Facebook Inc. | Assignment
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Added on 2019-09-18
Facebook Inc. | Assignment
Added on 2019-09-18
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IntroductionFacebook Inc., is a company that falls under the Internet information providing industry was incorporated on 29, July 2004 (Yahoo Finance, n.d.). Facebook focuses on building productsthat would make people connect with each other using a computer, mobile or any other devices (Reuters, n.d.). The Company provides a safe and secured platform to share their personal and professional information with others across the world and provides all world information to them. The product of the company includes Facebook, WhatsApp, Instagram, Oculus, and Messengers. They provide platforms that are extensively used by various companies for marketing their products, and they generate revenue by selling advertisement placements to marketers. Facebook is popular around the world and is used by millions of people across the globe. In this paper, there is a detailed financial analysis performed to know about the financial performed of Facebook and recommendations are provided for improving them.Financial Performance AnalysisIt is essential to make a comparative financial analysis using the historical financial information of the company. In this case, the five-year financial ratio is taken into consideration for making an analysis of the financial performance and position of the company. There are industrial data available for the company that is used for making a comparative analysis so an appropriate evaluation of the financial performance of Facebook can be performed. In this section, there is a detailed analysis of liquidity, profitability, efficiency, capital structure and stock performance of the company over the past five years.2
Liquidity AnalysisThe five-year liquidity ratios of the Facebook are as follows:20122013201420152016IndustryCurrent Ratio10.7111.889.611.2511.972.41Quick Ratio10.2611.469.0410.9111.631.33 Data Source: Reuters, n.d. and Morningstar, n.d.Current ratio and quick ratio indicates the liquidity position of the company. The current ratio of the company is disclosing a fluctuating trend. It increased during 2013 and decreased during 2014. But the current ratio of the company is consistently increased from 2015. When compared to the industrial ratio the current ratio of Facebook is considerably higher. A quick ratio of the company is disclosing a fluctuating trend. It increased during 2013 and decreased during 2014. But the quick ratio of the company is consistently increased from 2015. When compared to the industrial ratio the quick ratio of Facebook is considerably higher. Thus, the overall liquidity position of the company is significantly higher when compared to the industry. It indicates that Facebook has better working capital management and has strong liquidity position that will enable them to have better business operation management. ProfitabilityThe five-year profitability ratio and percentage change on Year on Year basis for all the ratios:20122013201420152016IndustryOperating Margin10.57%35.62%40.06%34.72%44.96%-1.98%% change237%12%-13%29%Net profit margin0.63%18.94%23.46%20.47%36.86%-12.24%% change2906%24%-13%80%ROE 0.40%10.95%11.34%9.14%19.70%10.07%% change2638%4%-19%116%ROA0.30%9.04%10.07%8.19%17.82%17.20%% change2913%11%-19%118% Data Source: Reuters, n.d. and Morningstar, n.d. 3
The operating margin of the company indicates the profit-generating capacity of the core business operations of the company. The operating margin dramatically increased in 2013 by 237% when compared to 2012, and it continued at the rate of 12% during 2014. But during 2015 the operating margin fell from 40.06% in 2014 to 34.72% in 2015. During 2016, there was a 29% increase in the operating margin to 44.96%. The industrial operating margin is at -1.98% indicating that Facebook is generating higher profit from their business operation when compared to the overall industry. Net profit margin of the company indicates about the ability of the company to convert their revenue into the profit. It is the net profit that is generated by the company from their sales. The net profit margin dramatically increased in 2013 to 18.94% when compared to 0.63% in 2012. There was a slower growth rate of 24% in net profit margin during 2014, and the net profitmargin was at 23.46%. Similar to operating margin during 2015 the net profit margin fell to 20.47% in 2015. During 2016, there was an 80% increase in the net profit margin that resulted inan increase of margin to 36.86%. The industrial net profit margin is at -12.24% indicating that Facebook is generating higher net profit from their business when compared to the overall industry. ROE is the return on equity. It indicates about the return the equity investor can generate by investing in the company. The ROE dramatically increased in 2013 to 10.95% when compared to 0.40% in 2012. It increased by 2638% during 2013 when compared to 2012. There was a slower growth rate of 4% in ROE during 2014, and the ROE was at 11.34%. Similar to operating margin and net profit margin during 2015 the ROE fell to 9.14% in 2015. The main reason for the decrease in the ROE is the fall in the net profit margin as net income is the basis for determining the ROE. 4
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