Financial Analysis: Facebook vs Google, Essay Example

In a thoroughly conducted financial analysis of both Facebook: FB; (NASDAQ) and Google: GOOG; (NASDAQ), the financial ratios are used to compare both companies against each other from 2013 and 2014 financial records. The current ratio is intended to measure the companies’ most liquid assets against all of their current short term liabilities. Although Facebook shadows Google with their current ratio substantially higher than Google’s in both 2013 and 2014, it does not account for the companies’ working capital. This is why the other ratios must be analyzed as well. The quick ratio measures the companies’ liquidity. In this case, Facebook experienced higher liquidity in both years. Shareholders as well as potential investors should note this because should the companies ever decided to liquidate their assets, all shareholders will get a piece of the liquidated assets after debts are paid.

Both companies have reasonably even accounts receivables turnovers so this ratio does not substantially impact the analysis. The same goes for average collection periods. Unfortunately, for Google, they have taken significantly longer to pay their creditors than Facebook, who appears to pay their creditors almost immediately. Google experienced a strong improvement of nearly 50% in 2014 for their days payables outstanding, but not enough to compete with Facebook. Google is better at using their assets to generate sales than Facebook based on the asset turnover ratios. This is likely because Google is more geared towards selling virtual products to the consumer market than Facebook. The amount of finances funded by investors has been higher for Facebook than Google in both years, meaning Facebook relies more on creditors. With Facebook experiencing more debt against their assets in both years than Google, shows more evidence of how much Facebook relies on creditors. Although the Net profit margins are not substantially different for both companies, the gross profits are in Facebook’s favor. This is an indicator that Facebook has generated profit more effectively than Google. This is likely due to the advertisements Facebook sells.

The operating margin is a strong measure of the companies’ profitability after their costs of goods sold, where Facebook has been more effective than Google in both years. Facebook dominates Google in the returns on both equity and assets as shown in 2013 and 2014. Google however, has much higher cash per share ratio which allows them more opportunities for growth and development without having to reach out to creditors. Facebook has not reported any book value shares and this ratio cannot be compared with Google’s favorable BV/share.

In conclusion, shareholders and potential investors would benefit from investing more into Facebook than Google if they expect a higher return on investment. This claim is based on the financial analysis conducted from the 2013 and 2014 records. Facebook is simply better at generating profits and utilizing their assets as seen in the analysis. It may not be that Facebook relies so much on creditors, but that more creditors are interested in investing in Facebook.