Alphabet (Google) Inc. Financial Statements and Financial Ratios Analyzed from 2015 to 2019

 “Alphabet Inc. (Google) 2019 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” was written by, Paul Borosky, MBA. and owner of Quality Business Plan.  In this book, the author selected Alphabet's 2019 10k, Alphabet's 2017 10k annual report, Alphabet's 2016 10k annual report, Alphabet's 2015 10k annual report, and Alphabet's 2014 10k annual report as the basis for information gathering.  Once all Alphabet's 10k annual statements were collected, the author then inserted Alphabet's income statement information and Alphabet's balance sheet information into a customized financial template. 

In this template, various graphs and charts were generated showing changes to Alphabet's revenues, profits, and other financial statement changes.  With this complete, a brief analysis was done for each of Alphabet's important financial statement line items.  Further, in the book, we also supply financial ratios for Alphabet's . for the last five years.  Each financial ratio has a formula supplied.  This allows you to better understand how the calculations were performed.  On a final note, for each financial statement line item and financial ratio, we offer a brief analysis of the company’s trends and what the changes mean in relations to the financial statements and financial ratios.

Alphabet Inc.: Brief Summary

Alphabet is located at 1600 Amphitheatre Parkway in Mountain View, CA. The company competes in the technological sector.  Their industry is related to Internet content and information.  Most recent estimates of the company’s employee count is about 98,000.  The firm is led by Lawrence Page.  Other members of their executive team would include Sergey Brin, Ruth Porat, and David Drummond.

Alphabet Inc., commonly known as Google, offers Internet content and advertising services to residents and businesses in the United States, European Union, Middle East, Africa, Canada, and several other countries.  Popular services provided by the firm include advertisements, digital content, cloud services, home connectivity, and other products and software services.  The firm was established in 1998.

Alphabet Financial Report by Paul Borosky, MBA.

Alphabet Financial Statements and Ratios

Table of Contents

Page count: 83

  • Disclaimer       3
  • Acknowledgments      4
  • Forward          5
  • About the Author        7
  • Company Summary    8
  • Financial Statement Introduction       10
  • Income Statement       11
  • Alphabet’s Income Statement – Summary Analysis  12
  • Income Statement Discussion 13
  • Balance Sheet 21
  • Balance Sheet – Summary Analysis   22
  • Balance Sheet Discussion       23
  • Financial Ratios          38
  • Liquidity Ratios          39
  • Liquidity Ratios - Summary Analysis            39
  • Liquidity Ratios Discussion    40
  • Current Ratio  40
  • Quick Ratio     41
  • Cash Ratio      42
  • Other Liquidity Ratios            43
  • Net Operating Working Capital          43
  • Asset Ratios    45
  • Asset Utilization Ratios - Summary Analysis            46
  • Asset Utilization Ratios Discussion    47
  • Total Asset Turnover  47
  • Fixed Asset Turnover  47
  • Days Sales Outstanding         49
  • Inventory Turnover     50
  • Accounts Receivable Turnover           51
  • Accounts Payable Turnover    52
  • Other Asset Ratio Calculations           53
  • Working Capital Turnover      53
  • Average Days in Inventory    53
  • Average Days Payable            54
  • Profitability Ratios     55
  • Profitability Ratios - Summary Analysis        56
  • Profitability Ratios Discussion           56
  • Return on Assets (ROA)         56
  • Return on Equity (ROE)         57
  • Profit Margin  58
  • Gross Profit Margin    59
  • Operating Profit Margin         60
  • Basic Earnings Power 61
  • ROCE 62
  • Capital Employed       62
  • Debt Ratios     63
  • Alphabet’s Debt Ratios - Summary Analysis 63
  • Debt Ratios Discussion           64
  • Long-Term Debt Ratio           64
  • Debt to Equity Ratio   65
  • Times Interest Earned 66
  • WACC            68
  • Book Value of WACC           68
  • Free Cash Flow (FCF)            70
  • Free Cash Flows – 2015 - 2019          70
  • Free Cash Flows – 5 Year Projections            71
  • Income Statement – Projections for 5 years   72
  • Income Statement – 5 Year Projections          72
  • Balance Sheet – Projections for 5 years         73
  • Balance Sheet – 5 Year Projections    73
  • Company Valuation and Intrinsic Stock Price           75
  • Appendix 1: Summarized Income Statement 76
  • Appendix 2:  Income Statement – Percent of Sales    77
  • Appendix 3:  Income Statement – Year over Year Growth   78
  • Appendix 4:  Summarized Balance Sheet      79
  • Appendix 5:  Balance Sheet as Percent of Total Assets         81
  • Appendix 6:  Summarized Financial Ratios   82

Section 1: Alphabet Inc. Income Statement Analyzed 2015 to 2019

In this section, I walk through a broad definition as to what an income statement is and why it is important.  From this, I then discuss each of Alphabet's important income statement line items, such as revenues, gross profits, etc. in detail.  After each line item is defined and discussed, I then offer an analysis of Alphabet's income statement line item from 2015 to 2019, in most cases.

