The Economic and Financial Analysi s [615765]

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The Economic and Financial Analysi s
Financial Analysis of Google Inc.

Polytechnic Institute of Braganca
School of Public Management, Communication and Tourism
Public Management and Administration
Narcis Gabriel Nedeluț

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CONTENTS

I. Company Profile ………………………….. ………………………….. …………………… 3

II. Financial Statement ………………………….. ………………………….. ……………. 3

Balance sheet ………………………….. ………………………….. ………………………….. … 4

Income statement ………………………….. ………………………….. ………………………. 7

Cash flow statement ………………………….. ………………………….. …………………… 9

III. Ratios Analysis ………………………….. ………………………….. ………………… 12

Profitability Ratios ………………………….. ………………………….. …………………… 12

Liability Ratios ………………………….. ………………………….. ………………………… 15

Solvency Ratios ………………………….. ………………………….. ……………………….. 16

Activity Ratios ………………………….. ………………………….. ………………………… 18

References ………………………….. ………………………….. ………………………….. ….. 20

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I. COMPANY PROFILE
“Google Inc. is a multinational technology company that creates and trades in internet
related products and services. Some of its services include advertising, search and cloud
computing ("Company – Google", 2016). Google Inc. was founded by two Ph.D. stude nts from
Stanford University in September of 1998 and has its headquarters sitting in California, United
States. Google has over the years expanded its products portfolio resulting from the creation of
various products beyond its known such engine. Some of Googles products that precede its
search engine include Google Docs, Gmail, Google+, Google Hangouts, Google Photos, Google
Books, and Google photos. The corporation in a bid to expand its market share has partnered
with some electronic manufacturers, spe arheaded the development of the Android operating
system, the Chrome OS and also ventured into the production of the Nexus devices ” (Ochyeng',
n.d.)

II. FINANCIAL STATEMENT
Financial statements for enterprises have three main situations: balance sheet, income
statement, cash flow statement. Usually enterprises need to show to public a financial statement
which needs to respect accounting principles (Generally Accepted Accounting Principles ) for to
have a well continu ity of information and to share them across international borders . The
financial statements are usually audited by government agencies , accountants, firms, to assure
accuracy and for tax, financing or investing aims. (Financial Stat ements, n.d.)
Financial analysts have data for analyze performance and for know what is going to
happening in future with stocks prices of companies. In the annual report is presented the

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financial statement is publicized in the annual report, which an important resources of reliable
and audited financial data . (Financial Statements, n.d.)

Balance sheet
“The balance sheet provides an overview of assets, liabilities and stockholders' equity as
a snapshot in time. The date at the top of the balance sheet tells you when the snapshot was
taken, which is generally the end of the fiscal year. The balance sheet e quation is assets equals
liabilities plus stockholders' equity, because assets are paid for with either liabilities, such as
debt, or stockholders' equity, such as retained earnings and additional paid -in capital. Assets are
listed on the balance sheet in order of liquidity. Liabilities are listed in the order in which they
will be paid. Short -term or current liabilities are expected to be paid within the year, while long –
term or noncurrent liabilities are debts expected to be paid after one year.” (Financial
Statements, n.d.)

Assets
“Within the assets segment, accounts are listed from top to bottom in order of their
liquidity, that is, the ease with which they can be converted into cash. They are divided into
current assets, those which can be converted to cash in one year or less; and non-current or
long-term assets, which cannot.” (Balance Sheet, n.d.)

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As of
December 31, 2015 As of
December 31,
2016
Assets
Current assets:
Cash and cash equivalents $ 16,549
$ 12,918
Marketable securities 56,517
73,415
Total cash, cash equivalents, and marketable securities (including
securities loaned of $4,531 and $0) 73,066
86,333
Accounts receivable, net of allowance of $296 and $467 11,556
14,137
Receivable under reverse repurchase agreements 450
0
Income taxes receivable, net 1,903
95
Inventory 491
268
Prepaid revenue share, expenses and other assets 2,648
4,575
Total current assets 90,114
105,408
Prepaid revenue share, expenses and other assets, non-current 3,181
1,819
Non-marketable investments 5,183
5,878
Deferred income taxes 251
383
Property and equipment, net 29,016
34,234
Intangible assets, net 3,847
3,307
Goodwill 15,869
16,468
Total assets $ 147,461
$ 167,497

(Annual Report Alphabet. Inc., 2016)

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Liabilities
Liability represents the duty which enterp rise has to others parties, debts from interest
suppliers for obligations emitted by creditors to utilities, salaries and rent. Current liabilities are
those that have debts for one year sorted in order of their duty. “ Long -term liabilities are d ue at
any point after one year.” (Balance Sheet, n.d.)
Shareholders' equity
Shareholders' equity is the money attributed to Google shareholders. (Balance Sheet, n.d.)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,931
$ 2,041
Short -term debt 3,225
0
Accrued compensation and benefits 3,539
3,976
Accrued expenses and other current liabilities 4,768
6,144
Accrued revenue share 2,329
2,942
Securities lending payable 2,428
0
Deferred revenue 788
1,099
Income taxes payable, net 302
554
Total current liabilities 19,310
16,756
Long -term debt 1,995
3,935
Deferred revenue, non -current 151
202
Income taxes payable, non -current 3,663
4,677
Deferred income taxes 189
226

