Google Inc.

Claude McCalla
ACC205
Mounier Zaki
April 15
th
2014
Introduction
The information found on a financial tatement i ued !idel" #" #oth e$ternal and
internal uer% including in&etor% creditor% manager% and e$ecuti&e. Thee uer mut
anal"'e the information in order to make #uine deciion and making right deciion a#out
the in&etment opportunitie in a compan"% o undertanding financial tatement i of great
importance. (e&eral method of performing financial tatement anal"i e$it. Thi paper
aim to pro&ide a detailed anal"i of one of the mot important companie of m" generation%
Google Inc.% elected a a pu#licl" traded compan" in )nited (tate.
*irt% hort dicuion a#out the compan"+ hitor"% it product and er&ice% it
indutr" and competitor are pro&ided in ,Compan" -&er&ie!+. In the ne$t ection% a
compreheni&e three "ear income tatement% not including the pat t!o "ear% and #alance
heet anal"i i preented. The meaning and importance of hori'ontal anal"i and a &iual
preentation of the hori'ontal anal"i uing the item of income tatement and #alance heet
of Google Inc. i detailed.
A the ratio anal"i i a fundamental neceit" of e&aluation a firm+ financial and
operational oundne and o&erall performance% the uccei&e ection i dealt !ith ratio
anal"i of the compan". The meaning of the ratio ued for anal"i and the implication of
the reult found i encloed !ith thi ection. *inall" an effecti&e and meaningful
recommendation a#out the compan"+ performance and it in&etment opportunitie i
pro&ided to all indi&idual and intitutional in&etor.
Company Overview
Google Inc. i a technolog" compan" !hich #uild product and pro&ide er&ice in
order to organi'e the information and make it uni&erall" accei#le and ueful #" the uer.
Google Inc. !a founded in 1../ and i head0uartered in Mountain 1ie!% California% )nited
(tate. 2ith it appro$imatel" 43%354 full time emplo"ee% the firm i conducting it #uine
in the technolog" ector and #elong to the Internet Information 5ro&ider indutr" in )nited
(tate. It pro&ide a ,earch er&ice+ that deli&er the mot rele&ant earch reult in repone
to the uer 0uerie6,5roduct 7iting Ad+ that offer product information for cutomer6 (earch
plu 8our 2orld6 Google 9o!% a predicti&e earch feature6 and Google :no!ledge Graph%
!hich enhance (earch er&ice. The compan" alo offer Ad;2ord% an auction;#aed
ad&ertiing program6 Ad(ene% a program !hich ena#le 2e#ite that are part of the Google
9et!ork to deli&er ad6 Google <ipla"% a dipla" ad&ertiing net!ork6 <ou#leClick Ad
=$change% a marketplace for the trading dipla" ad pace6 and 8ouTu#e that pro&ide &ideo%
interacti&e% and other ad format. In addition% it pro&ide Google Mo#ile that e$tend it
product and er&ice to mo#ile de&ice uer6 Google 7ocal% !hich pro&ide local
information6 Android% an open ource mo#ile oft!are platform6 Google Chrome -(% an open
ource operating "tem6 Google Chrome% a 2e# #ro!er6 Google>% a ocial net!orking
format for haring &ariou thing online !ith different people6 Google 5la"% a cloud;#aed
digital entertainment detination6 Google <ri&e% a place for uer to create% hare% colla#orate%
and keep their tuff6 and Google 2allet% a &irtual !allet for in;tore contactle pa"ment.
*urther% the compan" offer Google T1% a platform for conumer to ue tele&iion
and the Internet on a ingle creen6 Google App% a cloud computing uite of meage and
colla#oration tool6 (earch Appliance% a earch technolog" for ue !ithin enterprie6 Google
(ite (earch% a cutom earch engine6 Google Commerce (earch for online retail enterprie6
Google Map Application 5rogramming Interface6 and Google =arth =nterprie% a oft!are
olution for imager" and data &iuali'ation. Additionall"% it offer mo#ile !irele de&ice%
and related product and er&ice. It ma?or competitor in the ame indutr" are 8ahoo@ Inc.%
*ace#ook Inc.% M(9% (I9A Corporation% and <aum Communication Corporation.
