Financial Analysis of Facebook's International Operations

This report presents a financial analysis of Facebook, examining its performance within the international financial environment. It critically discusses recent developments impacting Facebook, such as globalization and securitization, and how these factors have influenced the company's growth opportunities. The report details key elements of Facebook's international financial and risk management strategy, including sources of finance, capital structure, and the company's capital structure. Furthermore, it analyzes Facebook's financial performance using key metrics like gross margin, net profit margin, ROCE, trade receivables period, current ratio, gearing, EPS, and payout ratio. The analysis provides insights into Facebook's financial health and strategic decisions in the global market.

International Finance

Table of Contents
Introduction......................................................................................................................................3
a. Critically discuss recent developments in the international financial environment which appear
to have impacted on Facebook recent performance........................................................................4
b. Key elements of Facebook’s international financial and risk management strategy...................5
C. Analyze financial performance.................................................................................................10
1. Gross Margin.........................................................................................................................10
2. Net Profit Margin...................................................................................................................10
3. ROCE.....................................................................................................................................10
4. Trade receivables period........................................................................................................11
5. Current Ratio.........................................................................................................................11
6. Gearing..................................................................................................................................11
7. EPS........................................................................................................................................12
8. Payout Ratio...........................................................................................................................12
References......................................................................................................................................13

Introduction
This report is based on financial analyses of International Company. The chosen company for
this particular report is Facebook which lies under the category of social media. Facebook
provides tertiary services and doesn’t charge any subscription fee from its users. FB gives its
services at free of cost; it receives revenue from advertisement posted by companies on users
timeline or news.

a. Critically discuss recent developments in the international financial
environment which appear to have impacted on Facebook recent
performance.
1. Perhaps the key principle among the latest changes in the world's budget industry sectors is
rapid connection and globalization. This development was fueled by the advancement of
industry segments, rapid mechanical advancements and major advances in media
communications, launched a new venture and funded open doors for organizations and
individuals around the world. Simplified licensing of global money-related business sectors
for individuals and organizations will encourage a more qualified capital allocation, which
in turn will drive financial development and prosperity.
2. In addition to this progressive realignment and globalization, economic sectors linked to
world currencies also come from extensive securitizations with belated experience. To some
extent, this progress was mitigated by the floods of consolidation and construction and the
use of procurement products that occurred in late industrial sectors, particularly in the euro
area. Part of this securitization cycle is the expansion of the spread of corporate security,
which has similarly been flexibly balanced in government bonds in a number of countries,
most notably the UK.
Both globalization and securitization helps Facebook to grab growth opportunities in the
international market. Integration and Globalization supports in gathering information about
performance of Facebook across various countries and make consolidated income statement.
While, securitization brings more fund for the company by utilizing illiquid assets by
transforming it into a security (All You Need To Know About Facebook Inc’s (FB) Financial
Health, 2020).
In near future also this both developments will help Facebook in getting better opportunities
from the market. But Globalization will bring cut throat competition for the company as now a
day’s start-ups companies are targeting to grab global market to get fast growth and boost its
sales.

b. Key elements of Facebook’s international financial and risk
management strategy.
1. Sources of Finance
Companies' sources of funding are value, bonds, bonds, contingent income, long-term loans,
working capital, letters of credit, euro issuance, risk capital financing, etc. These sources of
activity are used in a variety of situations. It is organized on a time, ownership, control, and age-
based basis. It is perfect to evaluate all capital sources before choosing it.
The source of capital is the most interesting area, especially for entrepreneurs looking to start a
new business. This is probably the hardest part of many such efforts. There are various sources
of capital.
Selecting right combination and setting up an account is not an easy task for PSA. Choosing the
right account source means inspecting each individual resource source internally and externally.
To break down and look at sources, it needs to understand the many similarities of funding
sources. There are several features under which funds are accumulated.
Based on a time frame, sources are delegated long-term, medium term, and short term.
Ownership and control give rise to account reserves in the claimed and acquired capital. Both
sources at capital age are internal and external sources. Each source has several features to
satisfy different types of needs (All You Need To Know About Facebook Inc’s (FB) Financial
Health, 2020).
Long term sources of finance:
Long-term financing refers to capital resources from 5 years or more to 10 years, 15 years, 20
years or various factors. Fixed structure capital support such as machinery and equipment, land,
buildings, etc. is supported using long-term funding sources. Some of the working capital that
always remains in the industry is also financed from long-term funding sources (Aman, 2016).
Medium term sources of finance:
Medium term financing is a loan for a period of 3 to 5 years and is mainly used for two purposes.
When the capital is not slowed down until further notice and secondly when the eligible income
is accepted as a warning to be discounted over a period of 3 to 5 years (Aman, 2016).

