Comprehensive Financial Ratio Analysis of Alphabet Inc. (GOOGL)

This report provides a detailed financial analysis of Alphabet Inc., examining its performance through various financial ratios. The analysis covers profitability ratios like net profit margin and return on assets, revealing strong fundamentals and efficient asset utilization. Coverage ratios, including debt-to-asset and times interest earned, are assessed to understand the company's ability to manage its debt obligations. The report also reviews liquidity ratios and the comparative income statements for the years 2016-2018. The report concludes that Alphabet Inc. demonstrates strong financial health from a profitability perspective, highlighting its ability to generate profits and manage its debt efficiently, despite a high P/B ratio. The analysis includes a review of the company's business model and its primary products and services, such as Google search and related applications.

Alphabet Inc. Ratio Analysis
Facts
Alphabet Inc. is the holding company of Google Inc. and was incorporated on July 23, 2015.
The company has wide range of businesses encompassing Google Inc., Access, Calico, Nest
etc. The company traded price in Nasdaq on 01-050-2019 was USD 1174.48. The market
capitalisation of the company is $829, 840 Million with a beta of 1.04. (Reuters.com, 2019)
Profitability Analysis
Alphabet Inc. results have been quite mix over the period of three years with a sharp decrease
in profits from 2016 to 2017 and then a reversal in 2018. Making a V Pattern. Further, the
earning per share has been maximum in year 2018 reaching a height of $3.75 per share (for
common share holders). The net profit margin which symbolise the penny saved in a dollar
by a company after meeting both direct and indirect expenses of the company. The formula
for computation of net profit margin of the company has been computed by using the
following formula
Net Profit Margin= Net Profit/ Net Sales
The margin has been computed at 40% approx. which is fairly high and symbolise a good
performance for the company during the year and a strong return to share holder.
Further, on computation of return of asset it has been observed that company has been able to
generate 15 cents on dollar of asset employed which is an efficient utilisation of asset by the
company.
Also, the company in order to ensure strong growth has paid no dividend during the year.
Also the EPS of the company has grown during the year.
Thus, on the basis of above analysis it can be concluded that Alphabet Inc. has a strong
fundamentals from profitability point of view.
Coverage Ratio
The ratio helps in measuring the ability of the company to service its debt and meet any
financial obligation like interest or dividend. It is generally preferred by investors for a
company to have a high coverage ratio in order to maintain solvency in the short and long
run. It helps in understanding company’s change in financial position.
The ratio used for analysing the prospect of Alphabet Inc.
(a) Debt to Asset Ratio;
(b) Times Interest Earned;
(c) Cash Debt Coverage;
(d) Book Value Per Share
Under Debt to Asset Ratio, it has been given to understand that the company is .58% funded
by debt and 99.42% by equity which is much below the threshold mark of 2:3 ratio. Thus, the
company is not using ideal debt.

Further, the company has 307 times interest earned ratio which is a very positive sign
symbolising a string fundamental and ability to repay loans.
Also, the company has equivalent amount of cash in comparison of average liability to
immediately square off the debt. Thus, the company has maintained sufficient liquidity to pay
off its short term liabilities.
However, the book value per share of the company is fairly low compared to market price of
the share thus the company has a very high P/B Ratio which is not a good sign for the
company.
References
Reuters.com. (2019, May 4). Alphabet Inc (GOOG.O). Retrieved May 2, 2019, from
www.reuters.com: https://www.reuters.com/finance/stocks/overview/GOOG.O