+1 862 207 3288 Project instructions:
Now is the time we will really put our formulas to work and prepare the base for a detailed Financial Analysis of our two companies in preparation for submitting our recommendations in Week Seven. Prepare a document showing each of the ratios from Chapter 3 (this chapter will be invaluable for this submission and even gives you an example) along with the book value per share and DuPont analysis for both companies for each of the last five fiscal years; use the Financial Statements filed with the SEC. This submission can be an Excel spreadsheet containing the calculated values.
With book value per share, 13 ratios from Chapter Three, and the DuPont anlaysis, there are 15 calculations per year per company, so with two companies and 5 years for each we will have about 150 calculations. The best way to approach the assignment is to use Excel to work the calucations for you. This will help you save time since you only have to build the formulas once and then use that template for the other years.
This piece of the project is all about the numbers, so it is the only one of the four parts you can submit in Excel (in fact, Excel can make this much easier for you!).
Scoring
Ratios shown (all applicable ratios from Chapter Three and book value per share), including data for the last five years 35 pts.
DuPont Analysis 15 pts.
Total Points Possible 50 pts.
Yahoo vs. Google Financial Analysis
Leakhena Williams
Introduction
Yahoo and Google are all IT based firms which provide numerous services online. The two companies are competitors in the technology services sector and are dominant stakeholders on the internet software and service business. The two are among the giants of search online and, therefore, make an excellent study for comparison. Both companies boast of a number of products which are in use in the current market ranging from search (Yahoo Answers, Google Books) to Communication services (Gmail and Yahoo Mail)
As they serve their clients, both companies have financial obligation that they strive to achieve. Shareholders are always concerned about how their companies are performing financially, and the shareholders in Yahoo and Google are not any different. They are concerned about the companies’ financial health. Financial analysis also provides new investors with useful information that can give them insight in making decisions on how and in which company it is better to invest.
In this paper, there is an analysis of the current financials of the two companies. The paper goes on to perform a comparison of Yahoo and Google’s financial analysis. The paper will compare a number of their financial ratios to determine how the compare against each other. This way any person looking to invest in either company can be able to look at this report and make informed decisions on which of the two companies is more profitable than the other.
What they have in common
In the 90’s we saw a huge dot.com boom as they say in the finance world. Many investors saw their small investments grow tenfold in companies like Apple. Yahoo and Google for that matter both started with similar focuses in mind as well as how to simplify user’s ability to find and get to web sites without having to remember every URL. Both Google and Yahoo use advertising funded search engine models. Yahoo that was founded in 1994 by David Filo and Jerry Yang the created of Yahoo! Directory as a collection of it favorite web pages (Search Engine History, 2013). Then as a company continues to grow they had to be reorganize and become a searchable directory. With the set directories the Wonderer provided us with compiled description with each URL. Time passed and Yahoo! Directory grew, and Yahoo! began charging commercial sites for inclusion (Search Engine History, 2013).
Google began two years later in January 1996. Google started out as a research project by Sergey Brin and Larry Page. What they had envisioned at that time that while Yahoo used conventional search engines as results by counting how many times the search terms appeared on the page, they wanted to come up with a better system that would soon analyze the relationships between all websites. With the new technology was coined Page Rank, where a website’s relevance was determined by the number of the pages where search, and with the importance of those pages that search, that was linked back to the original site (Search Engine History, 2013). What the founders of Google implemented and theorized would soon change the face of web searching and they project them to have the biggest market share in the industry to date.
As we know Google and Yahoo have very similar backgrounds, but that what sets both of the companies apart from one another. Let’s take a look how Google pulls the majority of their profits from advertising and consumers like us to where Yahoo gets funding from traditional advertisers (Berthiaume, 2013). Moreover, as I look at the company’s descriptions are different in how each company says they will provide to the common average computer user. For example Yahoo state that they are a digital media and through the company’s insights and technology, also Yahoo delivers experiences and digital content, across globally and devices. The Company provides services and online properties (Yahoo! Properties) to all users, with a range of marketing of services that designed to connect and reach with all Yahoo! Users. Google’s states their description in the opening sentence that they are a global technology company that focused on improving the ways people connect with information (Google 2013). As we see clearly that Google is sticking to their company description in many cases. In my opinion Google has managed to outwit its competitors by delivering solid search results. However, Yahoo has done an outstanding job of intergrading search results with its rich network of Yahoo content.
Financial Ratios
It is also necessary that a comparison of two company’s financial ratios be done in order to come up with a conclusive report. It will also enable investors to predict which company is most stable than the other. The company financials as it is shown that Google Inc has a much impressive portfolio as compared to Yahoo. The financial ratios that this essay will focus on include book value per share, current ratios, and profit margin on sales (Bull, R. 2008).
