Google Fundamental Analysis
Posted by
Share Synthesis
Labels:
Author - Melynn,
Stock - Google,
Technique - Fundamental,
US Stocks
Background
Google provides a free search engine for users around the world and generates revenue whenever a user clicks on a text ad displayed alongside the search results. This represents 90% of the company's net revenue. The remaining 10% of net revenue is derived from ads sold on third-party sites and online software. Google is also investing in new business lines including traditional media advertising, the mobile industry, and online software.
Detailed Quantitative Analysis
2.Has the company generated a consistent increase of operating profit margin and net profit margin
Google's operating profit margin has decreased from 30.6% to 30.4% but prior to that, they have been increasing consistently.
Google provides a free search engine for users around the world and generates revenue whenever a user clicks on a text ad displayed alongside the search results. This represents 90% of the company's net revenue. The remaining 10% of net revenue is derived from ads sold on third-party sites and online software. Google is also investing in new business lines including traditional media advertising, the mobile industry, and online software.
Detailed Quantitative Analysis
Profitability
1. Has the company been generating free cash flow consistently.
Google has a good history of generating free cash flow as shown below.
1. Has the company been generating free cash flow consistently.
Google has a good history of generating free cash flow as shown below.
| Free Cash Flow $Mil | |||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | TTM |
| 118.1 | 218.7 | 658.0 | 1621.2 | 1677.6 | 3372.6 | 5494.4 | 5494.4 |
2.Has the company generated a consistent increase of operating profit margin and net profit margin
Google's operating profit margin has decreased from 30.6% to 30.4% but prior to that, they have been increasing consistently.
Google's net profit margin has decreased substantially from 25.33% to 19.39%
| Operating Margin | |||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | TTM |
| 42.4 | 23.4 | 20.1 | 32.9 | 33.5 | 30.6 | 30.4 | 30.4 |
| Net Margin | |||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | TTM |
| 22.68 | 7.21 | 12.51 | 23.87 | 29.02 | 25.33 | 19.39 | 19.39 |
3. Is the company's ROE more than 10%
Google's 2008 ROE is 16.60 and has decreased over the years..
| ROE | |||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | TTM |
| 76.89 | 31.35 | 22.98 | 23.73 | 23.26 | 21.16 | 16.60 | 16.60 |
4. Did the company increase financial leverage aggressively to get a high ROE
Google's financial leverage is consistent at 1.12 and is quite low for a company that have a 16.60% ROE
5. Is the company's ROA more than 8%
Google's 2008 ROA is at 14.80 and the figure is not quite consistent over the past few years.
| ROA | |||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | TTM |
| 34.74 | 18.24 | 19.07 | 21.57 | 21.41 | 19.19 | 14.80 | 14.80 |
6. Has the company's operating expense increased drastically over the years
The company total expense for 2008 has increased from 29.3 to 30% of sales.
7. Is the company's inventory rising faster than sales
N/A
8. Has the company's receivables percentage of asset increased more than 20%
Account receivables decreased from 9.1 percent of sales to 8.3 percent
Growth
1. Is the company's sales growth more than 15%
Google's sales has grown at an annual growth rate of 71.6% over 5 years.
2. Is the company's operating income growth more than 15%
Google's operating income has grown at an exploding rate of 80.9% over 5 years.
3. Is the company's net profit growth more than 15%
Google's net income has grow at an exploding rate of 100.6% over 7 years.
Financial Health
1. Is the company's financial leverage more than 3
Google's financial leveage is around the range from 1.08 to 1.13. This means that for every dollar in equity, the firm had $1.13 in assets. It borrowed the other 0.13. This is fairly conservative for a company which generates such high ROE.
2. Is the company's debt to equity between 0.5 to 1.5 or smaller.
Google's debt to equity is at 0.03 and always has been this low for the past few years. Close to debt free.
3. Is the company's current ratio more than 1.5 and less than 6
If a company has an excessive high current ratio, it can probably sound some alarm bells because it indicates that the company has a large amount of current assets that could - and probably should - be invested back into the company . Google's current ratio is at 8.03 in year 2008.
4. Is the company's quick ratio more than 1
This figure is not really meaningful if used alone as it needs to be compared with other companies in the same industry but generally, a quck ratio higher than 1 puts a company in fine shape. Google's quick ratio is at 8.03 in year 2008.
Cash Flow
1. Is the company able to generate improving/consistent free cash flow to sales
Google has been able to generate high free cash flow per sales over the past few years.
| Free Cash Flow/Sales | |||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | TTM |
| 26.86 | 14.92 | 20.63 | 26.41 | 15.82 | 20.32 | 25.21 | 14.80 |
Efficiency
1. Is the company's turnover ratios improving consistently over the last few years
| FY05 | FY06 | FY07 | FY08 | |
Receivable Turnover | 11.5 | 10.6 | 9.1 | 8.8 |
Inventory Turnover | - | - | - | - |
Fixed Asset Turnover | 9.2 | 6.3 | 5.2 | 4.7 |
Asset Turnover | 0.9 | 0.7 | 0.8 | 0.8 |
Accounting Risk
Google's accounting risk is graded by forbes as "Very Agreesive".
For details,go to http://finapps.forbes.com/finapps/AccountingRisk.do?tkr=GOOG
TOP ISSUE
Google's accounting risk is graded by forbes as "Very Agreesive".
For details,go to http://finapps.forbes.com/finapps/AccountingRisk.do?tkr=GOOG
TOP ISSUE
- Corporate Governance Events - Litigation-Regulatory Issues
- High Risk Events - Mergers-Acquisitions Revenue Recognition
- Operating Revenues/Operating Expenses Expense Recognition
- Selling G&A Expenses/Operating Expenses Asset-Liability Valuation - Intangible Assets/Asset
The above are just some basic quantitiatve analysis to screen stocks and I will extend my research by reading analysis from morningstar.com and etc.
For US stocks, I will use morning's star valuation as a guidance.. Below are the estimated values they derived
Consider Buying : $250
Fair Value Estimate $500
I will use the value under "Consider Buying" to determine my entry point..
For US stocks, I will use morning's star valuation as a guidance.. Below are the estimated values they derived
Consider Buying : $250
Fair Value Estimate $500
I will use the value under "Consider Buying" to determine my entry point..
Subscribe to:
Post Comments (Atom)
Post a Comment