Google vs. Yahoo Financial Analysis Essay

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Google vs. Yahoo Financial Analysis Dee Wassenberg Columbia College FINC 350 Business Finance Instructor: Darryl Sanborn February 11, 2011 Liquidity ratios, like the current ratio, provide information about a firm's ability to meet its short time financial obligations. Short-term creditors seek a high current ratio from prospective clients since it reduces their risk. For investors in a company, such as shareholders, a lower ratio is sought, so that more of a firm's assets are working to grow the business. When computing financial relationships, a good indication of the company's financial strengths and weaknesses becomes clear. Examining these ratios over time provides…show more content…
Google's high networking capital ratio, is an indication that the company also is more reliant on creditors to finance its abundant level of revenue producing assets. Profitability ratios such as the (gross) profit margin, is a measure of a firm's gross profit earned on sales. The (gross) profit margin while considering the firm's cost of goods sold does not include any other cost. As can be seen in the previous chart, all three profitability ratios for Google are considerably higher than of Yahoo and the industry average, which in short means that for 2006, Google was more effective at managing its return on assets and equity, resulting in the company’s substantially increased level of profitability over its peers. For Activity Ratios the asset turnover ratio calculates the total sales (revenue) for every dollar of assets a company owns. A receivables turnover ratio can be used to quantify a firm's effectiveness in extending credit as well as collecting debts. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio on the other hand, implies a company should re-assess its credit policies in order to ensure the timely collection of credit accounts that are not earning interest for the firm. In viewing the two activity ratios on the preceding page, it can be seen that from Google’s higher asset turnover ratio that the company is generating twice

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