Horizontal Analysis

Describe about the Principles of Accounting for Present Horizontal Analysis.

For this academic paper, I would like to select Google Inc. as a public as well as research company. This research paper would be helpful to provide an overview of the organization in an effective way. Moreover, this paper would also be beneficial to present horizontal analysis of income statement as well as balance sheet of the organization. In addition to this, this research paper would also be helpful to perform ratio analysis of the Google Inc in order to recognize the financial performance and position of the organization.

Company Overview

Recently, Google Inc. is considered as one of the most public companies in the world. Google is an American multinational technology corporation that is specific in Internet-related services and products. For example, Softwares, online advertising technologies, search engines, cloud computing and so on are the major products and services of Google (Google Inc. 2016). Along with this, Microsoft, Yahoo, Apple, Twitter, Facebook, et cetera are measured as the major competitors of Google Inc.

Horizontal Analysis

Horizontal analysis that is also known as trend analysis is a financial statement analysis method that plays a significant role in order to show changes in the amounts of equivalent financial statement items over a period of time (Brigham & Houston, 2009).. Along with this, horizontal analysis plays a critical role to evaluate the rend situations in an appropriate manner. The horizontal analysis considers the statements of two or more than two years to appraise trend situations in an accurate way. An organization may conduct horizontal analysis for the balance sheet, income statement, statement of retained earnings, and schedules of current & fixed assets (Carlberg, 2010). The horizontal analysis is an effective tool to evaluate the financial position of the organization in an effective and a more comprehensive manner.

On the other hand, horizontal analysis is considered as an imperative part of financial statement analysis. This analysis is important for the managers, and investors of the organization to predict the financial position or performance of the company in the future time period. Along with this, the horizontal analysis plays a significant role to organize data of the current and past years to be acquainted with the actual financial position of the firm (Griffin, 2009).

Moreover, the horizontal analysis of Google Inc is valuable to recognize the financial position of the firm in the past years. The horizontal analysis of income statement of Google Inc. is as below:

Horizontal Analysis of  Income Statement (in millions)
				Increase or (Decrease)
	2015	2014	2013	Amount	Percent	Amount	Percent
Total Revenue	74,989	66,001	55,519	8,988	13.62%	10,482	18.88%
Cost of Revenue	28,164	25,691	21,993	2,473	9.63%	3,698	16.81%
Gross Profit	46,825	40,310	33,526	6,515	16.16%	6,784	20.24%
Operating Expenses
Research Development	12,282	9,832	7,137	2,450	24.92%	2,695	37.76%
Selling General and Administrative	15,183	13,982	10,986	1,201	8.59%	2,996	27.27%
Operating Income or Loss	19,360	16,496	15,403	2,864	17.36%	1,093	7.10%
Income from Continuing Operations
Total Other Income/Expenses Net	291	763	496	-472	-61.86%	267	53.83%
Earnings Before Interest And Taxes	19,651	17,259	15,899	2,392	13.86%	1,360	8.55%
Income Before Tax	19,651	17,259	15,899	2,392	13.86%	1,360	8.55%
Income Tax Expense	3,303	3,639	2,739	-336	-9.23%	900	32.86%
Net Income From Continuing Ops	16,348	13,620	13,160	2,728	20.03%	460	3.50%
Non-recurring Events
Discontinued Operations	_	516	-427		0.00%	943	-220.84%
Net Income	16,348	14,136	12,733	2,212	15.65%	1,403	11.02%

Google Inc. Income Statement

(Source: Yahoo Finance. 2016).

On the basis of the horizontal analysis of Google’s Income Statement, it should be noted down that the revenues of the company increased by 20.24% from 2013 to 2014 and also increased by 13.62% from 2014 to 2015 year. The increase in revenues illustrates the strong financial position of the organization (Fleay, Poustie & Mroczkowski, 2011).

Apart from this, the analysis points out that selling & administration and R&D expenses of the firm have increased more than 8.59% & 24.92% from 2015 to 2014 and 27.27% & 37.76% from 2013 to 2014. It points up that the organization has made a lot of efforts to control its expenses to diminish cost and to earn profits in order to improve the profitability of the organization in an effective manner (Gundlach & Foer, 2004).

On the other hand, the horizontal analysis of the balance sheet of Google Inc. is given as below:

Horizontal Analysis of Balance Sheet (in millions)
				Increase or (Decrease)
	2015	2014	2013	Amount	Percent	Amount	Percent
Cash And Cash Equivalents	16,549	18,347	18,898	-1,798	-9.80%	-551	-2.92%
Short Term Investments	56,517	46,048	39,819	10,469	22.73%	6,229	15.64%
Net Receivables	13,909	10,849	10,916	3,060	28.21%	-67	-0.61%
Inventory
Other Current Assets	3,139	3,412	3,253	-273	-8.00%	159	4.89%
Total Current Assets	90,114	78,656	72,886	11,458	14.57%	5,770	7.92%
Long Term Investments	5,183	3,079	1,976	2,104	68.33%	1,103	55.82%
Property Plant and Equipment	29,016	23,883	16,524	5,133	21.49%	7,359	44.54%
Goodwill	15,869	15,599	11,492	270	1.73%	4,107	35.74%
Intangible Assets	3,847	4,607	6,066	-760	-16.50%	-1,459	-24.05%
Other Assets	3,181	3,187	1,976	-6	-0.19%	1,211	61.29%
Total Assets	147,461	129,187	110,920	18,274	14.15%	18,267	16.47%
Liabilities
Current Liabilities
Accounts Payable	15,297	14,018	11,837	1,279	9.12%	2,181	18.43%
Short/Current Long Term Debt	3,225	2,009	3,009	1,216	60.53%	-1,000	-33.23%
Other Current Liabilities	788	752	1,062	36	4.79%	-310	-29.19%
Total Current Liabilities	19,310	16,779	15,908	2,531	15.08%	871	5.48%
Long Term Debt	1,995	3,228	2,236	-1,233	-38.20%	992	44.36%
Other Liabilities	5,485	4,458	3,381	1,027	23.04%	1,077	31.85%
Deferred Long Term Liability Charges	340	862	2,086	-522	-60.56%	-1,224	-58.68%
Total Liabilities	27,130	25,327	23,611	1,803	7.12%	1,716	7.27%
Stockholders’ Equity
Common Stock	32,982	28,767	25,922	4,215	14.65%	2,845	10.98%
Retained Earnings	89,223	75,066	61,262	14,157	18.86%	13,804	22.53%
Other Stockholder Equity	-1,874	27	125	-1,901	-7040.74%	-98	-78.40%
Total Stockholder Equity	120,331	103,860	87,309	16,471	15.86%	16,551	18.96%

