Prince Mohammad Bin Fahd University

Financial Statement Analysis

Final Assignment

Section: 102 By:

Saleh Al sarraf ID: 201600384

Faris AlGhamdi ID: 201501281

Omar Alshallali ID: 201502970

Bassel Alharbi ID: 201501292

TABLE of CONTENTS

INTRODUCTION5-Year Stock Price Chart ……………………………………………….………3Company Description…………….……………………………………………. 4Cash Flow ……………………………………………………………………... 5

BodyCompany Analysis.……………………………………………………..............1

General Analysis……………………………………………………….....1P/E Ratio…………………………………….……………………….…...1

ConclusionRecommendation.……………………………………………...……..…..3

REFERENCES………………………………………………………………..5

5-Years Google Stock Price Chart

As we can see the chart that have the stock prices for Google since 2014. We see that on

Apr 2014 the stock price was $567.16. However, in 2015 it decreases by 4.34% and become

$542.56. We can see on Apr 2015 was 542.46 and we see that on Jul 2015 there was huge

increase from $537.90 to 672.93 which increases by 25%. Also we see the graph since Jul 2015

there was only small increases. We see that the highest price Google stock achieved in the

previous 5 years was on 03/12/2018 which achieve $1164.50 which is the peak point for Google

since Apr 2014 until Apr 2018. Moreover, we see that every being of each year for Google

which is Apr on every year that the prices decreases then it is increase. So, if people need to buy

stock from Google I think the best time is the begging of very year at least it will increase by 5%

which is very good. Also we see that the lowest stock price Google has was in 12/16/2014 which

was about $495.39. However, on 12/16/2015 it increases by 53% which achieve $758.09.

Generally, we can say that Google stock price is over rated and it not the appropriate time to buy

Google stock. If you have stock try to sell it as fast as you can because the prices of over rated,

and do not buy this time because as we mentioned that Google stock prices are over rated.

It is true that their performance is very good but this prices are over rated and it may decrease

any time.

Google description:

Google company is American service company that is focus on internet services and

products. Google was found in 1998 by Larry Page and Sergey Brin. Also Google are offering

services designed. Moreover, google are producing product such as home speaker, Phones, and

Wi-Fi router. Generally, google is one of the biggest service company.

Research Method:

It is very hard to find competitors for google because it very big company and also the

only competitor was Yahoo and it bought by another company and change their production line.

However, we can compare Google with Microsoft and Apple because they approximately are on

the same industry. In this paper we will analyze Google financial statement (Income statement,

balance sheet and cash flow.) Also we will compare Google with Apple, Microsoft and compare

it to the average industry. Moreover, we will analyze Google cash flow, Google stock prices and

P/E ratio.

Exhibit CCash Flow

Inflow 2017 % 2016 % 2015 %

Operations $37,091 31.87% $36,036 32.15% $26,572 25.68

% other income (expenses), net $1,047 0.90% $434 0.39% $291 0.28%

Proceeds from sales of marketable securities $73,959 63.55% $66,895 59.68% $62,905 60.79

%

proceeds from issuance of debt $4,291 3.69% $8,729 7.79% $13,705 13.25

%

Total $116,388 $112,09

4 $103,473

Outflow Operations

Purchases of marketable securities $92,195 76.50% $84,509 74.86% $74,368 71.15

% Purchase of PP&E $13,184 10.94% $10,212 9.05% $9,950 9.52%

Repayment of debt $4,377 3.63% $10,064 8.91% $13,728 13.13

% Repurchase of capital stock $4,846 4.02% $3,693 3.27% $1,780 1.70% purchase of non-marketable investments $1,745 1.45% $1,109 0.98% $2,326 2.23%Net payments related to stock-based award $4,166 3.46% $3,304 2.93% $2,375 2.27%

Total $120,5

13 $112,89

1 $104,527

A) Google Cash Inflow Analysis:

We can see in the table that Google had a cash inflow from operations amounting to 25.68% in 2015 but which has increased to 32.15% in 2016 from the total cash inflow. This trend did not continue in 2017 where we see a drop to 31.87% in operations cash inflow and rise in other sections.

We see that other income has more than doubled each year since 2015, seeing an increase from 0.28% in 2015 to 0.39% in 2016 and then to 0.90% in 2017, which might be due to rising sales of their phones and tablets.

We notice that Google has been selling more and more marketable securities over the years but they also buy more and more each year. The proceeds from sales of marketable securities have increased by 3% from 2015 to 2017.

In the past three years, Google has been issuing less debt, which might be a bad sign of them not investing their money wisely. In 2015 the proceeds from debt issuance amounted to 13.25% of cash inflows but it has been falling steadily to 7.79% in 2016 and to 3.69% in 2017.