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Other long -term liabilities 1,822
2,665
Total liabilities 27,130
28,461
Commitments and Contingencies (Note 10)

Stockholders’ equity:
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares
issued and outstanding 0
0
Class A and Class B common stock, and Class C capital stock and additional paid -in capital, $0.001
par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C
3,000,000); 687,348 (Class A 292,297, Class B 50,295, Class C 344,756) and 691,293 (Class A
296,992, Class B 47,437, Class C 346,864) shares issued and outstanding 32,982
36,307
Accumulated other comprehensive loss (1,874 ) (2,402 )
Retained earnings 89,223
105,131
Total stockholders’ equity 120,331
139,036
Total liabilities and stockholders’ equity $ 147,461
$ 167,497
(Annual Report Alphabet. Inc., 2016)
Income statement
Income statement is different than balance sheet because it depends of an interval of time,
which can be one year for annual financial statements or just a quarter for quarterly financial
statements . The income statement presents more exactly the revenues, expenses, net income and
earnings per share. (Financial Statements, n.d.)
“The income statement is divided into two parts: operating and non -operating.The
operating portion of the income statement discloses information about revenues and expenses
that are a direct result of regular business operations. The non -operating section discloses

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revenue and expense information about activities that are not directly tied to a company's
regular operations. ” (Income Statement, n.d.)
Year Ended December 31,
2014 2015 2016
Revenues $ 66,001
$ 74,989
$ 90,272
Costs and expenses:
Cost of revenues 25,691
28,164
35,138
Research and development 9,832
12,282
13,948
Sales and marketing 8,131
9,047
10,485
General and administrative 5,851
6,136
6,985
Total costs and expenses 49,505
55,629
66,556
Income from operations 16,496
19,360
23,716
Other income (expense), net 763
291
434
Income before income taxes 17,259
19,651
24,150
Provision for income taxes 3,639
3,303
4,672
Net income from continuing operations $ 13,620
$ 16,348
$ 19,478
Net income from discontinued operations 516
0
0
Net income $ 14,136
$ 16,348
$ 19,478
Less: Adjustment Payment to Class C capital stockholders 0
522
0
Net income available to all stockholders $ 14,136
$ 15,826
$ 19,478

Basic net income per share of Class A and B common stock:
Continuing operations $ 20.15
$ 23.11
$ 28.32
Discontinued operations 0.76
0.00
0.00

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Basic net income per share of Class A and B common stock $ 20.91
$ 23.11
$ 28.32

Basic net income per share of Class C capital stock:
Continuing operations $ 20.15
$ 24.63
$ 28.32
Discontinued operations 0.76
0.00
0.00
Basic net income per share of Class C capital stock $ 20.91
$ 24.63
$ 28.32

Diluted net income per share of Class A and B common
stock:
Continuing operations $ 19.82
$ 22.84
$ 27.85
Discontinued operations 0.75
0.00
0.00
Diluted net income per share of Class A and B common
stock $ 20.57
$ 22.84
$ 27.85

Diluted net income per share of Class C capital stock:
Continuing operations $ 19.82
$ 24.34
$ 27.85
Discontinued operations 0.75
0.00
0.00
Diluted net income per share of Class C capital stock $ 20.57
$ 24.34
$ 27.85
(Annual Report Alphabet. Inc., 2016)
Cash flow statement
The cash flow statement combines the balance sheet and the income statement. Because
of the accounting con vention, net income may fall beside cash flow . The cash flow statement is
divided in three activities: operating, in vesting and fin ancing. “Operating activities include cash
flows made from regular business operations. Investing activities include cash flo ws due to the

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buying and selling of assets such as real estate and equipment. Financing activities include cash
flows from debt and equity. This is where analysts can also find the amount of dividends paid
and/or dol lar value of shares repurchased.” (Financial Statements, n.d.)

