Annual Report on:
Google(GOOG)
By Richard Hong
Introduction

Name of Chief Executive Officer: Larry Page

Location of Home Office: Mountain View, California

Ending date of latest fiscal year: December 31, 2012

Main geographic area of activity: International (primarily USA)

Description of Principal Products/Services:

1. Search Engine: One of the most used search engine in the world.

2. Advertisement for Businesses (Adwords, Adsense): Provides effective way of advertising for businesses that targets
suitable audience for specific businesses.

3. Google Android Operating System for Mobile Phones: A popular operating system for touch screen mobile devices.

4. Gmail: Email Service

5. Google Map: Online service of directions and locating stores.
Audit Report
 Company’s Independent Auditors: Ernst & Young LLP
 Auditors’ opinion about the company: Based on the
COSO criteria, the auditors state that Google has
maintained effective internal control over financial
reporting as of December 31, 2012.
 Auditors state that the financial statements are fairly
accurate and present the financial condition of Google
effectively as of December 31, 2012.
Stock Market Information

Most recent price of company’s stock: $870.76

Twelve month trading range of the company’s stock: $559.05-$920.60

Dividend per share: no dividend

Date of the Information: May 30 2013

My opinion about the company stock as an investment: In my opinion, the
stockholders should sell the company’s stock now. Google’s stock price hit
a record high price of 920.60 few weeks ago and it is declining since then.
It will be very hard to see any stock price that will go beyond the 900
range. Also Apple’s new phone that is about to debut in the market might
affect Google’s android devices. There are no definitive signs of higher
stock price and the stock price now is already high. Hence, I believe that
Google’s stock is a “sell” today.
Income Statement
*All numbers in thousands
2012 Dec 30
2011 Dec 30
Gross Profit
29,541,000
24,717,000
Income from
Operations
12,760,000
11,742,000
Net Income
10,737,000
9,737,000
The format of this Income Statement is a single-step format.
By the looking at the numbers, I can see a general rise in gross profit, net
income, and income from operations. Because all the numbers rise, I may be
able to predict that there is a growth for Google. Net income, which
subtracts all expenses for the company from gross profit, is still high. Also
Google seems to have increase in income from operations which is a good
signal about the current financial status of Google.
Balance Sheet
Asset
= Liabilities
+ Shareholder’s
equity
2012
$93,798
$22,083
$71,715
2011
$72,574
$14,429
$58,145
There were general increase in every account. Compared to other other
accounts, the liabilities account did not increase that much. The most
changed one is the asset account. Asset increased by $21,224 (in
thousands) that shows company’s growth. Because liabilities did not
increase as much as asset did, Google seems to be operating a profitable
business without increasing liabilities.
Statement of Cash Flows
2012
2011
10,737
9,737
16,619
14,565
(13,056)
(19,041)
3050
807
Operating Activities
Net Income
Net Cash All
Operating Act.
Investing Activities
Net Cash from
Investing Act.
Financing Activities
Net Cash from
Financing Act.
Cash Flows from operations are more than the net income for both years,
2012 and 2011. The company currently seems to be growing through
operating activities.
Google’s primary source of financing is loaning. Overall, cash has increased
over the past two years.
Accounting Policies


Significant policies for Google are Nature of Operations, Basis of Consolidation, Use of Estimates, and
Revenue Recognition.

Nature of Operations: Google was incorporated in September 1998 in California and also re-incorporated
in the State of Delaware in August 2003. Google generates revenue primarily from effective advertisement
in Google’s website and sale of phones (after acquisition of Motorola).

Basis of Consolidation: The consolidated financial statements include the accounts of Google and all
subsidiaries. All intercompany balances and truncations have been eliminated.

Uses of Estimates: The preparation of consolidated financial statements in conformity with U.S Generally
Accepted Accounting Policies (GAAP) requires Google to make estimates and assumptions that affect the
amounts reported and disclosed in the financial statements and the accompanying notes.