Horizontal Analysis
Aori'ontal anal"i i a fundamental procedure of comparing ratio or line item in a
compan"+ financial tatement o&er a certain period of time and #aed on !hich an anal"t
or in&etor can gather kno!ledge a#out the financial health of the elected compan" and can
make a crucial deciion !hether to in&et in it or not. -ne method of performing a hori'ontal
financial tatement anal"i compare the a#olute dollar amount of certain item o&er a
period of time. The other method of performing hori'ontal financial tatement anal"i
compare the percentage difference in certain item o&er a period of time. The dollar amount
of the change i con&erted to a percentage change. A three;"ear hori'ontal anal"i B2010%
2011and 2012C of the income tatement of Google Inc. preented in the ta#le #elo!D
Period Ending 31-Dec-1 31-Dec-11 C!ange 31-Dec-1" C!ange
Total Ee&enue 2.%F21%000 F3%.05%000 2.G 50%135%000 F2G
Cot of Ee&enue 10%413%000 1F%1//%000 23G 20%4F4%000 54G
#ross Pro$it 1%&'(& "(&)1)& 31* "'&+(1& "*
Eeearch <e&elopment F%342%000 5%142%000 F3G 4%3.F%000 F2G
(elling General and Admin 4%341%000 3%/1F%000 44G .%.//%000 2/G
Total -perating =$pene /%52F%000 12%.35%000 52G 14%3/1%000 2.G
-perating Income or 7o 10%F/1%000 11%342%000 1FG 12%340%000 .G
-ther IncomeH=$pene 9et 415%000 5/4%000 41G 424%000 3G
E,I- 1&)'.& 1"&3".& 1(* 13&3%.& '*
Income Ta$ =$pene 2%2.1%000 2%5/.%000 1FG 2%5./%000 0G
9et Income *rom Cont. -p /%505%000 .%3F3%000 14G 10%3//%000 11G
/et Income %&++& '&)3)& 1(* 1&)3)& 1*
In the "ear 2011% total re&enue increaed #" 2.G% gro profit increaed #" F1G%
=IIT Bearning #efore interet and ta$C increaed #" 14G and net income increaed #" 14G
than that of the "ear 2010. The compan" performed &er" !ell during the "ear 2011.In the
"ear 2012% total re&enue increaed #" F2G% gro profit increaed #" 20G% =IIT Bearning
#efore interet and ta$C increaed #" .G and net income increaed #" 10G than that of the
"ear 2011. The compan" performed !ell during the "ear 2011 and 2012. *rom the repecti&e
#alance heet of the compan" of 2010% 2011 and 2012% here the hori'ontal anal"i i
conducted a the percentage change in the aet and lia#ilit" item for the period 2010 to
2011 and 2011 to 2012 in the follo!ing ta#leD
Period Ending 31-Dec-1 31-Dec-11 C!ange 31-Dec-1" C!ange
Cah And Cah =0ui&alent 1F%4F0%000 .%./F%000 ;23G 14%33/%000 4/G
(hort Term In&etment 21%F45%000 F4%44F%000 42G FF%F10%000 ;4G
9et Eecei&a#le 5%241%000 4%F/3%000 21G .%32.%000 52G
In&entor" 0 F5%000 505%000 1F4FG
-ther Current Aet 1%F24%000 1%310%000 2.G 2%1F2%000 25G
-otal Current Assets (1&+."& +"&)+%& ")* .&(+(& 1+*
7ong Term In&etment 52F%000 3.0%000 51G 1%44.%000 /4G
5ropert" 5lant J =0uipment 3%35.%000 .%40F%000 24G 11%/54%000 2FG
Good!ill 4%254%000 3%F44%000 13G 10%5F3%000 4FG
Intangi#le Aet 1%044%000 1%53/%000 51G 3%43F%000 F34G
-ther Aet 442%000 4..%000 1FG 2%011%000 F0FG
<eferred 7ong Term Aet 245%000 0 ;100G 0
-otal Assets +)&%+1& )"&+)(& "+* '3&)'%& "'*
Account 5a"a#le 4%1F3%000 3%14/%000 14G 10%/.F%000 52G
Current 5ortion of 7T< F%445%000 1%21/%000 ;45G 2%54.%000 10.G
-ther Current 7ia#ilitie F.4%000 543%000 F.G /.5%000 44G
-otal Current 0ia1ilities '&''.& %&'13& -11* 1(&33)& .1*
7ong Term <e#t 0 2%./4%000 2%.//%000 0G
-ther 7ia#ilitie 1%53.%000 2%1..%000 F.G 2%3/4%000 23G
<eferred 7T;7ia#ilitie F5%000 FF1%000 /44G 1%.32%000 4.4G
-otal 0ia1ilities 11&.1& 1(&("'& "(* ""&%3& +3*
Common (tock 1/%2F5%000 20%244%000 11G 22%/F5%000 1FG
Eetained =arning 23%/4/%000 F3%405%000 F5G 4/%F42%000 2.G
-ther (tockholder =0uit" 1F/%000 234%000 100G 5F/%000 .5G
-otal 2toc3!older E4uity (.&"(1& +%&1(+& ".* )1&)1+& "3*
*rom "ear 2010 to 2011% here the hori'ontal anal"i ho! that the current aet of
the compan" increaed #" 23G #ut a the long term aet decreaed thu the increae in the
total aet of the compan" i 25G. The compan"+ long term lia#ilitie increaedand thu
total lia#ilitie increaed #" 24G and the current lia#ilitie decreaed #" almot 11G. Total
(tockholder+ e0uit" of the compan" increaed draticall" #" 24G in 2011.<uring the period
from "ear 2011 to 2012% the current aet of the compan" increaed #" 15G and total aet
increaed #"2.G. The compan"+ current lia#ilitie raied highl" #" almot 41G and the total
lia#ilitie increaed #" almot 5FG. Total (tockholder+ e0uit" of the compan" increaed
draticall" #" 2FG in 2012.
