Financial Position of Yahoo! Inc. and Google Inc

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Yahoo! Inc. (sign yhoo) and Google Inc. (goog) were selected. Industry is „ Internet information providers“ and sector „technology“, by yahoo terminology ( January 5 2014). uses sector: „techology“ and industry: “search engines“. (, January 5 2014) In literature it is advised to compare firms of „roughly the same size“ and „similar products and services“ (Moles, Parrino and Kidwell 2011:116), which is modestly achieved, as size ratio between companies changes substantialy during 5 years.

For bouth companies, balance sheets and income statements were downloaded from (The Wall street Journal, January 8 2014). In that source, data on 5 years (instead of required 4) were provided, which would enable calculations of some average ratios where values in the beginning end the end of a year are necesarry. This was not used, and all calculated ratios were done with end year data.

It is noticable that the numbers provided by are given with different precision, but generally with no more that 2 significant digits. This is though neglected in further calculations, and no statistical interpretation of significant digit is given. Clearly, this implies that rounding mistakes are unavoidable.

As not all data from Balance Sheet (BS) and Income satement (IS) is necesarry for required ratio calculations, for the purpouse of easier display some rows are hidden.

Picture 1 shows income statement and picture 2 balance sheet in their simplified form, with some rows hidden. Rows that are not shown are mostly the ones with no dana (zeroes), the ones that are allready included in other numbers and some rows less relevant for calculating given ratios. Rows used for direct calculations are designated with colours, to be more easyly visible.

Picture 1, Balance sheet, Yahoo! Inc. (YHOO) and Google Inc. (GOOG), Y:2008-2012

Picture 2: Income statement Yahoo! Inc. (YHOO) and Google Inc. (GOOG), Y:2008-2012

Profitability ratios

Profitability ratios measure „management´s ability to make efficient use of firm´s assets to generate sales and manager firm´s costs“ (Moles et al 2011:132).

Operating margin (OM)

There are some variations regarding the use of Operating Margin. So „operating profit is tipically measured with EBIT“. (Moles et al 2011:132). Also,: „ Often non-recuring cash flows are excluded as they don´t represent company´s true performance“ (Valueclick, 5 January 2014). Mathematically looking, when computing a ratio, in the denominator of formula 1, net sales are present. Number in the numerator should thuse also be a number coneccted to sales in some way.

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