Facebook Inc. | Assignment

Added on - 18 Sep 2019

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Assignment TitleStudent NameStudent NumberCourse NameInstructor NameDate1
IntroductionFacebook Inc., is a company that falls under the Internet information providing industrywas 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 andprofessional information with others across the world and provides all world information tothem. The product of the company includes Facebook, WhatsApp, Instagram, Oculus, andMessengers. They provide platforms that are extensively used by various companies formarketing their products, and they generate revenue by selling advertisement placements tomarketers. Facebook is popular around the world and is used by millions of people across theglobe. In this paper, there is a detailed financial analysis performed to know about the financialperformed of Facebook and recommendations are provided for improving them.Financial Performance AnalysisIt is essential to make a comparative financial analysis using the historical financialinformation of the company. In this case, the five-year financial ratio is taken into considerationfor making an analysis of the financial performance and position of the company. There areindustrial data available for the company that is used for making a comparative analysis so anappropriate evaluation of the financial performance of Facebook can be performed. In thissection, there is a detailed analysis of liquidity, profitability, efficiency, capital structure andstock 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 Ratio10.2611.469.0410.9111.631.33Data Source: Reuters, n.d. and Morningstar, n.d.Current ratio and quick ratio indicates the liquidity position of the company. The currentratio of the company is disclosing a fluctuating trend. It increased during 2013 and decreasedduring 2014. But the current ratio of the company is consistently increased from 2015. Whencompared to the industrial ratio the current ratio of Facebook is considerably higher. A quickratio of the company is disclosing a fluctuating trend. It increased during 2013 and decreasedduring 2014. But the quick ratio of the company is consistently increased from 2015. Whencompared to the industrial ratio the quick ratio of Facebook is considerably higher. Thus, theoverall 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 liquidityposition 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%ROE0.40%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 corebusiness operations of the company. The operating margin dramatically increased in 2013 by237% when compared to 2012, and it continued at the rate of 12% during 2014. But during 2015the operating margin fell from 40.06% in 2014 to 34.72% in 2015. During 2016, there was a29% 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 whencompared to the overall industry.Net profit margin of the company indicates about the ability of the company to converttheir 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% in2012. 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 to20.47% 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 thatFacebook is generating higher net profit from their business when compared to theoverall industry. ROE is the return on equity. It indicates about the return the equity investor cangenerate by investing in the company. The ROE dramatically increased in 2013 to 10.95% whencompared to 0.40% in 2012. It increased by 2638% during 2013 when compared to 2012. Therewas a slower growth rate of 4% in ROE during 2014, and the ROE was at 11.34%. Similar tooperating margin and net profit margin during 2015 the ROE fell to 9.14% in 2015. The mainreason for the decrease in the ROE is the fall in the net profit margin as net income is the basisfor determining the ROE.4
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