Revenue Growth:

Over the last five years, Alphabet’s average annual revenue growth rate was approximately 21.2%.  In 2018, its annual revenue growth rate increased to 23% over the previous year.  However, in 2019, the growth rate fell to 18%.

This indicates that the firm may be leveling off in its revenue growth.  This could be a sign that the firm is entering a more mature phase of its business cycle.  If this is the case, then investors should expect a continued decline in revenue growth.

Cost of Goods Sold:

The company’s cost of goods averages approximately 26% of revenues over the last five years.  The company’s cost of goods fell from 30.6% in 2018 to 20.7% in 2019.  This shows that the firm is taking steps to reduce the costs of business.  As the organization further enters his maturity phase of its business cycle, cost-cutting such as this should be expected throughout the organization.

Alphabet 2019 Income Statement

Column1 2019 2018 2017 2016 2015
Revenues                  161,857            136,819            110,855              90,272               74,989
COGS                    71,896              59,549              45,583              35,138               28,164
Gross Profit              89,961              77,270              65,272              55,134               46,825
SG&A                    35,569              24,459              19,765              17,470               15,183
Depreciation                            -                    -                    -                    -                     -
R & D                    26,018              21,419              16,625              13,948               12,282
Other                            -                    -                    -                    -                     -
Operating Expenses                  127,626            110,498              84,709              66,556               55,629
EBIT                    34,231              26,321              26,146              23,716               19,360
Other Income                      5,395                8,592                1,047                  434                   291
Interest Expense                         585                6,827                4,377                  124                   104
EBT                    39,625              34,913              27,193              24,150               18,965
Taxes                      5,282                4,177              14,531                4,672                 3,303
Net Income                   34,343            30,736            12,662            19,478             16,348
Tax Rate 13.3% 12.0% 53.4% 19.3% 17.4%

Section 2: Alphabet Inc. Balance Sheet Analyzed from 2015 to 2019

For Alphabet Inc. balance sheet, I again go through each important line item from the balance sheet.  In reviewing each line item, I will define the Alphabet's balance sheet line item, such as cash, property, plant and equipment, and liabilities between 2015 to 2019.  Next, I then offer an analysis of Alphabet's balance sheet line item.

Cash:

Alphabet’s cash position has grown from $16 billion in 2015 to 18.5 billion in 2019.  As compared to total assets, the cash position fell from 11.2% in 2015 to 6.7% in 2019.  In reviewing this information, it seems like the organization has done a better job allocating cash as a percentage of total assets even though its dollar amount cash position increased.  In other words, just because the dollar amount for cash increased, it does not mean that they are doing a poor job managing the cash.

Short-term Investments:

In the last five years, Alphabet has almost doubled its short-term investments.  This shows that the firm is continually attempting to divert cash into a more useful asset, which is short-term investments.  A better strategy for the use of cash could be to pay out dividends to investors.  Not only will this improve the stock price, but it will also be a better usage of total assets.

