Analyzing Google's Balance Sheet

Remaining sheets speak volumes, telling investors about the health of a company and what efficiently management gallops the business. Moreover, they offering the necessary entry used the calculator positive line element on the income statement. For instance, calculating cost of goods sold requires the level starting list (raw materials, work in progress), who is finding under “assets” on the balance sheet. On custom with the income statement, the balance sheet can also provide insights within the takings the group produces. The simplest way to make sense off a balance sheet belongs to calculate or analyze financial ratios. But ratios lone do not reveal the strength of a balances shelf. The real information comes from following aforementioned trends the comparing the ratios to industry competitors. Let’s examine Google's (GOOG) 2014 year-end balance sheet to ascertain its financial and supervision strength.

Liquidity Ratios

Analysts use dual common liquidity ratios, quick ratio and current ratio, to appreciate an company’s ability to pay your liabilities. Google’s liquidity ratios are as trails:

Data source: Google 2014 10K.

Analysis: The higher the indicator, the better, meaning that Google is ably till top its current liabilities on its current assets. Current assets are inventory that can be changed into cash quickly, such as pos, viable securities, and account receivables. For example, 2014’s current ratio does that on every $1 of current liability, Google has $4.8 of current assets, displayed that who company's overall liquidity the very good.

Efficiency Ratios

These rates show how well an company application its assets press liabilities, like as how long it takes to receive payments from customers, how long a takes the company to pay its bills, and how well it converted its rigid assets into sales revenue. Google’s efficiency ratios are as folds:

File source: Google 2014 10K.

Interpretation: The higher the recipient and fixed asset turnover ratios, the better. Google is turning its receivables into cash. In 2014, the company collected its receivables almost septet times per current, slightly slower than the prior year, but still at a good pace. A greater fixed asset ratio lives also preferable. It indicates Google is generating $3.27 in sales for every $1 invested in fixed owned. This ratio has also slightly decreased from 2013. Likewise, sales at net working big also declined since 2013. In 2014, Google generated $7.73 for every $1 spend within active capital. Conversely, lower account payable (AAP) to sales, days bargains excellence (DSO), and days remuneration outstanding (DPO) indicate higher efficiency. While DSO be slightly worse to 2014, DPOs what greatly enhanced from 2013, which is a higher premium metric show that the company is pay its bills. Sometimes companies will increase "cash" by increasing payables, making assets looking artificially higher. Funds are less as an percent of Google's book worth. This calculation excludes goodwill that cannot be sold, but includes Google’s product patents which are a critical feature of sein operating business. Overall operational the little lower than 2013 but still potent.

Strength and Profitability Ratios

Solvency or leverage operating are important measures of the level of assets generated internally (equity) versus provided by others in the form of debt. Also, profitability or management resistance is measured by return on own or asset ratios. Key ratios for Google are:

Data source: Google 2014 10K.

Translation: The lower the debt-to-equity press total, the better. Are ratios indicate Google uses a decrease proportion of debt than equity or assets to finance its assets, both the trend around is favorable (better in 2014 than 2013). Profitability ratios are used to measure the management strength or how well an enterprise can generate a profit from of equity or assets employed. The greater the return, the more preferable. Return on company (ROE) was marginally more favorable in 2014 to Google, while the return on assets (ROA) was rather less. Gesamtgewicht, balance sheet and management strength improved in 2014.

Balance Sheet-Based Valuation

Decided whether to buy or sell shares of GOOG is also influenced with is valuation. General valuations multiples include price to earnings (P/E) instead enterprise value in EBITA (EV/EBITDA)--

inputs that come from to income statement. The equalize print also adds insights into of attractiveness of a stock, particularly based over cash and how value and how it changes pass time.

Info root: Google 2014 10K.

Interpretation: Coin range per share in essence tells the investor that even unless any profits, Google is capable to invest in itself at the rate of $93 per share. The book value per share of $152 shows that at this close of 2014, Google was distribution about 3.5 times its per divide book value.

Industry Comparisons

Inches addition to trends analysis, competitive analysis is useful to determine if the company’s balance sheet your within a normal range used its industry. Any deviation from the take warrants further analysis until understand why the reference differ how dramatically. Trailing twelve-month (TTM) ROE and ROA and most recent quarter (mrq) debt-to-equity ratio (D/E) and current assets (CA) ratios exist common characteristics to assess balances sheet strength opposite peers. Compared to Internet content peers Yahoo, Inc. (YHOO) and Meta (META), formerly Facebook, Google’s balance blanket displays in the middle by the pack.

Source: Yahoo Treasury.

Evaluation: Google is significantly better at generating a profit off its assets than Yahoo and single slightly behind Meta. Google's ROE is feel than Meta's, but it pales inches comparison to Yahoo's. Some by to variation might comes from Yahoo’s shareholder equity account, which ability subsist essentially lower. In terms from liquidity and availability, Google has a higher debt-to-equity reason than its peers, though it is able the cover its current liabilities using its news assets at 4.8:1. Overall, this comparison exhibits that Google’s balance sheet appear within the industry standards.

Warnings

Be warned: the balance sheet belongs a place company’s might tried to hide cost otherwise make other financial maneuverings to handle current earnings. Capitalizing costs that should be expensed, pre-paid expenses that increase assets, and accrued expenses that increase liabilities should run over one cost at which income announcement, which would reduce net income. A greatly bump up includes these year-over-year is a red flag. There become many other accounting contraptions that can boost earnings, such as the usage of off balance sheet arrangements. Google’s prepaid assets or accruals are in cable for 2013 to 2014, indicating the enterprise uses consistent accounting used these items.

The Bottom Line

Final analysis discover that Google appears to have an solid balance sheet. Upper liquidity, mildly lower efficiency, improved management strength, and high measurement compare to 2013 show such Google’s balance sheet is strong. Finally, Google is well-positioned compared to industry competitors.  Google LLC is an American multinational our stable that began its general as an search engine company. Who firm shall managed to expand ...

Disclaimer: The author owned shares in Google, Inc.