Google Analysis
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Google, a California based corporation, is the worlds leading internet search engine. Googles main source of revenue is generated from the sale of advertisement space on its site. As Googles footprint in the market place grew, it expanded its businesses into many different areas such as technology, financial investment, and business administration. Since Google conducts its businesses across different industries, for the purpose of analysis, we will use Yahoo, a very close competitor of Google, for benchmarking. As of calendar year ending 2009, Google had a market capitalization of $195.80 billion compared to one of its major competitors, Yahoo with a market cap of $23.59 billion.
Google displayed strong liquidity based on its short-term solvency ratios. Google has improved its already strong Current Ratio from 8.77 in 2008 to 10.62 in 2009. This is almost triple the same ratio of Yahoos for the same periods. (Current ratios from the same period: 2.78 and 2.67 respectively). Googles strategy of cash management has given it the ability and opportunity to finance most of its growth and investments with its Cash & Cash Equivalents, $24,485MM at the end of 2009. Yahoo by comparison had $3,291.09MM in Cash & Cash Equivalents during this same period. This large amount of cash enables Google to quickly acquire small and innovative companies to produce new innovations.
Googles cash management directly impacts its steady and relatively low debt ratio which was 11% for both 2008 & 2009 further punctuating Googles use of cash as an internal resource to finance its growth. Yahoos 08 and 09 debt ratios were both lower per year than Googles, 17.8% and 16% respectively. Google had zero long term debt for the two year period from 2008 through 2009 and very minimal current liabilities. This indicates that Google financed all its projects from internal financing. (i.e. shareholders paid-in capital and retained earnings) Googles debt ratio is only two thirds of Yahoos, indicating lower level of short-term debts and account payables.
Google sales are almost eight times the amount of its total Accounts Receivables. The decrease of Receivable Turnover from 8.25 in 2008 to 7.44 in 2009 and the increase of Days Sales in Receivables indicate that the company has extended more credit to their customers in both total dollars and extended terms. Compared to Yahoo, Google still had a lower amount of receivables as a percentage of sales and a shorter period of payments collected.
Googles successful strategy has positively affected its profitability. Google had a profit margin of 19% in 2008 and increased it to 28% in 2009, which blew away Yahoos 5.8% and 9.2% respectively and even surpassed Microsofts 23% in 2009. Googles shareholders equity investments have been successfully invested and generated higher