Alphabet Inc Evaluation

Document Type:Thesis

Subject Area:Finance

Document 1

, & Penman, 2007). This report highlights the said facets of corporate financing for Google Inc. It presents an introduction and background of the company. It also provides a financial review report and discusses the various financial policies that emulate soundness. Also, the report provides a calculation of various financial ratios and metrics that are fundamental for stakeholders. In 2005, Google Inc. reported 700 percent increase profit as major companies shifted to Google to enjoy more advanced advertising strategies. In 2009 and 2010, it recorded more than one billion searches made on a daily basis and also surpassing one billion monthly unique users respectively. In 2015, Google Inc. was named a subsidiary of Alphabet and also the basis for Alphabet interests on the internet. This review can be termed as ‘substantially' limited in scope than an audit since it was done objectively to express an opinion with regards to the financial statements in general.

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As a result, I don't hold or express such opinions in this review. Management or the owners of Google Inc. are the ones in charge of preparing and fairly presenting the financial statements that are aligned with the International Financial Standards Boards and also in designing, enforcing and maintaining internal controls that are relevant for the preparation and fair presentation of statements of financial position. My responsible as an auditor is to carry out reviews guided by the Statements on Standards for Accounting and Review Services provided by the American Institute of Certified Public Accountants. 001 par value per share, 100,000 shares authorized; no shares issued and outstanding 0 0 0 0 Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.

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001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 691,293 (Class A 296,992, Class B 47,437, Class C 346,864) and 694,783 (Class A 298,470, Class B 46,972, Class C 349,341) shares issued and outstanding 36,307 40,247 44187 48127 Accumulated other comprehensive loss -2,402 -992 418 1828 Retained earnings 105,131 113,247 121363 129479 Total stockholders’ equity 139,036 152,502 165968 179434 Total liabilities and stockholders’ equity $167,497 $197,295 227093 256891 Ratio analysis Higgins, R. C. (2012) defines ratio analysis as "a quantitative analysis of information contained in financial statements of companies. " In this case, the ratio analysis is used to determine the different aspects of Google's operating and financial performance. For this case, the output will be compared against Yahoo- a company that is also operating in the same sector. Profitability Ratios These ratios according to Higgins, R. C. (2012) are used to determine Google's capacity to generate earnings against the various associated expenses.

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The ratios used, have a higher value relative to Yahoo's ratio. Penman, S. H. , & Penman, (2007) defines operating margins as the percentage of sales after deducting operating expenses. The net profit is what the firm generates after paying taxes. For this case, between 2015 and 2016, Google profit margin was 22% but dropped to 11% in the period between 2016 and 2017. This is often calculated as the current ratio, quick ratio and operating cash flow ratio. However, for the case of Google in only quick ratio and current ratio are utilized. Current ratio The current ratio will be used to measure the ability of Google to pay its short term and long term obligations. This metrics entails a comparison of the current assets to current liabilities. The expectation is to have a current ratio that is aligned with the average of the industry rather slightly higher.

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, & Houston, J. F. (2012) measures a firm's short-term liquidity position. It assesses the ability of a company to meet its short-term obligations using its most liquid assets. In this case, liquid assets refer to the assets that are easily rather quickly converted into cash with minor impact to the prevailing price in an open market. In this case, the data is retrieved from the balance sheet statements to evaluate the financial leverage of a company. The metric can be referred to as gearing or risk ratio. Google’s debt-equity ratio for period 2016/2017 was 0. 29 slightly above period 2015/2016 at 0. Interest coverage ratio The metric is used to evaluate the ease of paying interest expenses on outstanding debt. Consequently, this is the margin of safety set for the creditors of a firm just in case the firm runs into financial difficulty.

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The ease of paying interest expenses declined from 1. 7 for period 2015/2016 to 1. 6 for period 2016/2017. Although the change was slightly insignificant. For Google, the asset turnover ratio was 0. 61 for period 2016/2017. Net working capital turnover This is a metric that provides a bigger picture of the company's asset status. It evaluates how the working capital of a firm is used for the operations of a firm. Working capital, in this case, refers to what is left over after the firm meets its short-term obligations. EPS for Google declined in 2016/2017 to $0. 31 from $0. 53 in 2015/2017. Dividend Yield According to Jaffe, J. , & Randolph Westerfield, R. F. (2012) notes that ROE is a metric for financial performance. It is derived from the division of net income by the shareholder's equity.

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At times it is considered as a return on net assets because shareholder's equity is equal to assets of a firm less the debts. For the case of Google Inc. Management performance using EVA Management performance in corporate finance entails the monitoring and management of the firm’s performance based on key metrics related to revenues, return on investments and operational costs among others. According to Brigham, E. F. , & Houston, J. F. About management performance, this metric is fundamental in evaluating the company's performance and management as it helps in determining if Google is creating wealth and returns for shareholders as it makes profits or otherwise. Also, EVA is positive if the overall performance is above the cost of capital of the firm.