Short term sources of finance:
Short-term funding means funding less than a year. Requirements for mobile accounts arise in
order to finance existing resources, such as an efficient inventory of raw materials and finished
goods, people with debt, minimum cash and bank accounts.
The source of the finances can be determined by the company's ownership and management.
These two terms are good ideas when looking for resources for your business. When obtaining
capital, there are two types of costs. One is interest and the other is shared ownership and
management. Some entrepreneurs are reluctant to dilute ownership in the industry, while others
can be confident in sharing the risk (Aman, 2016).
Owned Capital:
Owned capital also represents value. It is obtained by the advertisers of the organization or by
the general public giving new value. Advertisers start their business by getting the money they
need to get started. In addition, when the business develops and internal collections as the
benefits of the group are sufficient to satisfy the pre-financing resources, advertisers decide to
choose real estate capital or non-real estate capital (Aman, 2016).
Long-term capital, so it always stays there. There is no cost for interest or commissions
with purchase capital. This reduces the risk of cracking. This is why beginner groups prefer
value.
Borrowed Capital:
Borrowed or debt capital is either capital or liability. In this type of capital, the lender has a cost
on the business facilities, which means that the organization pays the lender to sell the facilities
in the event of liquidation. Another part of the acquired business is a standard part of fixed
interest and principal repayments. There is no weakening of ownership and control of the
business. The cost of the acquired reserves is contained as it is a deductible expense for the
purposes of a tax assessment which ends up saving on organization costs. It gives the business
the benefit of leverage (Aman, 2016).

Sources of finance for Facebook:
Facebook Inc. (FB) essentially makes money by selling promotional space in the various levels
of web-based multimedia. These levels include multi-functional sites and applications that allow
customers to interact and talk to loved ones. The group's goals and applications include
Facebook's face-to-face contact site, Instagram photo and video sharing application, and
Messenger and WhatsApp information applications. Likewise, Facebook offers an environment
that allows customers to interact through the computer-generated reality objects of Oculus
(Funding Facebook : From Harvard Dorm Room to $500 Bn Company, 2020).
Facebook has raised its funds in three series A, B and C. All grant agreements fall into the
class of long-range accounts and are secured by repositories. For contract A, the group increased
its reserve in 2005 from external source Accel Partners to $ 12.7 million. While the supply B;
more investment resources in 2006 from the hands of VC finance experts worth $ 27.5 million.
These VC facilities included: Greylock Partners and Meritech Capital. Finally for the subsidized
C agreement; Facebook withdrew $ 240 million in assets (1.6%) from Microsoft in 2007,
estimating it at $ 15 billion (Funding Facebook : From Harvard Dorm Room to $500 Bn
Company, 2020).
Capital Structure:
The capital structure is the unique combination of responsibility and value that an organization
uses to support its operations and overall development. Liabilities arise as bond issues or
advances, as long as the value can present itself as common stock, preferred stock or
undistributed profit. Moving cargo is also seen as part of the capital structure.
Both accountability and value are provided in the accounting report. Organizational
resources, in addition to those recorded in the accounting report, are acquired with this
responsibility and value. The capital structure can be a combination of group withdrawal
obligation, momentary obligation, underlying stock and preferred stock. A company's level of
mobile responsibility with respect to long-haul service is considered when examining its capital
structure (Aman, 2016).
When experts relate the capital structure, they are more likely to refer to the proportion of a
company’s value liability (D / E), which gives an understanding of the risk of obtaining evidence
from a group. Typically, a funded body with a strong power has a stronger capital structure and

