ABSTRACT

The most Important 5 financial

Ratios of Alphabet Inc has been
Calculated and Analyzed

MANAGEMENT Nitish Agarwal

Finance D,42234

ACCOUNTING
Financial Ratio Analysis
 Alphabet Inc Financial Ratio
Analysis
Alphabet Inc Company Profile
Alphabet Inc. is an American multinational conglomerate headquartered in Mountain View, California. It
was created through a corporate restructuring of Google on October 2, 2015 and became the parent
company of Google and several former Google subsidiaries. The two founders of Google assumed
executive roles in the new company, with Larry Page serving as CEO and Sergey
Brin as president Alphabet is the world's fourth-largest technology company by revenue and one of
the world's most valuable companies.
The establishment of Alphabet was prompted by a desire to make the core Google internet
services business "cleaner and more accountable" while allowing greater autonomy to group companies
that operate in businesses other than Internet services. Page and Brin announced their resignation from
their executive posts in December 2019, with the CEO role to be filled with Sundar Pichai, also the CEO
of Google. Page and Brin will remain controlling shareholders of Alphabet, Inc

Revenue
As per its 2017 annual report, 86% of Alphabet's revenues came from Performance advertising (through
user clicks using Adsense and Google Ads) and Brand Advertising. Of these, 53% came from its
international operations. This translated to a total revenue of US$110,855 million in 2017 and a net
income of US$12,662 million.

On February 1, 2016, Alphabet Inc. surpassed Apple to become the world's most valuable publicly traded
company until February 3, 2016, when Apple surged back over Alphabet to retake the position. Experts
cited Apple's lack of innovation as well as increasing Chinese competition as reasons for the poor
performance.

As of 2019, Alphabet is ranked No. 15 on the Fortune 500 rankings of the largest United States
corporations by total revenue.

On January 16, 2020, Alphabet became the fourth US company to reach $1 trillion market value entering
the Trillion dollar companies club for the first time.

Investments and acquisitions

Investments
In November 2017, Alphabet Inc. led a Series A round of $71 million along with Andreessen
Horowitz and 20th Century Fox in music startup UnitedMasters, founded by Steve Stoute.[39]
Acquisitions
An analysis of the company's investments in 2017 suggested that it was the most active investor in that
period, outdoing the capital arm of Intel and also its own best customer. Alphabet, Inc. acquired 7 of its
own capital-backed startups in the 2017 financial year, with Cisco second having acquired 6 of the
company's previous investments.

Flatiron Health, a start-up founded by two former Google employees and backed by Alphabet, Inc.,
announced that it was to be acquired by health conglomerate Hoffman-La Roche for $1.8 billion. The
company provides electronic medical records and analysis to identify improved treatments
for oncology patients

Ratio ANALYSIS
1. Gross Profit
Ratio

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross profit and
total net sales revenue. It is a popular tool to evaluate the operational performance of the business . The
ratio is computed by dividing the gross profit figure by net sales.

Formula:

The following formula/equation is used to compute gross profit ratio:

When gross profit ratio is expressed in

percentage form, it is known as gross profit margin or gross profit percentage. The formula of gross profit
margin or percentage is given below:

The basic components of the formula of gross

profit ratio (GP ratio) are gross profit and net sales. Gross profit is equal to net sales minus cost of goods
sold. Net sales are equal to total gross sales less returns inwards and discount allowed. The information
about gross profit and net sales is normally available from income statement of the company.

Significance of Gross Profit Ratio

• It indicates Gross Profits for every RS100 of sales.

• The more the gross profits the better it is.
• It indicates the efficiency to the production at the Workshop/Factory.
Calculation of Gross Profit Ratio of Alphabet Inc

2019 Calculation
Gross profit margin = 100 × Gross profit ÷ Revenues
= 100 × 89,961 ÷ 161,857 = 55.58%

Analysis of the Ratio

 2. Net Profit ratio
Net profit ratio (NP ratio) is a popular profitability ratio that shows relationship between net profit
after tax and net sales. It is computed by dividing the net profit (after tax) by net sales.

