. This information, along with other data listed, suggests that Google is seeing consistent improvements in operating efficiency. With the information above, it is certainly possible to evaluate the financial position of a company. However, if we take the figures and ratios from Google and compare to their competition, we will more than likely find ourselves with an even greater idea of the companies performance. In order to reach this goal, we decided to compare Google’s performance to one of their key competitors: Yahoo!
Although Yahoo! May seem to have the advantage over Google in some areas, the recent trends tend to suggest that Google is making great progress in closing the gap. Although Yahoo’s net profit margin ends slightly higher than Google’s, it is safe to say that Google’s has been higher and more consistent over the four-year span from 2010-2014. While Google’s net profit margin went from 29% to 20. 4% in 2010 to 2014, Yahoo’s increased from 19. 5% in 2010 to a current margin of 27% in 2013 (“Google Value Line”). We also noticed that Google’s return on investment decreased from 18. 4% in 2010 to 14% by the year 2013.
On the other hand, Yahoo’s return on investment increased from 9. 8% in 2010 to 10% in 2013. Although Google’s return on investment decreased over the four-year span, their ending percentage was still four percent higher than Yahoo! (“Google Value Line”). Google saw a huge increase in their earning per share starting at $26. 31 in 2010 and ending at $36. 5 in 2013. On the other hand Yahoo’s earnings per share increased by $. 36 starting at $. 90 in 2010 and ending at $1. 26 in 2013. The last two financial ratios that will help to compare the two companies are price to earnings ratio and the price to book ratio.
The price to earnings ratio for Google had a 4. 3 increase from 2010 to 2014, while Yahoo had a . 8 decrease over the same four-year time span. Google shows a remarkable increase in their price to book ratio from 2010 to 2013 with a 58. 09 increase starting at 72. 03 and ending at 130. 12(“Google Price”). Yahoo did not show such a huge Jump, unlike Google, with only a . 88 increase over four years starting at 1. 839 in 2010 and ending at 1. 927 in 2013. A summary of our comparison, along with two graphs depicting the net profit margins and earnings per share of Google and Yahoo, are below Wahoo! Price”).
Based on Google’s figures, we determined their internal growth rate by calculating their retained earnings, which are $61. 26, divided by their total assets of $72. 89 for an internal growth rate of 84. 04% as of 2013 (“Google Inc. CLC”). Yahoo’s internal growth rate was calculated the same with retained earning of $4. 27 divided by their total assets of $16. 8 for a rate of 24. 2% (“Google Inc. NASDAQ:GOOGOL”). In calculating both Google and Yahoo’s sustainable growth rate, both companies do not offer dividends leaving them with no dividend payout ratio.
With this information the company’s sustainable growth rate is equal to their return on equity. Google’s return on equity is 14% compared to Yahoo’s return on equity of 10% (“Google Value Line”). Based on the internal growth rate and the sustainable growth rate, Google’s rates are both higher than Yahoo’s, which leads us to conclude that Google is on a good trend for the future compared to their major competitors. Investment Analysis Over the past four years, Google stock has seen a considerable increase in value. Just recently in 2014 Google had issued a 2 for 1 stock.
One main investment risks for Google is the secular shift to mobile from desktop. With more and more people choosing to invest their money in cell phones and tablets instead of desktop computers, more ads are being displayed on mobile devices. With this being said, Google does not earn as much money with advertising on mobile devices compared to desktop computers. This is because of the ad size being significantly smaller. Although Google is still the leader of the web search engines, it is a risk that investors should consider. Another one of the investments risks for Google is the Motorola Division.
This division is a threat to Google because it is a motivational $12. 5 billion Motorola acquisition for the intellectual property and the build-out of a better mobile computing platform on Android. This is an investment risk because Motorola offers features that Google does that could potentially take over their place (“Google Investment”). Using the market multiple approach, we can see that now is a great time to buy into Google stock. Given Google’s current PEPS of $18. 35, along with a PIE ratio of 28. 48, the projected stock price for Google’s turns out to be $522. 61. Since Google’s current price per hare is $522. 7, it looks to be that Google stock is currently undervalued by 4 cents. If this strategy was to be implemented, and Google’s stock was to reach $522. 57, the expected rate of return would be a minimum of . 01%. A great time to invest in Google stock would be if the stock price per share were under $522. 57. An advisable time to sell stock would be if it above $522. 57 per share. Risk is always going to be a huge part of the stock market. With Google, however, our analysis has shown us to conclude that they are a strong and growing company that has the ability to provide retreat returns on investment.
They are innovative, in a great financial position, and are one of the worlds most known web search engines. We foresee Google being a dominant force within their industry for many years to come. Works Cited “10 Year Financial Data of Google Inc (AGOG) – Gracious. Com. ” 10 Year Financial Data of Google Inc (AGOG) – Gracious. Com. N. P. , n. D. Web. 6 May 2014.. “Business Strategy – Google Careers. ” Business Strategy – Google Careers. N. P. , n. D. Web. 6 May 2014. “Google (A Shares) Stock Quote. ” . NASDAQ, n. D. Web. 5 May 2014.