Principles of Accounting Present Horizontal Analysis

Question: Describe about thePrinciples of Accounting for Present Horizontal Analysis. Answer: Introduction For this academic paper, I would like to select Google Inc. as a public as well as research company. This research paper would be helpful to provide an overview of the organization in an effective way. Moreover, this paper would also be beneficial to present horizontal analysis of income statement as well as balance sheet of the organization. In addition to this, this research paper would also be helpful to perform ratio analysis of the Google Inc in order to recognize the financial performance and position of the organization. Company Overview Recently, Google Inc. is considered as one of the most public companies in the world. Google is an American multinational technology corporation that is specific in Internet-related services and products. For example, Softwares, online advertising technologies, search engines, cloud computing and so on are the major products and services of Google (Google Inc. 2016). Along with this, Microsoft, Yahoo, Apple, Twitter, Facebook, et cetera are measured as the major competitors of Google Inc. Horizontal Analysis Horizontal analysis that is also known as trend analysis is a financial statement analysis method that plays a significant role in order to show changes in the amounts of equivalent financial statement items over a period of time (Brigham Houston, 2009).. Along with this, horizontal analysis plays a critical role to evaluate the rend situations in an appropriate manner. The horizontal analysis considers the statements of two or more than two years to appraise trend situations in an accurate way. An organization may conduct horizontal analysis for the balance sheet, income statement, statement of retained earnings, and schedules of current fixed assets (Carlberg, 2010). The horizontal analysis is an effective tool to evaluate the financial position of the organization in an effective and a more comprehensive manner. On the other hand, horizontal analysis is considered as an imperative part of financial statement analysis. This analysis is important for the managers, and investors of the organization to predict the financial position or performance of the company in the future time period. Along with this, the horizontal analysis plays a significant role to organize data of the current and past years to be acquainted with the actual financial position of the firm (Griffin, 2009). Moreover, the horizontal analysis of Google Inc is valuable to recognize the financial position of the firm in the past years. The horizontal analysis of income statement of Google Inc. is as below: Horizontal Analysis of Income Statement (in millions) Increase or (Decrease) 2015 2014 2013 Amount Percent Amount Percent Total Revenue 74,989 66,001 55,519 8,988 13.62% 10,482 18.88% Cost of Revenue 28,164 25,691 21,993 2,473 9.63% 3,698 16.81% Gross Profit 46,825 40,310 33,526 6,515 16.16% 6,784 20.24% Operating Expenses Research Development 12,282 9,832 7,137 2,450 24.92% 2,695 37.76% Selling General and Administrative 15,183 13,982 10,986 1,201 8.59% 2,996 27.27% Operating Income or Loss 19,360 16,496 15,403 2,864 17.36% 1,093 7.10% Income from Continuing Operations Total Other Income/Expenses Net 291 763 496 -472 -61.86% 267 53.83% Earnings Before Interest And Taxes 19,651 17,259 15,899 2,392 13.86% 1,360 8.55% Income Before Tax 19,651 17,259 15,899 2,392 13.86% 1,360 8.55% Income Tax Expense 3,303 3,639 2,739 -336 -9.23% 900 32.86% Net Income From Continuing Ops 16,348 13,620 13,160 2,728 20.03% 460 3.50% Non-recurring Events Discontinued Operations _ 516 -427 0.00% 943 -220.84% Net Income 16,348 14,136 12,733 2,212 15.65% 1,403 11.02% (Source: Yahoo Finance. 2016). On the basis of the horizontal analysis of Googles Income Statement, it should be noted down that the revenues of the company increased by 20.24% from 2013 to 2014 and also increased by 13.62% from 2014 to 2015 year. The increase in revenues illustrates the strong financial position of the organization (Fleay, Poustie Mroczkowski, 2011). Apart from this, the analysis points out that selling administration and RD expenses of the firm have increased more than 8.59% 24.92% from 2015 to 2014 and 27.27% 37.76% from 2013 to 2014. It points up that the organization has made a lot of efforts to control its expenses to diminish cost and to earn profits in order to improve the profitability of the organization in an effective manner (Gundlach Foer, 2004). On the other hand, the horizontal analysis of the balance sheet of Google Inc. is given as below: Horizontal Analysis of Balance Sheet (in millions) Increase or (Decrease) 2015 2014 2013 Amount Percent Amount Percent Cash And Cash Equivalents 16,549 18,347 18,898 -1,798 -9.80% -551 -2.92% Short Term Investments 56,517 46,048 39,819 10,469 22.73% 6,229 15.64% Net Receivables 13,909 10,849 10,916 3,060 28.21% -67 -0.61% Inventory Other Current Assets 3,139 3,412 3,253 -273 -8.00% 159 4.89% Total