Google Financial Analysis

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Sumit Das-Assignment 2|
Financial Ratio Analysis-Google Corporation |
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Sumit|
3/12/2013|

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Contents
Objective of Study2
Analysis of Auditors Report2
Common Size Ratio Analysis3
Analysis of Liquidity Ratios4
Analysis of Leverage ratios5
Analysis of Efficiency Ratios6
Analysis of Profitability Ratios7
Analysis of Effectiveness/Market Performance Ratios8
Summary9
Current Ratio (2011)9
Average Collection Period9
Debt Ratio9
Accounts Payable turnover10
Gross Profit Margin10
Return on Assets10
Recommendations11

Objective of Study

Financial ratio analysis is a very important element of fundamental analysis process. Working through number in a financial statement can be very difficult for any financial analyst .Working through ratios gives us the opportunity to work through the financial analysis in a very well organised manner. Financial ratios help us to see financial terms relative to other financial terms and thus provide more meaningful and useful information for the company and its investors. The objective of this study will be to calculate most relevant ratios for Google Corporation and analyse them to come to some conclusions about the current financial situation of the company. Google Corporation is a technology company .Its business is mainly focused in the following key areas: search, advertising, operating systems and platforms, and enterprise (SEC).For this analysis we will be using Microsoft as a benchmark company and companies like Yahoo and AOL to calculate the industry averages. Financial ratios are divided into different categories like profitability, liquidity etc. Each category discusses a particular aspect of the financial health of the company. Along with the standard ratios we will also calculate some ratios that give us some useful insights regarding Google Corporation. Once the ratios are calculated we perform three different types of analysis on them which are * Time Series(2004-2011)

* Cross Sectional(2010-2011)
* Peer Benchmarking(2010-2011)
Analysis of Auditors Report

The financial statements of Google Corporation for the year 2011 were audited by Ernst and Young LLP. The audit was conducted in accordance with the standards of The Public Accounting Oversight Board (United States) which require internal control to be maintained over all financial statements. According to the report the financial statements provided by Google Corporation present a fair representation of the financial situation of the company. And the consolidated results provided are in conformity with the generally accepted accounting principles. Thus the report expressed an unqualified opinion on the financial statement releases by Google Corporation. Common Size Ratio Analysis

On analysing the income state we can see that from 2010 to 2011 the net income of Google Corporation increased from around 8.5 billion to around 9.7 billion. However a vertical common size analysis shows that the net income as a percentage of the total revenues fell from 29.01 % to 25.67 %, although the cost of revenues also fell from 35.53% to 34.79%. The decrease in net income as a percentage of the total revenue can be party attributed to the increase in the Research and Development expense and increase in the sales and marketing expense. The research and development expense during this period showed an increase from 12.83 % to 13.82 % .Also the sales and marketing expense showed an increase from 9.55% to 12.11 % .The fairly substantial increase in these two items resulted in the decrease in the net income as a percentage of the total revenues. Also during the same period both sales and marketing expense (from 21.155 to 19.93%) and research and development expense (from 13.95% to 12.93%) as a percentage of the total revenue for the benchmark company Microsoft showed a decrease. Both of these trends show that the company is getting more aggressive towards these...
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