Book value per share
The book value of a company’s securities can be equated to an artificial value or a ballpark value. This means that the book value suggests what the company assets are worth, that if the company was to liquidate all its assets and clear all debts and liabilities, the book value is what it would probably get. A more accurate explanation would be that the book value is not so much a representation of what the shareholders would get upon liquidation rather it is a representation of what has been put in the company (Graham, B. 1998). In most cases, however, the book value is often much less than what the actual value is. Book value per share is, therefore, the value recorded in the company’s books (Graham, B 1998).
It can be calculated by the formula below.
Book value per share = Total Share Holders’ Equity –Intangible Assets
Total Number of Shares
Yahoo’s Book Value per Share
Total Share Holders Equity = $12,905,183,000
Intangible assets = $ 4,699,319,000
Total Outstanding Shares = 359,475,859
Book value per share = (12,905,183,000-4,699,319,000)/ 359,475,859
= $ 22.8
Yahoo’s consolidated total Shareholder equity as at the 2013 (in 1000s)
Year 2009 2010 2011 2012 2013
Total Yahoo! Inc. stockholders’ equity $ 12,493,320 $ 12,558,129 $ 12,541,067 $ 14,560,200 $ 13,074,909
Total Intangible Assets $ 3,640,000 $ 3,940,000 $ 4,160,000 $ 3,980,000 $ 4,680,000
Shares traded at $ 16.91 $ 16.17 $ 15.9 $ 19.43 $ 40.17
Total Outstanding of Shares 738,812.537 776,631.354 788,746,352 749,366.958 325,489.359
Book Value per Share 11.2 11.1 10.6 14.11 25.8
(Global market share of search engines. 2010-2014)
Graphical Representation
Google Inc Book Value per share as at the first quarter of 2014
Total Share Holders Equity = $91,711,000,000
Intangible assets = $ 5,317,000,000 million
Total Outstanding Shares = 172,843,950
Book value per share = (91,711,000,000-5,317,000,000)/ 172843950
= $ 499.8
Google’s Consolidate Book Value per Share Analysis as at 2013 (in thousands)
Year 2009 2010 2011 2012 2013
Total Google Inc. stockholders’ equity $ 36,004,000 $ 46,241,000 $ 58,145,000 $ 71,715,000 $ 87,309,000
Total Intangible Assets 4,903,000 6,256,000 7,346,000 7,473,000 6,066,000
Shares Traded at 0.2979 0.2967 0.3226 0.3947 0.5586
Total Outstanding Shares 120,940.544 155,851.028 180,238.686 181,694.958 156,299.677
Book Value per share 0.2572 0.2566 0.2818 0.3536 0.5198
(Global market share of search engines. 2010-2014)
Graphical Representation Comparison
According to these results, both company’s book share value has risen significantly over the last five years. The difference however between how much each share is worth is very evident.
Profit Margin on sales
Profit margin is a calculated measure of profitability of a company. This ratio is determined by dividing net income of the company by its revenue or net profits divided by the sales. It measures the earnings a company keeps out of every sale it makes. It determines the profitability of a company. Companies with high profit margins are more profitable than other companies with relatively smaller profit margins (Graham, B.1998).
In the first quarter of 2014, Yahoo’s net income was $311.57 million and revenue of $1,132.73 million (NASDAQ, 2014a). The company’s calculated profit margin was 27.51%. Google, on the other hand, posted revenue worth $15,420.00 million and net income of $3,452.00 million for the first quarter of 2014. This translates to a profit margin 22.39%.
Looking at Google’s profit margins over the last five years, the company recorded a steady decrease in profitability and now stabilized in the last year.
Year 2009 2010 2011 2012 2013 average
Profit margin 27.6% 29% 25.7% 21.4% 21.6% 25.06%
(Global market share of search engines. 2010-2014)
Yahoo on the other side bounced back from the financial crisis and maintained its profitability until 2012 when it had a spike in profit margins that went down in the successive year.
Year 2009 2010 2011 2012 2013 average
Profit margin 9.3% 19.5% 21% 79.1% 29.2% 31.62%
(Global market share of search engines. 2010-2014)
Comparing both companies it is noted that Yahoo had trailed Google until 2011 when it surpassed it now Google is behind Yahoo in profitability margins. This shows that both companies are efficient though Yahoo edges Google slightly.
Current ratio
Current ratio, also known as Liquidity ratio, is a calculated assessment of the ability of a company to pay its short term debts, financial needs/liabilities and related obligations (Summer, M. 2013).
The ratio is calculated using the following formula = Total Current assets/ Total Current liabilities
In the first quarter of 2014 Yahoo’s total current assets were valued at $4,481.87 million, and its total current liabilities were valued at $1,194.88 million. The calculated current ratio was 3.75. This in industry standards is considered healthy. Google’s total current assets in the first quarter of 2014 were $75,314 million, and its total current liabilities were $15,908 million, translating to a current ratio of 4.6. This is quite high and regarded healthy in the industry.
