Introduction
Financial analysis is a crucial element of company evaluation, with the main reports being analyzed being the balance sheet, income statement, and cash flow statement. The first report, the balance sheet, gives a perfect overview of the business’s financial burdens, demonstrating short-term and long-term debt. Additionally, it illuminates the organization’s assets, which can ensure its liquidity and prospects for further investments. When focusing on the corporation Meta Platforms Inc., one can see significant potential due to unsubstantial debt paired with rising asset volume.
Assets
The first part of the balance sheet that must be addressed for Meta is assets, which are represented by the company’s capital. In general, the equity in the company rises in tandem with the asset value (Welc, 2022). The worth of the organization’s assets directly impacts the equity estimation on the company’s balance sheet (Welc, 2022). In Table 1, one can see that the company’s total assets are rising.
However, with a closer inspection, it is evident that the current assets are decreasing. Current assets mainly include liquid resources, such as marketable securities or cash (Welc, 2022). Form 10-K of Meta states, “We hold investments in marketable securities, consisting mostly of U.S. government securities, U.S. government agency securities, and investment grade corporate debt securities” (Meta, 2023, p.95). As a result, given that there is a decreasing trend in this area while increasing total assets, it could demonstrate liquidation of the current assets for investments.
The news retrieved from credible sources proves Meta’s trend. During the company’s most recent earnings conference call, Chief Strategy Officer Wehner stated that investments primarily go into data centers and artificial intelligence (Bary, 2022). In other words, Meta Platforms can reduce its cash reserves and stakes in government securities for further development and investment in data center capital.
Table 1 – Assets of Meta Platforms Inc.
Source. Meta, 2023.
Liabilities
Another area worth analyzing in Meta’s balance sheet is liabilities. As seen in Table 2, both current liabilities and total liabilities have a rising trend. Meta’s growing expenditures and costs, which increased by 19% compared to the previous year to $22.1 billion in the third quarter, are a significant concern for investors (Vanian, 2022). The organization’s operating income decreased 46% from the prior year to $5.66 billion during the quarter, while its total revenue decreased 4% to $27.71 billion (Vanian, 2022).
Mark Zuckerberg, the CEO, admits that the company is experiencing a rise in costs and will continue to undergo cost-cutting, which will affect the staff and hiring process because the firm intends to hire fewer workers in 2023 (Vanian, 2022). As mentioned, Meta is making significant investments in the metaverse, a term used to describe an undeveloped virtual and augmented reality environment that may be accessible through headsets (Vanian, 2022). As a result, the future trend of the company is an increase in expenditures to continue innovations at the expense of employees.
Table 2 – Liabilities of Meta Platforms Inc.
Source. Meta, 2023.
Invested Capital
After illuminating assets and liabilities, which are closely connected to investments, the invested capital of the corporation must be reviewed. In general, invested capital implies the amount of money the business raises (Welc, 2022). In the case of Meta, in 2022, there was a multi-billion completion of the business’ first-ever bond issue, which significantly boosted invested capital, which can be observed in Table 3. The corporation offered interested institutional investors and specific non-U.S. individuals an exclusive offering of $10 billion in principal amount of fixed-rate senior unsecured notes in four different series in 2022 (Meta, 2023).
After deducting discounts and debt issuance expenses, the transaction brought in $9.92 billion in revenue (Meta, 2023). The total proceeds from the offering will be put to common organizational uses, such as capital expenditures, acquisitions, investments, and buybacks of the company’s common stock (Meta, 2023). Consequently, with this offering, Meta could finance some of its more costly projects, including its augmented reality metaverse, and establish a more conventional balance sheet.
Table 3 – Invested Capital of Meta Platforms Inc.
Source. Meta, 2023.
Shareholder Equity
Moving forward, shareholder equity is a vital element of the financial report. When reviewing it, it is crucial to mention that shareholder equity can decrease when there are buybacks and vice versa. As seen in Table 3, the shareholder equity of Meta Platforms is decreasing, seeing a slight increase in 2022. According to the company, it is permitted to issue 5,000 million Class A common shares and 4,141 million Class B common shares (Meta, 2023).
The board approved a stock buyback program for Class A common stock of directors, which began in 2017 and has no termination date (Meta, 2023). The company paid $27.93 billion to repurchase and then terminate over 160 million shares of the company’s Class A common stock (Meta, 2023). As a result, due to buybacks Meta conducts, there is a continuous reduction in shareholder equity. A probable reason why there has not been a significant reduction in this section in 2022 is that the company did not pay dividends (Meta, 2023). Overall, a decrease in this area is not a negative aspect since buybacks maximize the shareholder value for each investor.
Table 4 – Shareholder Equity of Meta Platforms Inc.
Source. Meta, 2023.
Total Debt
Finally, the section on total debt is additionally connected to a focus of Meta on innovation and research. The parent company of Facebook and Instagram is concerned that young generations are switching from its platform to TikTok, developed by ByteDance (Joshua & Smith, 2022). Moreover, it has lofty and costly plans to create an entirely new cyberspace in the Metaverse, a fully immersive virtual reality environment that Chief Executive Officer Mark Zuckerberg envisions as the future place of commerce, communication, and employment (Joshua & Smith, 2022). Consequently, these aspects help explain why the company has significant expenditures and rising debt.
Table 5 – Total Debt of Meta Platforms Inc.
Source. Meta, 2023.
Recommendations
After reviewing the case of Meta Platforms Inc., several recommendations can be made. The first crucial recommendation for the corporation concerns monitoring of assets/liquidity ratio. While having more assets than liabilities is generally desirable, it is crucial to keep a close eye on both trends and make-up. Given that the company is innovation-driven and concentrates on efforts that can introduce new services and products to consumers, Meta must ensure that asset growth is sustainable and aligned with its strategic objectives.
Moreover, another recommendation is for Meta Platforms to consider strategic partnerships and collaborations. As mentioned earlier, the corporation aspires to be the leading company in the industry, beating TikTok, run by Bytedance. Consequently, with the help of collaborations, there can be fewer financial risks and better opportunities for innovation. Finally, the corporation should consider its financial reporting, tracking key metrics, and identifying areas for improvement. With such transparency, Meta can enhance its reputation among investors and consumers.
Conclusion
Focusing on Meta Platforms Inc., a company with growing asset volume and no debt, presents a considerable opportunity. First, declining current and rising total assets suggest that the former may have been liquidated for investment purposes. Second, the company’s projected spending growth will come at the price of workers to sustain innovation. In addition, Meta has increased its capital invested, which enables it to create a more traditional balance sheet and fund some of its more expensive initiatives, such as its augmented reality metaverse.
Furthermore, since buybacks optimize shareholder value for each investment, a decline in shareholder equity is not considered a disadvantage. Lastly, a correlation exists between an increase in overall debt and Meta’s emphasis on research and innovation. It is highly recommended that the company pays attention to its asset/liability ratio to identify gaps, considers collaboration to intensify its market share, and enhances its financial reporting techniques for better transparency and communication with investors.
References
Bary, A. (2022). Meta is spending like an oil company. That needs to stop. Barron’s. Web.
Datta, T. (2022). Meta raises $10 billion in first-ever bond offering. Reuters. Web.
Joshua, J., & Smith, B. W. (2022). Meta makes bond-market debut with $10 billion jumbo deal. Bloomberg. Web.
Meta. (2023). Form 10-K. Web.
Vanian. (2022). Meta laying off more than 11,000 employees: Read Zuckerberg’s letter announcing the cuts. CNBC. Web.
Welc, J. (2022). Evaluating corporate financial performance: Tools and applications. Springer International Publishing.