Google Financial Report

Google Financial Report - Jacob Augustine Finance For...

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Jacob Augustine Finance For Managers Financial Statement Analysis Balance Sheet Our first analysis of Google begins with the Balance Sheet. The balance sheet is sometimes referred to as a financial snapshot, because it represents the business only at specific time periods. First, it is essential to evaluate what the business is worth. This brings up what is known as the value problem: involving the conflicting issue between the book value and the market value. The book value of the company is simply the shareholder’s equity, which is found on the balance sheet. This is because the accounting equation, A=L+OE refers to the assets minus the claims against the assets to equal the book value of the company. However, this does not represent Google’s actual value. The market value of the company more accurately reflects the true worth of the corporation. There are two reasons for the discrepancy: -Financial statements are transaction based. The transaction figures are recorded when they occurred and entered into the balance sheet. The figures are never adjusted for the time value of money so there is very little relevance. Also, depreciation does not accurately reflect the true worth of assets. -Investors buy the stock for expectations of future earnings, not for the underlying value of investors. This is an important distinction, especially in a technology company like Google’s where investors rely so heavily on intangible assets, which are very difficult to assign an intrinsic value to. The market value of Google was found to be $145.4 Billion. (See Appendix A-1). The market value is calculated by multiplying shares outstanding by the price per share. This is also referred to as market capitalization. Google’s market capitalization compares to $38.4 Billion for Yahoo, its closest competitor. This shows that Google has established an enormous market share, due to its strong core competencies, which will be mentioned later. To compare the two, market value and book value, we use the Price to Book value ratio, which is found by dividing the company’s market capitalization by the book value of the equity. Google’s Price to Book ratio is 8.67 (See Appendix A-2). It is used to compare the stock’s market value to its book value. As would be expected, the market value of the stock is much greater than the book value. This is because of the intrinsic value of the intangible assets, such as intellectual property, which is not reflected in the financial statements. Yahoo Google Microso ft Price to Book 4.192 8.668 7.467 As can be seen by comparing it to the industry standard, the price to book is higher, indicating that the business is almost entirely based on intangibles.
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Jacob Augustine Finance For Managers Another important method to evaluate the market’s representation of value is known as the price to earnings ratio. This number compares its current market value per share to the earnings per share. Due to its continually high earnings, Google’s P/E ratio
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Google Financial Report - Jacob Augustine Finance For...

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