Comparative Analysis of Google and Yahoo

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Google vs Yahoo

A Comparative Financial Analysis

Liquidity Ratios
Liquidity ratios, like the current ratio, provide information about a firm's ability to meet its short time financial obligations. Short-term creditors seek a high current ratio from prospective clients since it reduces their risk. For investors in a company, such as shareholders, a lower ratio is sought, so that more of a firm's assets are working to grow the business. When computing financial relationships, a good indication of the company's financial strengths and weaknesses becomes clear. Examining these ratios over time provides insight as to how effectively the business is being operated. The general consensus on liquidity ratios is; the higher the better, especially if a firm is reliant on any significant extent on creditors to finance their assets.

Financial Ratios for Google, Yahoo and the Internet Information Providers Industry
(based on 2005 and 2006 Fiscal Year Financial Information)

Google, Inc. Yahoo, Inc. Industry
Liquidity Analysis Ratios:
Current Ratio 10.0 2.5 3.2
Net Working Capital Ratio 0.6 0.2 N/A

Profitability Analysis Ratios:
Return on Assets (ROA) 5.4% 1.7% 2.1%
Return on Equity (ROE) 5.8% 2.1% 2.2%
Profit Margin 29.0% 11.7% 24.0%

Activity Analysis Ratios:
Assets Turnover Ratio 0.2 0.1 0.1
Accounts Receivable Turnover Ratio 2.6 1.9 1.1

Capital Structure Analysis Ratios:
Debt to Equity Ratio 0.1 0.3 0.3
Interest Coverage Ratio 3.4 5.3 1.2

Taking the two liquidity analysis ratios, current and net working capital as seen in the table on the previous page, one can clearly see from its high current ratio that Google is in a far better position than both Yahoo and other firms in the Internet Information Providers Industry to quickly convert its assets into cash if the need arises. Google's high networking capital ratio, is an indication that the company also is more reliant on creditors to finance its abundant level of revenue producing ...