Revenue Recognition: Google recognize revenues when the services or products have been provided or
delivered, the fees Google charge are fixed or determinable, Google and Google’s customers understand the
specific nature and terms of the agreed upon transactions.
Because Google follows the U.S GAAP, the accounting policies are more “rule-based” than other
accounting policies like IFRS.
Financial Analysis Liquidity
Ratios for 2011
 Working Capital=Current Asset-Current
Liabilities=52,758-8,913=$43,845
 Current Ratio= Current Asset/Current
Liabilities=52,758/8913=5.92
 Receivable Turnover=net credit sales/avg account
receivable=37905/20201=1.88
 Average days’ sales uncollected=365/1.88=194.1days
Financial Analysis Liquidity
Ratios part 2 for 2011
 Inventory turnover: cost of good sold/avg inventory for
the period=13188/5427=2.43
 Average days’ inventory on hand=365/inventory
turnover=365/2.43=150.2
 Operating Cycle: Operating cycle: DIO+DSODPODIO=36.131, DSO=52.2,
DPO=16.2736.131+52.2-16.27=72.1
Financial Analysis Liquidity
Ratios for 2012
 Working Capital : Total Current Asset: 60,454, Total
Current Liabilities: 14,33760,454-14,337=46,117
 Current Ratio: Total Current Asset: 60,454, Total Current
Liabilities: 14,33760,454/14,337=4.22
 Receivable turnover: [Net Credit Sales=$
50,175]/[Average Accounts
receivable=(5,427+7,885)/2=6,656] = 7.54
 Average days’ sales uncollected: 365 days/receivable
turnover>365/7.54=48.4 days
Financial Analysis Liquidity
Ratios part 2 for 2012
 Inventory turnover: 20634/270= 76.42
 Average days’ inventory on hand= 365days/76.42= 4.78 days
 Operating cycle: DIO+DSO-DPODIO=4.776, DSO=82.27,
DPO=103.17. 4.776+82.27-103.17=-16.124.
 Comments: Google seems to using its inventory and cash very
well. One interesting number I see is the negative number for
operating cycle. This means that the company’s cash flow is in a
very good situation. It also means that the companay is not
paying for its inventory/materials until they are actually sold.
Financial Analysis
Profitability Ratios





Profit Margin:

2011: $37,905-13,188=$24,717

2012: $ 50,175-20,634=$29,54
Asset Turnover:

2011: total revenue/average assets for period=$37,905/75,824.5=.52

2012: $ 50,175/$83,186=.60
Return on Assets:

2011: net income/total assets=$ 9,737/$72,574=.13

2012: $ 10,737/$ 93,798=.11
Return on Equity

2011: net income/shareholder’s equity-$9,737/58,145=.17

2012: $ 10,737/71,715=.15
Comments: From the profitability ratios, I can conclude that Google Inc. is a very profitable company. Return on assets and equity are all in a very good
position. Google’s main revenue source, the effective advertisement, seems to be becoming more profitable as years go by. Profit margin also increased.
Because of the acquisition of Motorola, Google’s revenue increased by selling phones. This will generate even more revenue later on because Google can
retain patents that they could not have before without Motorola.
Financial Analysis Market
Strength Ratios
 Price/earnings per share:
 2011: $549.5/8.34=65.89
 2012: 707.4/6.52=108.5
 No dividends for Google Inc.
 Comments: Google’s stock seems profitable to have
currently. The earnings per share is high compared to
other companies. But there are no dividends for Google
so there are no earnings related to dividends.
Financial Analysis Solvency
Ratio
 Debt to equity

2011: Total liabilities/total shareholders’ equity=$14,429/58,145=.24

2012: $22,083/$71,715=.31
 Financing Gap

2011: 14,351/14,429=.99

2012: 15,358/22078=.69
Looking at the solvency ratios, the company seems to be
running very well. There are more equities than liabilities. Less liabilities
means more profit later on. Specifically Google’s Debt to Equity ratio
proves Google’s great solvency situation.
Industry Situation &
Company Plans

Google Inc. is considered a technology company. The technology field is booming right now and Google is part of that
boom. There was a internet bubble crisis before but the internet era seems like it is back on a profitable business track. Along
with Apple Inc., Google Inc has one of the largest market capitalization in the technology market. With the current trend and
upward profit, Google Inc. will lead the technology field for quite awhile. Their search engine business became a dominant
tool for the whole world which means that their revenue (advertisement) will continue to grow too.

Future of Google is unimaginable due to various field that Google seems to be developing into. For example Google
acquired Motorola to actually sell the phones (Google Phones) with their operating devices (android). This investment will
gain Google some patents that they cannot have if they do not have the phone company. Profitability of the investment
cannot be predictable because of numerous smart phone competitors. Google also plans to release Google glass. Google
glass will be a new revolutionary device. Google also seems to be trying to change the way people listen to music, read books,
and watch movies by offering them at Google Play.

Reference 1: http://googleblog.blogspot.com/2012/05/weve-acquired-motorola-mobility.html

Reference 2: http://www.theverge.com/2013/5/15/4333464/google-takes-on-spotify-with-google-play-music-all-access

Reference 3: http://www.dailymail.co.uk/news/article-2295004/Google-Glass-Googles-sinister-glasses-turn-world-searchgiants-spies.html

Reference 4: http://www.mercurynews.com/business/ci_23055285/google-profits-trounce-expectations-mobile-advertisingbusiness-ramps
Executive Summary
In the age of digital technology, more and more services and products
are becoming online. From Banking transactions to social networking, the
internet provides what anyone asks for. Hence the dominant company of
the internet era will inevitably be profitable and essential to the world.
Google’s net profit and working capital seems very good and the
company’s financial health is good compared to many others. Even with a
big investment, Google maintains a profitable business.
By starting new sectors in the technology field like glasses and new
operating devices, Google will continue to revolutionize the way people
communicate and transact with others.
Google is one of the companies that is the dominant company of
technology and will continue to be a profitable business.