therefore poses a worse risk to samplers. However, this risk could be a vital source of social
development.
Responsibility is one of the two main ways in which an organization can raise money in the
areas of capital business. Organizations make profit on the basis of responsibility as a result of
their spending focus points; the interest payments paid to secure funds may be deducted.
Similarly, an obligation allows a group or company to hold property, rather than value it.
Moreover, despite the low loan fees, the obligation is plentiful and simple to perform.
Debt is one of the two main ways a company can raise money in the capital markets. Value
is more expensive than burden, especially when loan fees are low. However, contrary to duty, the
value should not be disregarded. This is a boon for the group as a result of declining revenues.
Then again, there is value in talking about an owner's issue of the organisation's future income.
Types of capital structures:
Firms can either issue either more debt or equity to fund its operations. By adding value,
companies forgo some investments in the organization without the need to take care of financial
experts; by assigning responsibility, organizations increase their influence by expecting to take
care of the champions. The responsibility of an organization to evaluate a contribution is a risk
for financial experts (Pokale, 2020).
Measures of capital structure:
Organizations that use more responsibility than value to replenish their resources have a high
impact ratio and strong work exercises on the capital and asset structure. An organization that

pays resources with more value than its duty has a low impact allowance and a traditional capital
structure. All in all, a high impact ratio and strong capital structure can encourage higher levels
of development, while a traditional capital structure can encourage lower levels of development.
Auditors use the ratio of value (D / E) as a function of the analysis of the capital structure.
It is determined by dividing the total liabilities by the total value. Skillful groups have discovered
how to integrate responsibility and value into their physical processes. Sometimes, however,
organizations can rely heavily on external funding and especially liability. Financial experts can
examine a company's capital structure by following the D / E ratio and comparing it with the
company's peers (Pokale, 2020).
Capital structure of Facebook
Given zero long-term debt on its balance sheet, Facebook generally emphasizes dissolvability,
which is a term used to describe the ability to meet long-term commitments. However, another
important part of financial well-being is related to liquidity: the organization's ability to deliver
on the spot. While a large cap may not seem to be able to cover costs, such as supplier
compensation and allowances, it may be useful to evaluate FB for fear of warnings.
FB has been operating its business with zero debt and utilizing only its equity capital. The
financial experts' risk to the duty is all that is not the case with FB and the organization has a lot
of potential and capacity to increase the responsibility if the need arises later. This demonstrates
that the organization has adopted a 100% capital value structure in which it builds resources with
zero per cent financing costs remotely or internally (Funding Facebook : From Harvard Dorm
Room to $500 Bn Company, 2020).
2. Dividend Policy
The dividend policy is the policy a company an organization uses to pay the profit structure to
investors. Some analysts suggest that the profit strategy is excessive, in principle, because
financial experts can sell a portion of their offerings or portfolio on the off chance that they don't
need investments. This is the perception of the volatility of profits, which suggests that paying a
profit has a significant effect on the cost of shares.

Despite the suggestion that the profit strategy is not important, it is a profit for the
investors. The pioneers of the organization are often the largest investors, and most of them stem
from a liberal profit strategy.
Facebook don’t pay any dividends to its investors; since the company believes that
increasing in the stock price of shares it treats like giving dividend. The profit by selling stocks
in the market gives benefit which is comparably more than dividend paid by other companies for
that reason FB’s stock demand keeps increasing in the market (Facebook could someday pay an
Apple-like dividend, says co-founder of social network forerunner, 2020).
C. Analyze financial performance
1. Gross Margin
2019 2018
A. Gross profit 23,986 24,913
B. Net Sales 70,697 55,838
Gross profit margin (A/B) 33.93% 44.62%
The above result shows that compare to 2018; FB’s performance is declined by approximately
11%. For gross profit margin, higher the percentage better for the company. Hence, company
records bad performance in the year 2019 (Shaikh, 2020).
2. Net Profit Margin
2019 2018
A. Net Profit 18,485 22,112
B. Net Sales 70,697 55,838
Gross profit margin (A/B) 26.15% 39.60%
As like gross profit margin, FB has shown poor performance in 2019 because it has failed to
control cost of goods sold despite increase in the revenue (Easton and et.al., 2018).
3. ROCE
2019 2018
A. Operating Profit 23,986 24,913
Total Assets 133,376 97,334
Less: Current liabilities 15,053 7,017
B. Capital Employed 118,323 90,317

