About the paper
The paper is commissioned to discuss the financial standing of Google Inc. using the statement of financial position for the year 2012 and 2013. To come up with a prudent analysis, we will be using common-size analysis and some balance sheet ratios to evaluate the financial standing of the company during the year.
Balance Sheet Analysis
Referring to the common-size balance sheet attached in the appendix section, we can see that the current asset base of the company surged by 20.5% amidst a proportionate increase in all of the components of the current asset, except inventory. Most notably, the cash position increased by 22.10%, signaling towards strong cash liquidity of the company. Another notable development in the asset base of the company was the significant increase in the long-term assets of the company. Important to note, during 2012-13, the amount of net property, plant and equipment surged by an impressive 39.40%.
As for the liability position, the current liabilities increased by 10.96% and when compared with the proportionate increase in the current asset base which increased by 20.5%, the multiple confirms strong working capital position of the company. On the other hand, long-term liabilities decreased by -0.56% courtesy -25.17% reduction in the long-term debt position. Overall, the amount of total liabilities increased by 6.92%.
Another notable trend in the balance sheet position of the company was witnessed in the equity section where retained earnings were found to be increased by 26.73% while overall stockholder equity increased by 21.74%.
While the above section was supported by common-size analysis of the balance sheet of the company, this section will concrete our analysis as we run the raw financial figures through the microscope of financial ratios.
i) Current Ratio: Current Assets/ Current Liabilities
2012: 60454/14337= 4.21
2013: 72886/15908= 4.58
ii) Quick Ratio: (Cash+ Receivables)/ Current Liabilities
2012: (48088+7885)/ 14337= 3.90
2013: (58717+ 8882)/15908=4.24
Referring to the above calculations, we can witness that Google Inc. continues to hold strong liquidity standing. Beginning with the current ratio, the multiple surged from 4.21 to 4.58 as the proportionate increase in the current asset base by 20.50% surpassed that of current liabilities, which increased by 10.96%. We even analyzed the liquidity standing through a stringent measure of quick ratio and here also we found the multiple increasing from 3.90 to 4.24 amidst significant increase in cash and receivable position over the year.
Overall, our calculation confirms strong short-term, liquidity position of the company.
i) Debt- Equity Ratio: (ST Debt+ LT Debt)/ Total Equity
2012: (2549+2988)/71715 = 0.07
2013: (3009+ 2236)/ 87309 = 0.06
Referring to the above calculation we witness that the debt-equity ratio has plunged from 0.07 to 0.06 as during 2013, Google Inc. retired 25.17% of its existing long-term holdings. The trend indicates the company’s preference for the low-debt environment and improved solvency position.
At the end of this paper, using the outcome of common-size analysis and financial ratios, we can conclude that Google Inc. is operating with a healthy financial standing and is highly capable to honor its debt obligations amidst strong liquidity position.
Balance Sheet: Google Inc. (n.d.). Retrieved January 21, 2016, from Morningstar: http://financials.morningstar.com/balance-sheet/bs.html?t=GOOG®ion=usa&culture=en-US
Financial Ratios. (n.d.). Retrieved October 17, 2015, from http://www.businessplans.org/ratios.html
Wild. (2014). Financial Statement Analysis. Retrieved September 18, 2015, from https://books.google.co.in/books?id=arPoiJ6p0ngC&pg=PA88&lpg=PA88&dq=effect+of+earnings+bath+on+stock+prices&source=bl&ots=8HgyDJGCpp&sig=LBILrWj2CjEQsHDIJy1YVofbV7c&hl=en&sa=X&ved=0CDEQ6AEwAzgKahUKEwjsk7vEioPIAhWDJI4KHTCTD-A#v=onepage&q=effect%20of%20ear