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Running head: Reformulated Financial Statements Analysis
Reformulated Financial Statements Analysis
Savanna Stevens
BUSI 532 B02
Liberty University
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Reformulated Financial Statements Analysis
Reformulating financial statements can be very useful when trying to analyze a company
from an investor standpoint. It makes it easier to be read and analyzed by other people,
specifically investors, and help give a more accurate representation of the business.
Reformulated Balance Sheet
The reformulated balance sheet is broken up into three different sections. They are the net
operating assets, net financial assets, and common shareholders’ equity. Net operating assets has
two sections to it. First, it has operating assets. This includes things like working cash, accounts
receivable, inventory, prepaids, and goodwill. The second section is operating liabilities. This
section includes non-interest-bearing accounts payable, and deferred income taxes and liabilities.
Net financial assets have two sections as well. This first section is financial assets. This section
includes things like cash equivalents and short-term investments. The second section is financial
liabilities. This section includes items such as interest-bearing accounts payable and long-term
debt.
Google’s net operating assets have consistently grown over the past five years,
specifically between 2017 and 2018, with a $22,340,580,000 increase. This jump is mostly seen
in property, plant, and equipment, and accounts receivable. Net financial assets have also slowly
increased over the past five years, except between 2014 and 2015. 2014 was nearly $35 billion
higher in 2014 than in 2015. This is due to the large drop in cash equivalents in 2015, moving
from $62 billion to $14 billion. Common shareholder’s equity also has steadily increased over
the past five years with the exception of 2014 and 2015. There is again another big drop in
shareholder’s equity between 2014 and 2015. This is most likely due to the fact that net financial
assets dropped significantly between these two years.
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Reformulated Financial Statements Analysis
Reformulated Balance Sheet
Google
All numbers in
thousands
Period Ending 2018 2017 2016 2015 2014
Net Operating Assets
Operating Assets
Working Cash
$
501,030 $ 321,450 $ 387,540 $ 462,270 $ 1,932,000
Accounts Receivable,
less allowance for
doubtful accounts
$
21,193,000 $ 18,705,000 $ 15,632,000 $ 13,459,000 $ 10,850,000
Inventories
$
1,107,000 $ 749,000 $ 268,000 $ 491,000 $ -
Prepaid Expenses and
other current assets
$
4,236,000 $ 2,983,000 $ 3,175,000 $ 1,590,000 $ 3,410,000
Property, plant, and
equipment, net
$
59,719,000 $ 42,383,000 $ 34,234,000 $ 29,016,000 $ 23,880,000
Goodwill
$
17,888,000 $ 16,747,000 $ 16,468,000 $ 15,869,000 $ 15,600,000
Identifiable intangible
assets
$
2,220,000 $ 2,692,000 $ 3,307,000 $ 3,847,000 $ 4,610,000
Deffered income
taxes and other
assets
$
737,000 $ 680,000 $ 383,000 $ 251,000
Total Operating
assets
$
107,601,030 $ 85,260,450 $ 73,854,540 $ 64,985,270 $ 60,282,000
Operating Liabilities
Accounts Payable -
non-interest bearing
$
4,071,540 $ 2,917,410 $ 1,898,130 $ 1,795,830 $ 1,599,600
Deferred income
taxes and other
liabilities
$
16,009,000 $ 10,651,000 $ 5,851,000 $ 4,327,000
net operating assets
$
87,520,490 $ 71,692,040 $ 66,105,410 $ 58,862,440 $ 58,682,400
Net financial assets
Financial Assets
Cash equivalents
$
16,199,970 $ 10,393,550 $ 12,530,460 $ 14,946,730 $ 62,468,000
Short-term
investments
$
92,439,000 $ 91,156,000 $ 73,415,000 $ 56,517,000 $ 46,048,000
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Reformulated Financial Statements Analysis
Total Financial assets
$
108,638,970
$
101,549,550 $ 85,945,460 $ 71,463,730
$
108,516,000
Financial Liabilities
Accounts Payable -
interest bearing
$
306,460 $ 219,590 $ 142,870 $ 135,170 $ 120,400
long-term debt
$
3,950,000 $ 3,943,000 $ 3,935,000 $ 1,995,000 $ 3,230,000
Total Financial
liabilities
$
4,256,460 $ 4,162,590 $ 4,077,870 $ 2,130,170 $ 3,350,400
$
104,382,510 $ 97,386,960 $ 81,867,590 $ 69,333,560
$
105,165,600
Common
shareholders' equity
$
191,903,000
$
169,079,000
$
147,973,000
$
128,196,000
$
163,848,000
Reformulated Income Statement
On the reformulated income statement, for Google, operating income, after taxes, slowly
increased over the last five years with a slight dip in 2017. This is due to the fact that taxes
reported were quite a bit higher in 2017 then in 2016, resulting in the slight dip of about $2
billion. Net financing income also slowly increased over the past five years. However, there was
not any kind of dip as seen in operating income. Comprehensive income also stayed on a similar
path as operating income. It slowly increased over the past five years with a slight dip of about
$2 billion in 2017 and then a big rise of almost $20 billion in 2018. This is due to taxes reported
being so high in 2017 and operating revenue increasing in 2018.
