Google vs. Yahoo Financial Analysis

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Google vs. Yahoo
Financial Analysis
Dee Wassenberg
Columbia College

FINC 350 Business Finance
Instructor: Darryl Sanborn
February 11, 2011

Liquidity ratios, like the current ratio, provide information about a firm's ability to meet its short time financial obligations. Short-term creditors seek a high current ratio from prospective clients since it reduces their risk. For investors in a company, such as shareholders, a lower ratio is sought, so that more of a firm's assets are working to grow the business. When computing financial relationships, a good indication of the company's financial strengths and weaknesses becomes clear. Examining these ratios over time provides insight as to how effectively the business is being operated. The general consensus on liquidity ratios is; the higher the better, especially if a firm is reliant on any significant extent on creditors to finance their assets.

Financial Ratios for Google, Yahoo and the Internet Information Providers Industry (based on 2005 and 2006 Fiscal Year Financial Information) Google, Inc.Yahoo, Inc.Industry
Liquidity Analysis Ratios:
Current Ratio10.02.53.2
Net Working Capital Ratio0.60.2N/A

Profitability Analysis Ratios:
Return on Assets (ROA)5.4%1.7%2.1%
Return on Equity (ROE)5.8%2.1%2.2%
Profit Margin29.0%11.7%24.0%

Activity Analysis Ratios:
Assets Turnover Ratio0.20.10.1
Accounts Receivable Turnover Ratio2.61.91.1

Capital Structure Analysis Ratios:
Debt to Equity Ratio0.10.30.3
Interest Coverage Ratio3.45.31.2

Taking the two liquidity analysis ratios, current and net working capital as seen in the table on the previous page, one can clearly see from its high current ratio that Google is in a far better position than both Yahoo and other...
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