Company Financial Statements Report (Assessment)

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Introduction

The world is constantly changing in the socioeconomic, technological and cultural fronts. Major and minor effects of these rapid changes are frequently revealed through the various World businesses. Therefore all organizations should constantly develop effective marketing strategies for the purpose of enabling them adapt to the various changes capable of sustainable deliver y of goods and services of value to their customers.

Slow economic growth and international crises (as witnessed in the years 2000-2009) are some of the factors that force organizations to change. Adverting, which is one of the marketing tools has contributed tremendously towards company changes. Internet services does not only involve just selling products alone but also selling information about products.

On the same note, The Internet can now be accessed almost anywhere by numerous means, especially through mobile Internet devices. Mobile phones, data cards, handheld game consoles and cellular routers allow users to connect to the Internet from anywhere there is a wireless network supporting that device’s technology.

Within the limitations imposed by small screens and other limited facilities of such pocket-sized devices, services of the Internet, including email and the web, may be available. Service providers may restrict the services offered and wireless data transmission charges may be significantly higher than other access methods (Kotler, 2007).

Advancements in Information Communications Technology (ICT) has brought forth internet advertising. Most companies now advertise online using, for example: Google.com, Yahoo.com, Amazon.com, Alibaba.com, You tube.com and affiliate marketing, which consists of banner advertisements, pay per click, pay per view, and pay per call advertising.

In addition to this, interactive advertising, blog or article-based advertising are also popular. For companies to keep up with the shifts in communication trends there is need to embrace ICT and make use of new media as much as possible. This will allow consumers to take part in market conversations in which products and services are reviewed, ranked and evaluated based on consumer experience (Kotler, 2007).

Financial comparisons of key competitors

Microsoft Corporation deals with variety of products and services ranging from manufacture of software and hardware computer products, licensing as well games solutions. The company was founded in the year 1975 by two young men Bill Gates and Paul Allen for the purposes of developing and selling devices referred to as BASIC interpreters (Microsoft Corporation, 2011).

The company partnered with IBM in the preliminary stages making its brand known to the market in the sale of operating systems. The company sales other devices which include cable TV installed with internet access as well as home-based computer hardware.

For along time, Microsoft has been identified to operate under monopolistic practices and at the same time most of their strategies have been declared anti-competitive. However within the current portfolio, Microsoft is known to be the most profitable company within the industry.

Their turnover in the year 2009 was recorded to be USD 16.86 Billion cash flow which was considered higher than that of other competitors combined. The high revenue was attributed to the sale of Windows, MS office and strong brand positioning (Morillon, 2010).

The comparison based on the gross profit margin reveals some great concern within Google’s profitability based on sales. Microsoft is considered as having a considerable gain of more profit on sales compared to other competitors.

The statements provides some hint on Google’s ability within the management of the production costs since most of the company’s values revealed are considerably below industry average. The graph below gives the rate of cash flow within companies in the industry.

Cash flow comparalson: Microsoft, Google, Apple, Amazon.

Despite the low concentration of firms within the industry, the three major firms Google, Microsoft and Apple Inc accounts for bigger percentage of the global market share. The largest market share within the industry is under the command of Microsoft accounting for over fifty percent while Google and other controls less than 50% of the total global market share.

The level of competition amongst these firms is basically based on the basis of ‘value for a product’. The analysis considered the use of various key accounting policies for the company’s valuation purposes.

The valuation on financial status include revenue recognition, income tax expense and ascertained accruals, quality of brand and valuation of goodwill as well as stock compensation expenses. For the purposes of maintaining high reputation for superior products, Google resorts to recognizing their revenue upon delivery of products and services to the market (Morillon, 2010).

The process of evaluating the financial accounting policies of Google gives a clear picture on their accuracy, effectiveness and economic abilities in comparison to other competitors within the industry. The other competitors within the industry collect revenue upon delivery of valuable products to the consumers.

At the same time some of them like Microsoft apply the use of free services to attract consumers. At the same time Google and Microsoft applies like strategies on the valuation of their brand images as well as goodwill. Microsoft, Google and Apple also apply the use of fair value methods for the purposes of accounting for employee segments.

Analysis of the Financial Statements

Operations of Google outside United States have proved viable since they receive considerable income of more than 30% of the total net revenue. Twenty percent of this revenue is gained from potential hubs within the European countries while the remaining percentage they obtain from other regions of the world.

Despite all these, the level of penetration of Google within the market are exposed several challenges ranging from economic downturn as well as political instability within some regions. However, the company has strategized on this through the use of forward contracts.

Accounting Ratios for Google since the year 2007.