Current Assets 90,114 78,656 72,886 11,458 14.57% 5,770 7.92% Long Term Investments 5,183 3,079 1,976 2,104 68.33% 1,103 55.82% Property Plant and Equipment 29,016 23,883 16,524 5,133 21.49% 7,359 44.54% Goodwill 15,869 15,599 11,492 270 1.73% 4,107 35.74% Intangible Assets 3,847 4,607 6,066 -760 -16.50% -1,459 -24.05% Other Assets 3,181 3,187 1,976 -6 -0.19% 1,211 61.29% Total Assets 147,461 129,187 110,920 18,274 14.15% 18,267 16.47% Liabilities Current Liabilities Accounts Payable 15,297 14,018 11,837 1,279 9.12% 2,181 18.43% Short/Current Long Term Debt 3,225 2,009 3,009 1,216 60.53% -1,000 -33.23% Other Current Liabilities 788 752 1,062 36 4.79% -310 -29.19% Total Current Liabilities 19,310 16,779 15,908 2,531 15.08% 871 5.48% Long Term Debt 1,995 3,228 2,236 -1,233 -38.20% 992 44.36% Other Liabilities 5,485 4,458 3,381 1,027 23.04% 1,077 31.85% Deferred Long Term Liability Charges 340 862 2,086 -522 -60.56% -1,224 -58.68% Total Liabilities 27,130 25,327 23,611 1,803 7.12% 1,716 7.27% Stockholders' Equity Common Stock 32,982 28,767 25,922 4,215 14.65% 2,845 10.98% Retained Earnings 89,223 75,066 61,262 14,157 18.86% 13,804 22.53% Other Stockholder Equity -1,874 27 125 -1,901 -7040.74% -98 -78.40% Total Stockholder Equity 120,331 103,860 87,309 16,471 15.86% 16,551 18.96% (Source: Yahoo Finance. 2016). On the basis of the horizontal analysis of the Balance Sheet of the organization, it can be said that the total current assets of Google has been increased 7.92% and total assets by 16.47 % from 2013 to 2014 and also increased by 14.57% and 14.15% from 2014 to 2015. Consequently, on the basis of the analysis, it can be said that there was an increase in the assets of the company in 2015 as compare to 2013. The increase in the assets of the firm indicates the stronger capital structure of the company (Yahoo Finance. 2016). Moreover, the total liabilities of the company also increased as compare to past years that points out that the Google is paying more attention on profits as opposed to fulfill its liabilities. Ratio Analysis The ratio analysis plays a significant role to know the non-financial performance of the organization (Nikolai, Bazley, Jones, 2009). The ratio analysis of the Google Inc. is as below: Ratio Analysis 2015 2014 2013 Current Ratio Current Assets/Current Liabilities 4.67 4.69 4.58 Current Assets 90114 78656 72886 Current Liabilities 19310 16779 15908 Liquidity Ratio [Current Assets-(Inventory )]/Current Liabilities 4.666701191 4.69 4.58 Inventory 0 0 0 Cash to Current Liabilities Ratio Cash/Current Liabilities 0.86 1.09 1.19 Cash 16549 18347 18898 On the basis of the ratio analysis, it can be said that, the liquidity ratios such as: current ration as well as quick ratio of the firm has been increased from the last two years because of an increase in current assets as compare to current liabilities of the firm. Moreover, high current and quick ratios be a sign of that the short-term financial position of the Google Inc is strong as because it has sufficient assets to compensate its current liabilities effectively. The current ratio also demonstrates that the company has a sufficient amount of working capital to operate its daily business activities in an effective and a proper manner (Porter Norton, 2010). The quick ratio also clarifies that there is a turn down in the inventory level of the firm that means it has sufficient cash and funds. Recommendations On the basis of the above horizontal analysis of income statement balance sheet and ratio analysis, it is recommended that a person must invest in this company. There are many reasons behind this. For case, the major reason is that, the financial position of the company is very strong. It has sufficient funds and does not have need of any additional sources to acquire money (Godwin Alderman, 2012). Moreover, the capital structure of the company is very strong and the firm has enough assets to reimburse its current liabilities. Consequently, there is no fear to lose money to the investors. In this way, it can be said that, Google Inc. has numerous strengths that are helpful to attract an investor to invest in the company. For that reason, I must say that, an entity or person must invest in this company in order to earn higher returns on the investment (Zager Zager, 2006). Conclusion On the basis of the above analysis, it can be concluded that, the financial position and capital structure of the Google Inc. is strong. Moreover, it is also observed that, the company has as much as necessary funds to reimburse its current liabilities on the timely manner. As a result, it can be recommend that, Google Inc. is the best option for an investor to invest his/her money to gain high returns in an effective and a proper manner. References Google Inc. (2016). About Us. Retrieved From: https://www.google.co.in/about/company/ Yahoo Finance. (2016). Google Inc. Retrieved From: https://finance.yahoo.com/q/bs?s=GOOGL+Balance+Sheetannual Yahoo Finance. (2016). Google Inc. 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