(Source: Yahoo Finance. 2016).

On the basis of the horizontal analysis of the Balance Sheet of the organization, it can be said that the total current assets of Google has been increased 7.92% and total assets by 16.47 % from 2013 to 2014 and also increased by 14.57% and 14.15% from 2014 to 2015. Consequently, on the basis of the analysis, it can be said that there was an increase in the assets of the company in 2015 as compare to 2013. The increase in the assets of the firm indicates the stronger capital structure of the company (Yahoo Finance. 2016). Moreover, the total liabilities of the company also increased as compare to past years that points out that the Google is paying more attention on profits as opposed to fulfill its liabilities.

Ratio Analysis

The ratio analysis plays a significant role to know the non-financial performance of the organization (Nikolai, Bazley, & Jones, 2009). The ratio analysis of the Google Inc. is as below:

Ratio Analysis
		2015	2014	2013
Current Ratio	Current Assets/Current Liabilities	4.67	4.69	4.58
	Current Assets	90114	78656	72886
	Current Liabilities	19310	16779	15908
Liquidity Ratio	[Current Assets-(Inventory )]/Current Liabilities	4.666701191	4.69	4.58
	Inventory	0	0	0
Cash to Current Liabilities Ratio	Cash/Current Liabilities	0.86	1.09	1.19
	Cash	16549	18347	18898

On the basis of the ratio analysis, it can be said that, the liquidity ratios such as: current ration as well as quick ratio  of the firm has been increased from the last two years because of an  increase in current assets as compare to current liabilities of the firm. Moreover, high current and quick ratios be a sign of that the short-term financial position of the Google Inc is strong as because   it has sufficient assets to compensate its current liabilities effectively.  The current ratio also demonstrates that the company has a sufficient amount of working capital to operate its daily business activities in an effective and a proper manner (Porter & Norton, 2010). The quick ratio also clarifies that there is a turn down in the inventory level of the firm that means it has sufficient cash and funds.  

Google Inc. Balance Sheet

Recommendations

On the basis of the above horizontal analysis of income statement & balance sheet and ratio analysis, it is recommended that a person must invest in this company. There are many reasons behind this. For case, the major reason is that, the financial position of the company is very strong. It has sufficient funds and does not have need of any additional sources to acquire money (Godwin & Alderman, 2012). Moreover, the capital structure of the company is very strong and the firm has enough assets to reimburse its current liabilities. Consequently, there is no fear to lose money to the investors.  In this way, it can be said that, Google Inc. has numerous strengths that are helpful to attract an investor to invest in the company. For that reason, I must say that, an entity or person must invest in this company in order to earn higher returns on the investment (Zager & Zager, 2006).

Conclusion

On the basis of the above analysis, it can be concluded that, the financial position and capital structure of the Google Inc. is strong. Moreover, it is also observed that, the company has as much as necessary funds to reimburse its current liabilities on the timely manner. As a result, it can be recommend that, Google Inc. is the best option for an investor to invest his/her money to gain high returns in an effective and a proper manner.

References

Google Inc. (2016). About Us. Retrieved From: https://www.google.co.in/about/company/

Yahoo Finance. (2016). Google Inc. Retrieved From: https://finance.yahoo.com/q/bs?s=GOOGL+Balance+Sheet&annual

Yahoo Finance. (2016). Google Inc. Retrieved From: https://finance.yahoo.com/q/is?s=GOOGL+Income+Statement&annual

Carlberg, C. (2010). Business Analysis: Microsoft Excel 2010. Pearson Education.

Griffin, M.P. (2009). MBA Fundamentals Accounting and Finance. Kaplan Publishing.

Brigham, E.F. & Houston, J.F. (2009). Fundamentals of Financial Management (12^th ed.). Cengage Learning.

Fleay, D., Poustie, N. & Mroczkowski, N. (2011). TAFE Accounting: Financial Accounting Applications (3^rd  ed.). Cengage Learning.

Nikolai, L., Bazley, J., & Jones, J. (2009). Intermediate Accounting (11^th ed.). Cengage Learning.

Porter, G.A. & Norton, C.L. (2010). Financial Accounting: The Impact on Decision Makers (7^th  ed.). Cengage Learning.

Godwin, N., & Alderman, C. (2012). Financial ACCT2 (2^nd ed.). Cengage Learning.

Gundlach, G. T., & Foer, A. A. (2004). Combining Horizontal and Vertical Analysis in Antitrust: The American Antitrust Institute’s Roundtable on the Implications of the Work of Robert L. Steiner. Antitrust Bull., 49, 821.

Zager, K., & Zager, L. (2006). The role of financial information in decision-making process. Innovative Marketing, 2(3), 35-40.