5atio Analysis
In thi ection the current ratio% 0uick ratio and cah to current lia#ilitie ratio o&er a
t!o;"ear period of 2011 and 2012 i anal"'ed. The current ratio i a meaure of the a#ilit" of
a firm to meet it hort;term o#ligation. In general% a ratio of 2 to F i uuall" conidered
good. Too mall a ratio indicate that there i ome potential difficult" in co&ering
o#ligation. A high ratio ma" indicate that the firm ha too man" aet tied up in current
aet and i not making efficient ue to them. The 0uick ratio i a more tringent meaure of
li0uidit". -nl" li0uid aet are taken into account. In&entor" and other aet are e$cluded%
a the" ma" #e difficult to dipoe of. The cah to current lia#ilitie ratio re&eal ho! much
cah and cah e0ui&alent aet the compan" ha on hand to pa" off it current o#ligation.
5oor recei&a#le or in&entor";turno&er limit can dilute the information pro&ided #" the
current and 0uick ratio. Thi ratio pro&ide a #etter indicator of a compan"K a#ilit" to pa" it
hort;term lia#ilitie !ith the cah it produce from current operation. The follo!ing ta#le
ho! the reult of the ratio for Google Inc. for the "ear 2011 and 2012D
5atios "11 "1"
Current ratio 5.. 4.2
Luick Eatio 5.3 4.0
Cah to Current 7ia#ilitie 1.1 1.0
The ratio of the compan" in 2011 !ere &er" imprei&e although there i a
decreaing trend in all the ratio in 2012 than that of the "ear 2011. In the follo!ing graph it
i ho!n that the current ratio and 0uick ratio decreaed highl" in 2012.
Aere i a comparion of the compan"+ current ratio and 0uick ratio for the "ear 2012D
5atios- "1" Company Industry
Luick Eatio 4.0 F.3
Current Eatio 4.2 4
The compan"+ current ratio and 0uick ratio i &er" high due to the high le&el of
in&entor" in 2012 and although the hort term in&etment !a lo!% the net recei&a#le in
2012 !a huge than that of in 2011. Ao!e&er% the compan" i performing #etter in compared
to it competitor in the ame indutr".
5ecommendation
Iaed on the a#o&e ratio anal"i and hori'ontal anal"i here it i clear that the
compan" i performing &er" !ell in it #uine en&ironment. Although the #uine
en&ironment in it indutr" i getting more complicated and competiti&e% Google ha the
upper hand .The high ue of long term de#t i not &er" much e$pected a it !ould increae
the financial rik of the firm. Alo the proper management of it current and long term aet
mut #e gi&en more concentration #" the repecti&e authorit" of the compan". I !ould
definitel" recommend an indi&idual to in&et in thi compan" #ecaue of it highl"
imprei&e performance and conitent oundne and financial health.
5e$erences
Eeill"% *rank :. J Iro!n% :eith C . B200.;2010C. In&etment Anal"i and 5ortfolio
Management B/
th
editionC.Thomon% (outh!etern.
Google Inc. *inancial% from
httpDHHfinance."ahoo.comH0MNG--G
Google In&etor Eelation% from
httpDHHin&etor.google.comH
=laine Aenr"% C*A % Thoma E. Eo#inon% C*A and Aan Aendrik &an Greuning% C*A B2012C.
Financial Reporting Analysis. 1olume F Eeading 23. 9e! 8orkD C*A intitute.
=dgar A. 9orton% C*A% :enneth 7. 5arkinon and Aan 5amela 5eteron <rake% C*A B2012C.
Corporate Finance and Portfolio Management% 1olume 4% Eeading 40. 9e! 8orkD C*A
intitute.