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Financial Analysis For Google Vs. Yahoo Research Paper

Goog Yhoo Google and Yahoo are two of the leaders in Internet search and advertising, and the flagship site of both ranks among the top sites on the Internet. This paper will take a look at the financial statements of these two companies, and analyze them.

The first section starts with the balance sheet. The capital accounts of both companies are predominantly based on equity. Google has $3 billion in long-term debt, while Yahoo has none. Otherwise, the companies both just have operating liabilities in their capital structure. Stock prices are not part of the balance sheet and are a different metric altogether. The market cap of Google is $265 billion compared with book value equity of $71 billion, a ratio of 3.7. The market cap of Yahoo is $27 billion compared with a book value of $14 billion, a ratio of 1.9. The market clearly thinks more of Google's growth potential than it does of Yahoo's. Given Yahoo's history of sales declines, it is amazing it has a Price/Book ratio that high.

2. The fixed assets of Google are around $33 billion, while for Yahoo they are around $12 billion. Thus, they are much higher for Yahoo. This is because Google's amount of cash represents a distortion. Yahoo keeps its cash ($5.5 billion of it, anyway) as a long-term investment, which takes it out of current assets. So the way the two companies treat and record their cash is quite a bit different.

3. Google's non-current assets include plant/property/equipment and goodwill. Yahoo of course has the abovementioned long-term investments. Otherwise, p/p/e and goodwill are the two biggest categories at Yahoo as well. Trademarks and other intellectual...

Google has $1.8 billion in deferred taxes. Yahoo has $675 million in deferred taxes. These companies are going to pay such taxes during the present fiscal year but are likely to accrue more deferred taxes.
5. As noted, Google has $48 billion in cash. This pretty much answers the question about liquidity. Yahoo has $4.1 billion in cash, compared with current liabilities of $1.3 billion, so Yahoo also has good liquidity. Even though it holds some cash as a long-term asset, it keeps enough in cash to keep the company very liquid.

6. Neither company has too much debt. Only Google knows why it took out $3 billion in debt but it could pay that back tomorrow. Yahoo has no long-term debt so its position with respect to debt is quite good. Both companies could take out substantially more debt on top of their current levels, not just because of cash in the bank but because each has healthy free cash flow as well.

7. There does not appear to be any hidden assets. Probably because they are hidden.

Income Statement

1. Ratios do not tell us what the profit potential of the company is. They do tell us how profitable the company is. In this case, Google is wildly profitable. Three ratios are key to analyzing profitability, the gross, operating and net margins. Google's gross margin is 59% and its net margin is 21%. Both are very healthy ratios. Yahoo's gross margin is 67% and its net margin is 79%. This is an interesting quirk, but reflects a gain of $4.6 billion on the sale of assets. The net margin in 2011 was…

Sources used in this document:
Works Cited:

MSN Moneycentral. (2013). Google. Retrieved April 28, 2013 from http://investing.money.msn.com/investments/stock-income-statement/?symbol=GOOG

MSN Moneycentral. (2013). Yahoo. Retrieved April 28, 2013 from http://investing.money.msn.com/investments/stock-income-statement/?symbol=us%3aYHOO
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