Mini Case: Google
FIN 516:Advanced Managerial Finance
July 21, 2013
What is the name of the company? What is the industry sector?
Google Inc. is a multi-billion dollar company in the informational technology (IT) industry. Google Inc. is one of the leading computer search engines in the world and is continuing to grow as the front runner in their industry.
What are the operating risks of the company?
Within business, there will always be operational risks to consider. "Operating risk is the basic or fundamental potential for failure that is associated with the ongoing function of any type of business entity" (Tatum, 2003, para. 1). The operating risks for Google Inc. include: internal fraud, destruction of company property, and quality of goods.
Internal fraud is common in almost all industries and the same is true for the IT industry. Google Inc. is no exception to this type of operating risk, especially because of how much Google Inc. is worth. Yahoo Finance displayed the net worth of Google Inc. after the second quarter of 2013 to be $55.80B (Yahoo Inc., 2013, Financial Highlights, para. 4). With profit so high, there is always a risk that employees could defraud the company for their own personal benefit. Another potential operating risk for Google Inc. is destruction of company property. Being in the IT industry, the equipment used can be very expensive . The amount of equipment, both hardware and software, is quite vast and if employees are destructive of Google Inc. property, the cost to repair or replace such equipment could be an operational disaster. In addition, the Google Inc.campus as a whole is a very large financial aspect of the company and maintaining the ground is costly, therefore, if Google Inc. is able to avoid destruction of the grounds, they are able to avoid some operational risk.
Lastly, the quality of goods produced from Google must meet industry standard. If Google Inc. falls below the industry standard, they become financially vulnerable. In a competitive industry, it is important for Google Inc.to maintain a level of excellence and strive to stay at the top of the IT industry. With technology still booming, it is necessary financially for Google Inc. to continue pleasing and serving the public to the best of their ability. If the public becomes discouraged or disappointed with Google Inc.'s products, there is potential risk in losing profit in the future.
What is the financial risk of the company (the debt to total capitalization ratio)?
Ratio = Debt/Stockholders Equity
The total debt for Google Inc. after the end of the first quarter of 2013 is $7.38B and the total stockholders equity is $75.47B (Yahoo Inc., 2013, Balance Sheet). Therefore, the Debt to Equity Ratio is:
=$7.38B/$75.47B = 0.0977*100 = 9.77%
Does the company have any preferred stock?
Google Inc. does not have any preferred stock according to the balance sheet (Yahoo Inc., 2013, Balance Sheet). The Stockholders Equity is a combination of common stock ($23.43B), retained earnings ($51.69B), and other stockholder equity ($3.7M) (Yahoo Inc., 2013, Balance Sheet.)
What is the capital structure of the company?: Short term portion Long Term Debt, Long Term Debt, Preferred Stock (if any), and market value of common Stock issued and outstanding?
Below is the liabilities section of the balance sheet for Google Inc. Looking at the balance sheet, Google has Short term/Current Long Term Debt of $2.15B, Long Term Debt of $2.99B, no preferred stock, and Common Stock of $23.43B (Yahoo Inc., 2013, Balance Sheet).
10,043,000 Short/Current Long Term Debt
3,218,000 Other Current Liabilities
767,000 Total Current Liabilities
References: Brigham, E. & Ehrhardt, M. Financial Management: Theory and Practice (13e.) 2011. Mason:OH.
South-Western Cengage Learning.
Tatum, M. What is Operating Risk?. Retrieved from www.wisegeek.com/what-is-operating-risk.htm
Yahoo Inc. Google Inc. (GOOG). Retrieved from finance.yahoo.com/q/ks?s=GOOG
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