Alphabet 2019 Summary Balance Sheet

Column1 2019 2018 2017 2016 2015
Cash                      18,498            16,701            10,715            12,918            16,549
Short Term Investment                    101,177            92,439            91,156            73,415            56,517
Account Receivable                      25,326            20,838            18,336            14,137            11,556
Inventory                           999              1,107                749                268                491
Other                        4,412              4,236              2,983                  -                  -
Current Assets                  152,578        135,676        124,308        105,408          90,114
Net PPE                      73,646            59,719            42,383            34,234            29,016
Goodwill                      20,624            17,888            16,747            16,468            15,869
Other                        2,342              2,693              2,672                  -                  -
Total Assets                  275,909        232,792        197,295        167,497        147,461
Accounts Payable                        5,561              4,378              3,137              2,041              1,931
Accrued Expense                      31,562            26,142            18,733            13,062            10,636
Accrued Taxes                           274                  69                881                554                302
Notes Payable                              -                  -                  -                  -              3,225
LT Debt - Current                              -                  -                  -                  -                  -
Other                              -                  -                  -                  -                  -
Total Current Liabilities                      45,221            34,620            24,183            16,756            19,310
LT Debt                        4,554              4,012              3,969              3,935              1,995
Other                        2,534              3,545              3,059              2,665              1,822
Total Liabilities                    74,467          55,164          44,793          28,461          27,130
Common Stock                      50,552            45,049            40,247            36,307            32,982
Treasury                              -                  -                  -                  -                  -
Retained Earnings                    152,122          134,885          113,247          105,131            89,223
Other                              -                  -                  -                  -                  -
Total Equity                  201,442        177,628        152,502        139,036        120,331
Total Equity & Liability                  275,909        232,792        197,295        167,497        147,461

Section 3: Alphabet Inc. Financial Ratios Analyzed from 2015 to 2019

For this section, I have chosen about 16 different financial ratios to review for Apple Inc from 2015 to 2019.  In reviewing each of Alphabet's financial ratios, I first start with defining the financial ratio.  Next, I supply the financial formula for calculating the specific ratio.  Finally, I offer a brief analysis of Alphabet's Financial ratio.  Ratios calculated and analyzed for the last five years include:

Alphabet (Google) Current Ratio:

Alphabet’s current ratio ended 2015 at 4.6.  In 2019, the current ratio fell to 3.4.  This shows that the firm is attempting to better utilize its cash by transferring it from the cash line item to short-term investments.  From an investor’s perspective, the company should maintain the strategy until its current ratio is about 1.5 or 2.

Alphabet (Google) Fixed Asset Turnover:

The organization’s fixed asset turnover fell from 2.58 in 2015 to 2.2 in 2019.  This indicates that the company may have excess property, plant, and or equipment.  An excellent strategy in this situation is to divest or sell some of the hard assets for liquid currency.  Unless, the company may have taken on the additional fixed assets in hopes of future growth. Which may be the case in the situation.  From this, investors should play a wait-and-see strategy in relation to whether the firm better utilizes its fixed assets over the next several years.

Alphabet (Google) Return on Equity:

The company’s return on equity has increased from 13.6% in 2015 to 17% in 2019.  Again, the company is making more money year-over-year on equity invested.  The return on equity may not be as high as some other technology companies.  But, the continuous growth of the return on equity over a five year period is quite impressive.

Alphabet (Google) Debt Ratio:

Alphabet’s debt ratio has ranged between 1.4% to 2.01%.  In 2019, its debt ratio was 1.65%.  From an investor’s perspective, the company should be utilizing significantly more debt as compared to equity for growth and operations.  There is a multitude of reasons for this.  Some of the reasons are tax benefits for interest and generating money on borrowed money.  Also, interest rates are at historic lows, so taking advantage of the situation only makes sense.

Alphabet (Google) Liquidity Ratios

Ratios 2019 2018 2017 2016 2015
Current Ratio                           3.37                    3.92
Cash Ratio                           0.41                    0.48
Quick Ratio                           3.35                    3.89
Net Working Capital                         7,426                  8,057

Alphabet (Google) Asset Utilization

Ratios 2019 2018 2017 2016 2015
Total Asset Turnover                           0.59                    0.59
Fixed Asset Turnover                           2.20                    2.29
Days Sales Outstanding                         57.11                  55.59
Inventory Turnover                       162.02                123.59
Accounts Receivable Turnover                           6.39                    6.57
Working Capital Turnover                         21.80                  16.98
AP Turnover                         29.11                  31.25
Average Days Inventory                           0.44                    0.34
Average Days Payable                           0.08                    0.09

Alphabet (Google) Profitability Ratios

Ratios 2019 2018 2017 2016 2015
Return on Assets 12.45% 13.20%
Return on Equity 17.05% 17.30%
Net Profit Margin 21.22% 22.46%
Gross Profit Margin 55.58% 56.48%
Operating Profit Margin 21.15% 19.24%
Basic Earning Power 12.41% 11.31%
ROCE 14.84% 13.28%
Capital Employed                     230,688              198,172
ROIC 36.59% 34.19%

Alphabet (Google) Long-term Debt

Ratios 2019 2018 2017 2016 2015
Debt Ratio 1.65% 1.72%
Debt/Equity 2.26% 2.26%
Times Interest Earned                         58.51                    3.86