1) Financial Analysis of Google
Comparing Google finance record to other technology company like Microsoft or Amazon can lead to the confusion. We used the Business ferret’s 12 financial metrics to take a long, hard look Google’s financial record since 2007. We found some ups and some downs but, overall, a strong financial position. Financial analysis summary is below. 1.1) Real and Sustainable Revenue Growth
Google has averaged around 25% real growth rate annually, with the exception of 2009 when it was around 7%. So, the real revenue growth is consistently high and stable at a high level. This helps management confidence and shows that they can consistently offer products and services that customers will pay for. The problem with this high revenue growth is that it is twice the rate of their sustainable annual revenue growth.
1.2) Pricing Policy
Google has an excellent pricing policy. This company does not discount its gross profit margin in order to get more sales. In fact, Google is still raising its gross profit margin searching for its optimum level.
1.3) Operating Expense Control
The only problem with the highly successful year over year pricing policy is that Google has slipped on the control of the operating expenses cannibalizing the added pricing strength. Where net income should have continued its upward march, it has stalled out in 2011.
1.4) Excess Cash Flow
The company annually produces a massive amount of excess cash flow and it holds 4 times the amount it produces each year in cash balances. This is a lot of dead resources sitting around. This excess cash lowers the return on assets dramatically and drags down the company’s edge on innovation and competitiveness.
1.5) Return on Assets (ROA)
Google’s return on assets is about one quarter of what it should be. Reallocating the excessive amount of cash balances would correct this. Instead of an average 11% ROA the company’s adjusted ROA would vault to almost 45%...
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