201020092007
Liquidity Ratios
Current Ratio1.281.081.06
Quick Asset Ratio1.00.750.72
Inventory turnover9.7687.84
Receivables Turnover7.89.51.0
Profitability Ratios
Gross profit margin53.6%53.56%53.67%
Net Profit Margin14.4%13.23%13.19%
Asset Turnover1.051.061.07
Return on Asset15.05%14.09%14.11%
Return on Equity31.24%30.15%35.81%
Capital Structure Ratio
Debt to Equity Ratio1.071.141.53

Explanations on profitability ratios

The analysis done on the accounting ratios from the financial statements of the two companies helped in revealing the level of liquidity of Google. The financial breakdown on the current as well as previous years gives clear position of the companies as well as the changes they might have experienced over the years.

Overall valuation on ratios reveals Google to be relatively liquid. The current ratio reveals significant status, the increase from the value in 2007 to current 1.3 shows that the current assets have increased compared to current liabilities.

Google’s level of liquidity is further revealed by quick ratio which determines its ability to meet current obligations on the basis of improved liquid assets. This is what most investors look for in companies since they are able to analyze through this the expected value for their investment.

The improvement could be recognized from improvement from below zero to 1 in the current year, showing that current and future obligations of the company can now be solved faster than previously. However, receivable turnover have since decreased posing some threat to liquidity.

Inventory turnover has experienced considerable increase indicating valuable productivity in the use of inventory, the increase from 7.9 in 2007 to current 9.76 clearly indicate this (Google Inc, 2010).

The level of profitability for Google is considered moderate compared to that of Microsoft shown through the financial analysis (Google Inc, 2010). The statement reveals that the company has experienced decrease in Gross Profit Margin, indicating an increase in the level of cost of goods sold and that on services rendered over the years.

Such evaluation reveals that the company might be on the habit of spending more on manufacturing processes compared to the ultimate product and service output supplied to the market. The financial record shows a considerable increase of around 0.12% from previous years.

Net profit Margin has since changed creating some positive impact; the notable increase has been around 4.4% since the year 2000. Asset Turnover has however decreased from 2007 indicating that Google has got challenges concerning conversion of the available assets to money.

Comparison and contrast of each company’s business model

Google is known to utilize its financial success for the purposes of promoting the value chain. The company has got the ability of providing accurate data for free to customers (Google Inc, 2010). The coverage of Google is estimated to be 60% of the total internet connection globally; this position has earned the company a considerable turnover within the last subsequent years especially in online advertising.

However, the recent developments within the market made the company to focus on vertical integration involving handsets as well as OS giving Google an upper hand over the various competitors such as Microsoft (Morillon, 2010).

Microsoft on the other hand has doubled their operating turnover to $ 58,437 billion within the last four years. Their financial base in the last few years was estimated to be equal to that of Apple and Google combined. Microsoft’s presence is felt in all value segments including provision of hardware as well as contents for consumer business (Microsoft Corporation, 2011).

One of the challenges is the development of Google which gives Bing considerable challenge within the market since it only caters for less than 10% of the global market share.

The high-end positioning of Apple within all the segments of Information Technology presents another challenge to Microsoft and at the same time development of e-stores and online applications for use in computers and handsets presents another big challenge.

All the competitors within this industry have got specific values they do consider concerning hardware supplies and other services offered to consumers. Microsoft being the biggest company in terms of assets within the industry leads in the creation and development of innovations and at the same time adds value to the web. However the success of Google is largely dependent on their performance in their algorithms (Morillon, 2010).

Google has for quite some time invested in programs such as search engine, customization of advertisement solutions, utilization of Double-click technology as well as providing customers with free information channels. However, in terms of internal efficiency, Google is considered the most efficient compared to other companies.

The last two years reveal that Google requires huge resource base for the purposes of maintaining its growth. They largely depend on corporate activities such as advertising in order to promote their new inventions such as chrome making their internal efficiency stagnant of the last two years. The company at the same time focuses on product design and marketing to penetrate global markets (Morillon, 2010).

Conclusion

Overall analysis indicates that Google experiences positive results on the capital structure though in a small margin. The ratios show that the company has got positive Debt to Equity ratio. This is an indication that Google has got potential of financing its businesses on a debt free basis.

The units on liquidity ratios makes an impression that Microsoft still has got the capability of meeting short-time obligations better off than other competitors within the market. Google should utilize strong customer relationships as one of the critical values for progress. Utilization of long-term relationships built on the platform of customer value enables a company to gain wide market for its products.

The focus on creativity may also be seen as a response to advertisers’ wish to realign consumer skepticism towards traditional advertising through a stronger focus on creative, innovative and entertaining advertising campaigns. One may thus say that the core product of such an industry is creativity.

References

Google Inc. (2010). Company Financial Statements. Web.

Kotler P. (2007). Marketing Management-Analysis, Planning, Implementation & Control. London: Prentice Hall.

Microsoft Corporation. (2011). Annual Report. Web.

Morillon, S. (2010). Financial analysis on Google, Microsoft, Apple and Amazon. Cybion Business Inteligence Journal, (1), 1-10.

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