ROCE (A/B) 20.27% 27.58%
ROCE of FB has declined from 2018; this indicates poor performance by the company. The
reason is gaining less profit as compared to its investment in the business (Chalu and Lubawa,
2018).
4. Trade receivables period
2019 2018
A. Accounts Receivables 9,518 7,587
B. Net Sales 70,697 55,838
Trade receivables
period {(A/B)*365}
49.1402
7
49.5944
5
The trade receivable period records by the company in both 2019 and 2018 are almost same.
Hence, this indicates stability in the performance (Arkan, 2016).
5. Current Ratio
2019 2018
A. Current Assets 66,225 50,480
B. Current Liabilities 15,053 7,017
Current Ratio (A/B)
4.39945
5
7.19395
8
The ideal ratio is 2:1 for service industries; but Facebook has recorded much more than ideal
ratio. The reason is more investment done by the company in Marketable securities and cash
items. This shows inefficiency of the business to utilization of cash. The another reason might be
intention of company to not to borrow funds from outside or its planning to invest in other
startups (Dawar, 2017).
6. Gearing
2019 2018
A. Long term Liabilities 17,269 6,190
B. Owner's equity 101,054 84,127
Gearing (A/B) 17.09% 7.36%
The results show that FB owes very much less debt due to which it attracts lots of investors who
looking for the investment which has less risk. But as compared to 2018; FB has taken more debt

in the form of operating lease liabilities and its owner’s equity has also been increased because
company has retained all its profits back into business (Wen and Zhu, 2019).
7. EPS
Earnings per share recorded by FB in 2019 $6.48; while in 2018 it was $7.65. This indicates the
company’s performance is declined as compared with 2018’s earnings per share (Campbell and
et.al., 2020).
8. Payout Ratio
Since, FB has not paid any dividend; payout ratio has not been calculated.

References
Books and Journals
Shaikh, S., 2020. MCQ Ratio Analysis of Financial Statements.
Easton, P.D., McAnally, M.L., Sommers, G.A. and Zhang, X.J., 2018. Financial statement
analysis & valuation. Boston, MA: Cambridge Business Publishers.
Chalu, H. and Lubawa, G., 2018. Using financial statements to analyze the effects of multiple
Borrowings on SMEs financial performance in Tanzania. Inter. J. Res. Methodol. Soc.
Sci, 1(4), pp.87-107.
Arkan, T., 2016. The importance of financial ratios in predicting stock price trends: A case study
in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, (79), pp.13-26.
Dawar, V., 2017. Amtek auto: Analysis of financial statements. SAGE Publications: SAGE
Business Cases Originals.
Wen, H. and Zhu, T., 2019. Interpretation of Financial Statements.
Campbell, J.L., D'Adduzio, J., Downes, J.F. and Utke, S., 2020. Do Debt Investors Adjust
Financial Statement Ratios when Financial Statements Fail to Reflect Economic
Substance? Evidence from Cash Flow Hedges. Contemporary Accounting Research.
Pokale, V., 2020. ANALYSIS OF FINANCIAL STATEMENTS.
Maisharoh, T. and Riyanto, S., 2020. Financial Statements Analysis in Measuring Financial
Performance of the PT. Mayora Indah Tbk, Period 2014-2018. Journal of Contemporary
Information Technology, Management, and Accounting, 1(2), pp.63-71.
Aman, S.M., 2016. Analysis of financial statements using ratio analysis for the last 5 years.
Online
Funding Facebook : From Harvard Dorm Room to $500 Bn Company, 2020; Available through
online: https://pixr8.com/story/funding-facebook-from-harvard-dorm-room-to-500-bn-
company/
All You Need To Know About Facebook Inc’s (FB) Financial Health, 2020; Available through
online: https://finance.yahoo.com/news/know-facebook-inc-fb-financial-
230313209.html#:~:text=The%20good%20news%20for%20investors,need%20to%20in
%20the%20future.
Facebook could someday pay an Apple-like dividend, says co-founder of social network
forerunner, 2020; Available through online:
https://www.cnbc.com/2019/12/05/facebook-dividend-likely-says-co-founder-of-social-
network-forerunner.html