Formula

For the purpose of this ratio, net profit is equal to gross profit minus operating expenses and income tax. All non-operating revenues and expenses are not taken into
account because the purpose of this ratio is to evaluate the profitability of the business from its primary operations. Examples of non-operating revenues include
interest on investments and income from sale of fixed assets. Examples of non-operating expenses include interest on loan and loss on sale of assets.

The relationship between net profit and net sales may also be expressed in percentage form. When it is
shown in percentage form, it is known as net profit margin. The formula of net profit margin is written as
follows:

Significance of Net Profit Ratio

• The ratio is the measure of the overall profitability net profit is arrived at after taking into account
both operating and non- operating items of Incomes and Expenses.
• The Ratio indicated what portion of the net sales is left for the owners after all expenses have
been met
Calculation of Net Profit ratio of Alphabet Inc

2019 Calculation
Net profit margin = 100 × Net income ÷ Revenues
= 100 × 34,343 ÷ 161,857 = 21.22%

Analysis of the Ratio

 3. Current Ratio
Current ratio (also known as working capital ratio) is a popular tool to evaluate short-term solvency
position of a business. Short-term solvency refers to the ability of a business to pay its short-term
obligations when they become due. Short term obligations (also known as current liabilities) are the
liabilities payable within a short period of time, usually one year.

A higher current ratio indicates strong solvency position and is therefore considered better.

Formula

Current ratio is computed by dividing total current assets by total current liabilities of the business. This
relationship can be expressed in the form of following formula or equation:

Above formula comprises of two components i.e., current assets and current liabilities. Both the
components are available from the balance sheet of the company. Some examples of current assets and
current liabilities are given below:

Some common examples of current assets are given below:

• Cash
• Marketable securities
• Accounts receivables/debtors
• Inventories/stock
• Bills receivable

Some common examples of current liabilities are given below:

• Accounts payable/creditors
• Bills payable
• Short-term notes payable
• Short term bonds payable
• Interest payable

Significance of Current Ratio

• It tells how much Current Assets are available to pay Current liabilities.
• A current ratio of 2 Is Considered best, though Current Ratio of 1:5 will be considered acceptable
• It states the short term solvency of the business
Calculation of Current Ratio of Alphabet Inc

2019 Calculation
Current ratio = Current assets ÷ Current liabilities
= 152,578 ÷ 45,221 = 3.37

Analysis of the Ratio

 4. Quick Ratio
Quick ratio (also known as “acid test ratio” and “liquid ratio”) is used to test the ability of a business to
pay its short-term debts. It measures the relationship between liquid assets and current liabilities. Liquid
assets are equal to total current assets minus inventories and prepaid expenses.

Formula

The formula for the calculation of quick ratio is given below:

Significance of the Ratio

• It is very useful in measuring the liquidity position of the firm.
• It measures the firm’s capacity to payoff current obligations immediately and is a more rigorous
test of liquidity then the current ratio.
• It is used as a Complementary ratio to current ratio.

Calculation of the Quick Ratio of Alphabet Inc

2019 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 145,001 ÷ 45,221 = 3.21
 Analysis of the Ratio

5. Return on equity Ratio

Return on shareholders’ investment ratio is a measure of overall profitability of the business
and is computed by dividing the net income after interest and tax by average stockholders’
equity. It is also known as return on total equity (ROTE) ratio and return on net worth ratio.
The ratio is usually expressed in percentage.

Formula:
The numerator consists of net income after interest and tax because it is the amount of income available
for common and preference stockholders. The denominator is the average of stockholders’ equity
(preference and common stock). The information about net income after interest and tax is normally
available from income statement and the information about preference and common stock is available
from balance sheet.

Significance of the Ratio

• It is considered as a very important ratio because it helps us to calculate the returns earned by the
owners on RS 100/- Capital Employed.
• It indicates the efficiency of Capital Employed.
• It is also useful for SWOT Analysis.

Calculation of Return on Equity of Alphabet Inc

2019 Calculation
ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × 34,343 ÷ 201,442 = 17.05%
Analysis of the Ratio
Financial Statements For References