Example Of Essay On Prospectus Of Google

Investors are in constant search for the companies, whose stocks look undervalued and could generate abnormal returns in the future. Fundamental analysis is one of the most widely used techniques for this purpose, entailing investment in stocks of companies with the best financial ratios.
For this study I have chosen Google Inc., the biggest American software multinational corporation, which specializes in development of Internet-based products such as search engines, cloud computing, online advertising, social networking etc. While originally its business had been primarily oriented on PC-users, Google acquired a range of small software companies during recent years in order to enter the market of mobile devices software. Now the company is trying to diversify its operations, embarking on projects in new areas such as machine learning, speech recognition, broadband Internet networking and autonomous cars software.
In the process of analysis of Google Inc. financial statements was used its Form 10-K, downloaded from SEC website (Google, Inc. 2015). It contains balance sheet, income statement and other sources of information on operations in 2014. Income statement of Google for 2014 contains all data, necessary to evaluate its profitability during the period. Income statement presents key financial statements such as revenue, costs and expenses, income from operations, net income and net income per share. So analysis of these statements shows high profitability of Google, which earned $14,444 millions of net income during 2014. This corresponds to $21.02 of net income per share and indicates that the company generated significate profits for shareholders.
Note. Data is presented in $ millions, unless otherwise indicated.
These ratios prove high profitability of both companies. Facebook has a bit higher net margin, but ROA of Google is significantly higher, indicating that assets of Google are more efficient in generating profit.
Figure 1 shows return of investment, made in Google, Facebook or S&P 500 (broad market index). Within last year Google stock price fluctuated around its initial value, meaning that it underperformed the market, as S&P 500 rose by 13%. Facebook stock, on the contrary, increased in value by 45%, overperforming the market significantly. Therefore, during the last year Facebook was much better investment than Google, though their key profitability ratios are rather close. There are several possible explanations to this phenomenon (under the assumption that two mentioned profitability ratios are sufficient to evaluate general profitability of companies). First, Facebook is considered more dynamic and fast-growing company, so within the period of economic expansion its stock price rises faster than the one of more mature companies. Second possible explanation of so big divergence between Facebook and Google returns is lackluster Facebook IPO in 2012, after which its stock price was declining for more than one year, while stock market was growing rapidly. So in 2014 Facebook only made up for lost growth in 2012 – 2013. And the third explanation is possible undervaluation of Google by the market, as its weak stock returns during 2014 is in contradiction with its strong fundamentals.
Figure 1. Dynamics of $100 invested in Google, Facebook or S&P 500 stock market index. Data from Yahoo! Finance.
Note: Adapted from http://finance.yahoo.com/q/hp?s=GOOG&a=03&b=7&c=2014&d=03&e=7&f=2015&g=d,
http://finance.yahoo.com/q/hp?s=FB&a=03&b=7&c=2014&d=03&e=7&f=2015&g=d,
http://finance.yahoo.com/q/hp?s=%5EGSPC&a=03&b=7&c=2014&d=03&e=7&f=2015&g=d.
During several recent years US economy has been recovering after deep financial crisis. This recovery was reflected in ongoing bull market, lasting from 2009. Steady growth of the stock market makes stocks an attractive investment and raises the question of stock selection. This work was an attempt to analyze financial statements of Google and its influence on investors` perception of its stock. As for now, I am considering profession of portfolio manager, so completion of this assignment contributed to my expertise in this area and enhanced my financial analysis skills.

References

Google, Inc. (2015). Form 10-K 2014. Retrieved from SEC EDGAR website http://www.sec.gov/Archives/edgar/data/1288776/000128877615000008/goog2014123110-k.htm
Facebook, Inc. (2015). Form 10-K 2014. Retrieved from Facebook website http://files.shareholder.com/downloads/AMDA-NJ5DZ/7995117x0xS1326801-15-6/1326801/filing.pdf
NASDAQ. (2015, April 07). Google Inc. stock quote. Yahoo! Finance. Retrieved from http://finance.yahoo.com/q/hp?s=GOOG&a=03&b=7&c=2014&d=03&e=7&f=2015&g=d
NASDAQ. (2015, April 07). Facebook Inc. stock quote. Yahoo! Finance. Retrieved from http://finance.yahoo.com/q/hp?s=FB&a=03&b=7&c=2014&d=03&e=7&f=2015&g=d
Standard & Poor`s. (2015, April 07). S&P 500 quote. Yahoo! Finance. Retrieved from http://finance.yahoo.com/q/hp?s=%5EGSPC&a=03&b=7&c=2014&d=03&e=7&f=2015&g=d