Group 1 (MWF 3:30 PM)
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Google Pixel: Financial Analysis
Strategic Analysis Business Capstone
Winter 2017
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AMANDA ALIPAZ
AMITA KUMAR
JOANNE CUA
RYAN PHAM
February 28, 2017
By comparing Google’s financial ratios to those of its primary competitors in the smartphone industry, Apple and Samsung, the overall health and potential of the company can be evaluated and predicted, respectively.
Profitability
Return on Assets (ROA) - ROA indicates how profitable a company is relative to its total assets and how efficient a company is at using its assets to generate earnings.[1] Currently, Google’s ROA is 11.63% and has been increasing over the last three years. Apple’s ROA abnormally high profitability decreased, as the ROA moved from 17.04 % in 2014 to the 14.20% in 2016. Samsung’s ROA, on the whole, decreased from 10.02% to 8.67% in the same time period. Although Google’s ROA is not the highest, it is the only one that has been consistently growing.
Return on Equity (ROE) - ROE shows how much profit a company generates (in dollars) with each dollar of shareholder equity.[2] Google’s ROE rose from 13.61% to 14.01%. Apple’s ROE stagnated, as it was 35.42% in 2014 and 35.62% in 2016. Samsung, however had a decrease in ROE from 15.54% in 2014 to 13.66% in 2016.
Operating Margin (OM) - OM takes in account the cost of goods sold and operating expenses and sees how much revenue is leftover. Google’s OM increased by 1.28% from 2014 to 2016. Apple is profitable but their OM decreased from 30.48% in 2015 to 27.84% in 2016. Samsung’s OM increased every year, showing the company still was more profitable each year before taxes and interest on each dollar sale.
All three profitability ratios show that Google’s profitability is generally on the rise while that of its competitors is either stagnating or decreasing.
Leverage
Current Ratio (CR) - Current ratio measures the company’s ability to pay short-term and long-term debt. Google and Samsung both consistently have had a ratio far above 1, showing that they are doing well. In 2016, Samsung’s ratio increased from 2.47 to 14.04, showing that they have a lot more assets than liabilities. In 2014, Apple’s ratio of 1.35 was relatively good. However, it dropped to 0.81 and 0.92 in 2014 and 2015 respectively. Overall, Google’s financial ratio was steady from 2014 to 2015, but increased from 4.67 to 6.29 in 2016, showing that the company is in good financial health.
Long-Term Debt to Equity - On average, Google has the smallest and most constant L-T debt to equity ratio at 3%, 2%, and 3% in 2014, 2015, and 2016 respectively, while Apple’s continues to increase each year and is the highest at 15%, 22%, and 27%. In 2014 and 2015, Samsung had a 1% L-T debt to equity ratio, but it rose to 9% in 2016.
Interest Coverage - Determines how easy it will be for a company to pay interest expenses on outstanding debt.[3] Google has the highest interest coverage ratio at 136.73, 97.18, and 41.23 in 2014, 2015, and 2016 respectively. This is due to Google having the least interest expense at $101 to $124 billion from 2014 to 2016, and Apple and Samsung having $384 to $1456 billion and $486 to $660 billion respectively.
Because Google has a high current ratio, the smallest L-T debt to equity ratio, and the highest interest coverage ratio, it is the company with the least amount of risk and the least likely to get bankrupt. Google’s L-T debt has increased by $1 billion from 2014 to 2016, but their L-T debt to equity ratio has stayed relatively constant, and their interest coverage is still low compared to the others, signifying that the value of their stock has seen a great improvement through the years.
Asset Management
Asset Turnover - Ratio indicating value of sales or revenues relative to the value of its assets.The higher the asset turnover the better the company is performing.[4] Google has the lowest and most consistent number of asset turnovers at 0.51, 0.51, and 0.54 in years 2014 to 2016, while Samsung has the highest, but steadily decreasing, asset turnovers at 0.89, 0.83, and 0.77. Apple’s asset turnover was 0.79 in 2014, and slightly increased to 0.80 in 2015, but decreased more significantly at 0.67 in 2016.