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NOPAT Calculation 12 months ended Dec 31, 2017 Dec 31, 2016 Net income 12,662 19,478 Deferred income tax expense (benefit) 177 -120 Increase (decrease) in the allowance for doubtful accounts and sales credits 207 171 Increase (decrease) in deferred revenue 471 362 Increase (decrease) in restructuring accruals – – Increase (decrease) in equity equivalents 855 413 Interest expense 109 124 Interest expense, operating lease obligations 247 219 Adjusted interest expense 356 343 The tax benefit of interest expense -125 -120 Adjusted interest expense, after taxes 231 223 (Gain) loss on marketable securities 80 210 Interest income -1,312 -1,220 Investment income, before taxes -1,232 -1,010 Tax expense (benefit) of investment income 431 354 Investment income, after taxes -801 -657 (Income) loss from discontinued operations, net of tax – – Net operating profit after taxes (NOPAT) 12,948 19,457 COT Calculation 12 months ended Dec 31, 2017 Dec 31, 2016 Provision for income taxes 14,531 4,672 Less: Deferred income tax expense (benefit) 177 -120 Add: Tax savings from interest expense 125 120 Less: Tax imposed on investment income 431 354 Cash operating taxes 14,047 4,558 INVESTED Capital Calculation   Dec 31, 2017 Dec 31, 2016 Short-term debt – – Long-term debt, excluding the short-term portion 3,969 3,935 PV of operating lease payments 7,693 6,884 Total reported debt & leases 11,662 10,819 Stockholders' equity 152,502 139,036 Net deferred tax (assets) liabilities -250 -157 Allowance for doubtful accounts and sales credits 674 467 Deferred revenue 1,772 1,301 Restructuring accruals – – Equity equivalents 2,196 1,611 Accumulated other comprehensive (income) loss, net of tax 992 2,402 Adjusted stockholders' equity 155,690 143,049 Construction in progress -10,491 -8,166 Marketable securities -91,156 -73,415 Invested capital 65,705 72,287 ECONOMIC Spread Calculation   Dec 31, 2017 Dec 31, 2016 Selected Financial Data (USD $ in millions) Economic profit 5,476 11,264 Invested capital 65,705 72,287 Ratio Economic spread 8.

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58% ECONOMIC profit margin calculation   Dec 31, 2017 Dec 31, 2016 Selected Financial Data (USD $ in millions) Economic profit 5,476 11,264 Revenues 110,855 90,272 Increase (decrease) in deferred revenue 471 362 Ratio Economic profit margin 4. 43% Economic Value Added Computed 12 months ended Dec 31, 2017 Dec 31, 2016 Net operating profit after taxes (NOPAT) 12,948 19,457 Cost of capital 11. , Crockett, A. , Dooley, M. P. , & Ahluwalia, 2003). This is also one of the reasons as to why Google Inc. Google Inc. mainly considers the capital structure policies that are related to the damage of long-lived assets. Also, it enables accounting of self-insurance reserves and compensation that is stock-based. In regard, taking account of operating leases is also a fundamental decision of Google Inc. management. , Crockett, A. , Dooley, M. P. , & Ahluwalia, 2003). It is undeniably evident that the purpose of this policies is tied to avoiding any claims of debt holders in special cases such as high debt to equity ratio of Google assets.

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Dividend policies Google uses a set of guidelines to determine how much it will pay the shareholders from the earning. Sufficient evident indicates that the majority of Google's investors are not concerned with the dividend policy because they have the freedom to sell a percentage of a portfolio of equities in case they need cash. In relation, it is clear that the issuance of Google's dividends has a minimal impact on the stock price risks (Mishkin, F. S. , Crockett, A. Therefore, the dividend policy indicates the soundness of the financial policy of Google. This is because the dividend plan ensures that there is the longevity of the business as well as the distribution of dividends to shareholders. Leverage policies Google has established a leverage policy that extends to all its clients.

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The main reason for this policy is to ensure that Google enhances protection of its investors. This policy allows clients to utilize the services and products of the company without worrying to meet the full amount. This policy also exhibits the soundness of financial policies. Google manages to safeguard the investors from client’s defaults and threats that would otherwise affect their earnings. Findings Revenues Analysis of aggregate revenues that was recognized within the period (it is derived from the cost of goods sold, services offered, premiums and other activities related to earning process). Google revenues notable increased from 2015 to 2016. Also, there was a significant increase between 2016 and 2017. Google's net income from the ongoing operations registered a constant growth between 2015 and 2016.

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