Year Ended December 31,
2014 2015 2016
Operating activities
Net income $ 14,136
$ 16,348
$ 19,478
Adjustments:
Depreciation and impairment of property and equipment 3,523
4,132
5,267
Amortization and impairment of intangible assets 1,456
931
877
Stock -based compensation expense 4,279
5,203
6,703
Deferred income taxes (104 ) (179 ) (38 )
Gain on divestiture of business (740 ) 0
0
(Gain) loss on marketable and non -marketable investments,
net (390 ) 334
275
Other 192
212
174
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,641 ) (2,094 ) (2,578 )
Income taxes, net 591
(179 ) 3,125
Prepaid revenue share, expenses and other assets 459
(318 ) 312
Accounts payable 436
203
110
Accrued expenses and other liabilities 757
1,597
1,515
Accrued revenue share 245
339
593

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Deferred revenue (175 ) 43
223
Net cash provided by operating activities 23,024
26,572
36,036
Investing activities
Purchases of property and equipment (11,014 ) (9,950 ) (10,212 )
Proceeds from disposals of property and equipment 55
35
240
Purchases of marketable securities (56,310 ) (74,368 ) (84,509 )
Maturities and sales of marketable securities 51,315
62,905
66,895
Purchases of non -marketable investments (1,440 ) (2,326 ) (1,109 )
Maturities and sales of non-marketable investments 213
154
494
Cash collateral related to securities lending 1,403
(350 ) (2,428 )
Investments in reverse repurchase agreements (775 ) 425
450
Proceeds from divestiture of business 386
0
0
Acquisitions, net of cash acquired, and purchases of intangible
assets (4,888 ) (236 ) (986 )
Net cash used in investing activities (21,055 )
(23,711 ) (31,165 )
Financing activities
Net payments related to stock -based award activities (2,069 ) (2,375 ) (3,304 )
Adjustment Payment to Class C capital stockholders 0
(47 ) 0
Repurchases of capital stock 0
(1,780 ) (3,693 )
Proceeds from issuance of debt, net of costs 11,625
13,705
8,729
Repayments of debt (11,643 ) (13,728 ) (10,064 )
Net cash used in financing activities (2,087 ) (4,225 ) (8,332 )
Effect of exchange rate changes on cash and cash equivalents (433 ) (434 ) (170 )
Net decrease in cash and cash equivalents (551 ) (1,798 ) (3,631 )
Cash and cash equivalents at beginning of period 18,898
18,347
16,549

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Cash and cash equivalents at end of period $ 18,347
$ 16,549
$ 12,918

Supplemental disclosures of cash flow information
Cash paid for taxes, net of refunds $ 3,138
$ 3,651
$ 1,643
Cash paid for interest 86
96
84
(Annual Report Alphabet. Inc., 2016)

III. RATIO ANALYSIS
Ratio Analysis represents a company analyze of its financial statement content. This
analyze in generally is used to evaluate differed conditions of performance operating and
financial pe rformance such as its profitability, solvency , liqui dity and activity . (Ratio Analysis,
n.d.)
Profitability Ratios
Gross Profit Margin
Gross profit 55.134
Revenues 90.272
Gross Profit Margin 61.08%

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Operating Profit Margin
Income from operations 23.716
Revenues 90.272
Operating Profit Margin 26.27%

Net profit margin
Net income 19.478
Revenues 90.272
Net profit margin 21.58%%

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Return on Equity
Net income 19.478
Stockholders’ Equity 139.036
Return on Equity 14.01%

Return on Assets
Net income 19.478
Total Assets 167.497
Return on Assets 11.63%

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Liquidity Ratios
Current Ratio
Current Assets 105.408
Current Liabilities 16.756
Current Ratio 6.29

Quick Ratio
Total Quick Assets 100.470
Current Liabilities 16.756

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Quick Ratio 6

Cash Ratio
Total Cash Assets 86.333
Current Liabilities 16.756
Quick Ratio 5.15

Solvency Ratios
Debt to equity
Total Debt 3.935

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Stockholders’ Equity 139.036
Debt to equity 0.03

Debt to capital
Total Debt 3.935
Total Capital 142.971
Debt to capital 0.03

Interest Coverage
EBIT 24.274

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Interest Expenses 124
Interest Coverage 195.76

Activity Ratios (long term)
Net fixed asset turnover
Revenues 90.272
Property and equipment ,net 34.234
Net fixed asset turnover 2.64

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Total asset turnover
Revenues 90.272
Total Assets 167.497
Total asset turnover 0.54

Equity turnover
Revenues 90.272
Stockholders’ Equity 139.036
Equity turnover 0.65

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References
(2016). Annual Report Alphabet. Inc. Washington, D.C.
Balance Sheet . (n.d.). Retrieved February 06, 2018, from Investopedia:
https://www.investopedia.com/terms/b/balancesheet.asp
Financial Statements . (n.d.). Retrieved February 06, 2018, from Investopedia:
https://www.investopedia.com/terms/f/financial -statements.asp
Income Statement . (n.d.). Retrieved February 06, 2018, from Investopedia:
https://www.investopedia.com/terms/i/incomestatement.asp
Ratio Analysis . (n.d.). Retrieved February 06, 2018, from Investopedia:
https://www.investopedia.com/terms/r/ratioanalysis.asp
Ochyeng', S. (n.d.). A Comprehensive Financial Statement A nalysis on Google Inc. Retrieved February 06,
2018, from Academia:
http://www.academia.edu/24793287/A_Comprehensive_Financial_Statement_Analysis_on_Go
ogle_Inc