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 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 | |||