So in total, cash inflows have grown by 7.69% from 2015 to 2016 but that growth slowed down to 3.69% from 2016 to 2016.

B) Google Cash Outflow Analysis:

The biggest and most influential part of Google’s cash outflows is the purchase of marketable securities. The purchase of marketable securities has increased by 3.71% in 2016 to 74.86% of total cash outflows. This trend continued in 2017, where it grow by 1.64% to $92.195 billions.

Google has been investing more money in purchasing properties, plants, and equipment over the past three years. They increased their purchases of PP&E by 2.57% in 2016 but we see a huge jump of 22.54% in 2017.

As we have stated before, Google has been issuing less debt the last 3 years so naturally the amount of repayment of debt have also steadily decreased in those years. It went from 13.13% of total cash outflows in 2015 to 8.91% in 2016 and then to only 3.63% in 2017.

*Google has been spending more money on repurchasing their capital stocks, which means they have a lot of cash and they want to raise the price of their stocks. The proportion of repurchase of capital stock from the total cash outflows doubled in 2016 to 3.27% and then to 4.02% in 2017.

Purchase of non-marketable securities has fluctuated from 2015 to 2017, where it went down by 109.74% in 2016 but went back up 36.45% in 2017.

Google has increased its stock-based award activities where they give their employees stocks as a bonus. The net payment related to stock-based award activities has steadily increased from 2.27% in 2015 to 2.93% in 2016 and then by 3.46% in 2017 of the total cash outflows.

The total cash outflows increased by 7.41% in 2016 and 6.32% in 2017 mainly due to an increase in the purchase of marketable securities and PP&E, even though their debt repayment was going down.

Exhibit AIncome Statement

Consolidated Statements of Income Data: 2015 2016 2017Revenues $74,989 $90,272 $110,855 Costs and Expenses: Cost of Revenues $28,164 $35,138 $45,583 Research and development $12,282 $13,948 $16,625 Sales and marketing $9,047 $10,485 $12,893 General and administrative $6,136 $6,985 $6,872 European Commission fine $0 $0 $2,736 Total costs and expenses $55,629 $66,556 $84,709

Income from operations $19,360 $23,716 $26,146other income (expenses), net $291 $434 $1,047income before income tax $19,651 $24,150 $27,193provision for income tax $3,303 $4,672 $14,531Net income $16,348 $19,478 $12,662Basic net income (loss) per share of Class A and B common stock: Continuing operations $23.11 $28.32 $18.27 Discontinued operations 0 0 0Basic net income per share of Class A and B common stock $23.11 $28.32 $18.27 Basic net income (loss) per share of Class C capital stock: Continuing operations $24.63 $28.32 $18.27 Discontinued operations 0 0 0Basic net income per share of Class C capital stock $24.63 $28.32 $18.27 Diluted net income (loss) per share of Class A and B common stock: Continuing operations $22.84 $27.85 $18 Discontinued operations 0 0 0Diluted net income per share of Class A and B common stoc $22.84 $27.85 $18.27 Diluted net income (loss) per share of Class C capital stock: Continuing operations $24.34 $27.85 $18

Discontinued operations 0 0 0Diluted net income per share of Class C capital stock $24.34 $27.85 $18

Exhibit BBalance Sheet

2015 2016 2017AssetsCurrent assets: Cash and cash equivalents $16,549 $12,918 $10,715 Marketable securities $56,517 $73,415 $91,156 Total cash, cash equivalents, and marketable securities $73,066 $86,333 $101,871 Accounts receivable, net of allowance of $467 and $674 $11,556 $14,137 $18,336 Receivable under reverse repurchase agreements $450 $0 $0

Income taxes receivable, net $1,903 $95 $369 Inventory $491 $268 $749 Other current assets $2,648 $4,575 $2,983 Total current assets $90,114 $105,408 $124,308Non-marketable investments $5,183 $5,878 $7,813Deferred income taxes $251 $383 $680Property and equipment, net $29,016 $34,234 $42,383Intangible assets, net $3,847 $3,307 $2,692Goodwill $15,869 $16,468 $16,747Other non-current assets $3,181 $1,819 $2,672 Total assets $147,461 $167,497 $197,295Liabilities and Stockholders’ EquityCurrent liabilities: Accounts payable