Yahoo’s ratios averages to 3.3 to 1 from the past five years which mean they triple their current liabilities and mean the company can be able to service their short-term debts quickly as they mature.
Year 2009 2010 2011 2012 2013 average
Current ratio 2.7 2.7 2.9 4.4 3.7 3.3
Google has a high ratio which when looking at the financials of the past 5 years that averages 5 to 1 which shows its strong ability to meet its short-term debts and financial obligations.
Year 2009 2010 2011 2012 2013 average
Current ratio 10.6 4.2 5.9 4.2 4.6 5.9
Evaluating both companies it is noted that Google has a stronger ability than Yahoo to meet their financial obligations quickly (Helfert, E. A. 1987). However, creditors of both companies are more confident of these numbers since it shows that both companies can be able to pay them in the next 12 months. Sometimes this healthy ratio is seen as an inefficient utilization of resources that could be used profitably elsewhere. The liquidity position of Google has deteriorated while the liquidity position of yahoo has slightly improved when taking into account the same five year period.
Comparison
The two company book value per share has consistently grown over the last four years. With Yahoo recording a 103.57% share appreciation (Barron’s Money Manager Interviews, 2014) Google on the other hand recorded a 94.3% increase. This analysis shows that the Yahoo shares have been more profitable despite Google’s monopoly in the market. Another important factor to consider is that the value of Google shares is significantly higher as compared to Yahoo’s. An investor can therefore buy much more Yahoo shares as compared to what he could get for the Google shares. It is, therefore, much more profitable to invest in Yahoo as compared to Google.
In terms of profit margin the analysis, Yahoo’s profit margin again is much more profitable for than Google. It is clear in this analysis to see that the although Yahoo’s profit margin has experienced major declines; it is still a higher average margin as compared to that of Google -36% to 21% – (Rodgers, P. 2008). This comparison is puts Yahoo as the more profitable company to invest in (Barron’s Money Manager Interviews, 2014.)
The current ratios of both companies show that they have equal capabilities to clear their debts. However, Yahoo incurs fewer debts as compared to Google whose net debts are slightly higher. Yahoo, therefore, is at a much lesser rate as compared to Google.
Conclusion
The company’s ratios show a very steady increase in both company stock and profit margins. Google enjoys a majority of the market share but is not as profitable as Yahoo Inc. the above analysis show that Yahoo is a better company to invest in because realizes more profit and its shares are much cheaper as compared to Google. The analysis brings out the idea that market share does not necessarily translate to the company’s profitability.
References
Barron’s Money Manager Interviews – Do Barron’s Picks Outperform? Including Danaher Corp. (NYSE:DHR), Yahoo! Inc. (NASDAQ:YHOO) | Financial Markets. (n.d.). Before It’s News. Retrieved June 21, 2014, from http://beforeitsnews.com/financial-markets/2010/03/27971-27971.html
Bull, R. (2008). Financial ratios: how to use financial ratios to maximise value and success for your business. Oxford: CIMA.
Global market share of search engines 2010-2014 | Statistic. (n.d.). Statista. Retrieved June 21, 2014, from http://www.statista.com/statistics/216573/worldwide-market-share-of-search-engines/
NADSAQ, (2014). Google Inc: NASDAQ:GOOG quotes & news – Google Finance. (n.d.). Google Inc: NASDAQ:GOOG quotes & news – Google Finance. Retrieved June 21, 2014, from http://www.google.com/finance?cid=304466804484872
NASDAQ. (2014). Yahoo! Inc. (NASDAQ:YHOO). Retrieved from https://www.google.com/finance?q=NASDAQ:YHOO&fstype=ii
Graham, B., & Meredith, S. B. (1998). The interpretation of financial statements: the classic 1937 edition. New York: HarperBusiness.
Helfert, E. A. (1987). Techniques of financial analysis (6th ed.). Homewood, Ill.: Irwin.
Rodgers, P. (2008). Financial analysis (4th ed.). Oxford: CIMA.
Schinkel, M. (2011). Market oversight games inaugural lecture delivered upon the appointment to the chair of Competition Economics and Regulation at the University of Amsterdam on Friday, 1 October 2010. Amsterdam: Vossiuspers
Summer, M. (2013). Financial Contagion and Network Analysis. Annual Review of Financial Economics, 5(1), 277-297.
Yahoo! Inc. (2013) Annual Report- NASDAQOMX.com Retrieved from http://files.shareholder.com/downloads/YHOO/1915080215x0x574542/2ae1a20b-6fcf-43fc-b3fa-9103879d034f/Yahoo_Inc._2011_Annual_Report.pdf
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