$1,931 $2,041 $3,137 Short-term debt $3,225 $0 $0 Accrued compensation and benefits $3,539 $3,976 $4,581 Accrued expenses and other current liabilities $4,768 $6,144 $10,177 Accrued revenue share $2,329 $2,942 $3,974 Securities lending payable $2,428 $0 $0 Deferred revenue $788 $1,099 $1,432 Income taxes payable, net $302 $554 $881 Total current liabilities $19,310 $16,756 $24,183Long-term debt $1,995 $3,935 $3,969Deferred revenue, non-current $151 $202 $340

Income taxes payable, non-current $3,663 $4,677 $12,812Deferred income taxes $189 $226 $430Other long-term liabilities $1,822 $2,665 $3,059 Total liabilities $27,130 $28,461 $44,793Stockholders’ equity:

Class A and Class B common stock $32,982 $36,307 $40,247 Accumulated other comprehensive loss $1,874 $2,402 $992 Retained earnings $89,223 $105,131 $113,247 Total stockholders’ equity $120,331 $139,036 $152,502 Total liabilities and stockholders’ equity $147,461 $167,497 $197,295

Exhibit CCash Flow

Inflow 2017 % 2016 % 2015 %

Operations $37,091 31.87% $36,036 32.15% $26,572 25.68

% other income (expenses), net $1,047 0.90% $434 0.39% $291 0.28%

Proceeds from sales of marketable securities $73,959 63.55% $66,895 59.68% $62,905 60.79

%

proceeds from issuance of debt $4,291 3.69% $8,729 7.79% $13,705 13.25

%

Total $116,388 $112,09

4 $103,473

Outflow Operations

Purchases of marketable securities $92,195 76.50% $84,509 74.86% $74,368 71.15

% Purchase of PP&E $13,184 10.94% $10,212 9.05% $9,950 9.52%

Repayment of debt $4,377 3.63% $10,064 8.91% $13,728 13.13

% Reperchase of capital stock $4,846 4.02% $3,693 3.27% $1,780 1.70% purchase of non-marketable investments $1,745 1.45% $1,109 0.98% $2,326 2.23%Net payments related to stock-based award $4,166 3.46% $3,304 2.93% $2,375 2.27%

Total $120,51

3 $112,89

1 $104,527

Exhibit DRatios (with competition)

Liquidity and solvency measures Apple Microsoft Industry Average Google2016 2017 2016 2017 2016 2017 2016 2017

working capital 27,863 27,831 80,303 95,324 54,083 61,578 88,652 100,125 current ratio 1.35 1.28 2.35 2.48 1.85 1.88 6.29 5.14Quick Ratio 1.049 0.913 2.22 2.37 1.63 1.64 6.00 4.99Accounts Receivable Turnover 13.23 13.63 4.716 4.726 8.97 9.18 7.03 6.83Number of days sales in receivables 27.59 26.77 77.40 77.24 52.50 52.01 51.94 53.46Inventory turnover 37.61 40.37 12.72 15.46 25.16 27.92 92.59 89.64number of days sales in inventory 9.71 9.04 28.69 23.61 19.20 16.32 3.94 4.07ratio of fixed assets to long-term liabilities 0.36 0.35 0.45 0.31 0.41 0.33 8.70 10.68ratio of liabilities to stockholder's equity 1.51 1.80 1.69 2.33 1.60 2.07 0.20 0.29number of times interest charges are earned

-30.38 -19.81-12.51 -8.54

(21.45) (14.18) (36.68) (132.31)

profitability measuresratio of net sales to assets 2.20 1.95 0.65 0.60 1.42 1.27 0.92 0.97rate earned on total assets 0.095 0.086 0.085 0.087 0.09 0.0866 0.12 0.07rate earned on stockholders equity 0.37 0.37 0.22 0.29 0.29 0.33 0.15 0.09

Price Earnings Ratio (P/E) is very important for every company and people who are

buying and selling stocks because it is measure the stock current share price divided by its

earnings per share. As we can see the above chart that represent Price Earnings Ratio (P/E) for

Google company. The actual P/E ratio for Google in 2017 was 32.18 which is overvalued

because the mean is 16. As a result of the increases in stock prices for Google, we can see that

the P/E ratio is overvalued. We see that in 2018 Google that their P/E ratio decreases to 25.31

which still high compare to the mean. Also, we see the estimate for Google on 2019 will

decreases to 21.12 which is mean it is decrease from 32.18 to 21.12 which decreases about

52.36%. Moreover, Google is estimating that on 2020 the P/E ratio will decrease to 18.98 which

may be good, because we it is very difficult to determine or estimating the P/E ratio on 2020.

Google are trying to decrease their P/E ratio at least to match with the mean. Company are trying

to decreases their P/E ratio because the higher P/E ratio the higher expenses. Which mean when

the company reduce their P/E ratio their actually reducing their expenses.