Reformulated Income Statement
Google
All numbers in thousands
Period Ending 2018 2017 2016 2015 2014
Operating
Revenues
$
136,819,000
$
110,855,000
$
90,272,000
$
74,989,000
$
65,830,000
Cost of Sales
$
59,549,000
$
45,583,000
$
35,138,000
$
28,164,000
$
25,691,000
Gross Margin
$
77,270,000
$
65,272,000
$
55,134,000
$
46,825,000
$
40,139,000
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Reformulated Financial Statements Analysis
Operating
expenses
Administrative
expenses
$
15,164,580
$
12,254,300
$
10,831,400
$
9,413,460
$
8,668,840
Advertising
$
9,294,420
$
7,510,700
$
6,638,600
$
5,769,540
$
5,313,160
Operating income
from sales (before
taxes)
$
52,811,000
$
45,507,000
$
37,664,000
$
31,642,000
$
26,157,000
Taxes
Taxes as reported
$
4,177,000
$
14,531,000
$
4,672,000
$
3,303,000
$
3,639,000
Operating income
from sales (after
taxes)
$
48,634,000
$
30,976,000
$
32,992,000
$
28,339,000
$
22,518,000
Other operating
income (before tax
items)
Operating income
(after tax)
$
48,634,000
$
30,976,000
$
32,992,000
$
28,339,000
$
22,518,000
Financing income
(expense)
interest income
$
1,878,000
$
1,312,000
$
1,220,000
$
999,000
$
746,000
interest expense
$
(114,000)
$
(109,000)
$
(124,000)
$
(104,000)
$
(101,000)
Net interest
income (expenses)
$
1,992,000
$
1,421,000
$
1,344,000
$
1,103,000
$
847,000
Tax effect (at
36.3%)
$
723,096
$
515,823
$
487,872
$
400,389
$
307,461
Net interest
income (expenses)
$
2,715,096
$
1,936,823
$
1,831,872
$
1,503,389
$
1,154,461
Preferred dividends $ - $ - $ - $ - $ -
Net financing
income (expense)
$
2,715,096
$
1,936,823
$
1,831,872
$
1,503,389
$
1,154,461
Comprehensive
income
$
51,349,096
$
32,912,823
$
34,823,872
$
29,842,389
$
23,672,461
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Reformulated Financial Statements Analysis
Reformulated Cash Flow
The reformulated cash flow statement is broken up into two main sections, free cash flow
from operating activities, and cash paid for financing activities. Over the past five years,
Google’s free cash flow from operating activities has been up and down. They had a slight
decrease between 2014 and 2015 of about $3 billion, but then had an increase between 2015 and
2016 of about $5 billion. This is due to the fact that in 2015 cash investments were quite a bit
higher than in 2014 and cash flow from operations was nearly $10 billion higher in 2016 than in
2015. There was then a slight dip between 2016 and 2017, due to cash investments increasing
slightly more than cash flow from operations in 2017. Then there was a huge jump in 2018
because their cash flow from operations increased by almost $11 billion and their cash
investments dropped by nearly $18 billion.
Cash paid for financing activities follows a similar pattern to cash flow from operating
activities. It increased in 2015 due to an increase in both cash paid to shareholders and cash paid
to debtholders. In then decreased in 2016 due to a decrease in cash paid to shareholders and
debtholders. Then, in 2017, cash paid in financing activities decreased by nearly $10 million.
This is because cash paid to shareholders and debtholders was cut in half in 2017. It then
increased again in 2018.
Reformulated Cash Flow Statement
Google
All numbers in thousands
Period Ending 2018 2017 2016 2015 2014
Cash flow from
operations
$
47,971,000
$
37,091,000
$
36,036,000
$
26,572,000
$
22,380,000
cash
investments
$
(1,972,000)
$
(19,448,000)
$
(18,229,000)
$
(13,635,000)
$
(6,997,000)
free cash flow
from operating
activities
$
45,999,000
$
17,643,000
$
17,807,000
$
12,937,000
$
15,383,000
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Reformulated Financial Statements Analysis
cash paid to
shareholders
$
6,766
$
4,291
$
8,729
$
13,705
$
11,625
cash paid to
debtholders
and issuers
$
6,827
$
4,377
$
10,064
$
13,728
$
11,643
cash paid for
financing
activities
$
13,593
$
8,668
$
18,793
$
27,433
$
23,268
Reformulated Statement of Shareholders’ Equity
The reformulated statement of shareholders’ equity for Google, focuses mainly on the
ending balance each year. The ending balance each year slowly increased over the past five
years. In 2015, it increased by about $16 billion. Then in 2016, it increased again by about $23
billion. Again, in 2017, in increased nearly $8 billion. Lastly, in 2018, it the ending balance
increased almost $40 billion dollars. This is due to the huge increase in net income between 2017
and 2018 of nearly $18 million.
Reformulated Statement of Shareholders' Equity
(in millions)
Balance at December 31, 2014
$
103,860.00
Transactions with shareholders
Common stock
$
465.00
Repurchases of capital stock $ -
$
465.00
Comprehensive Income
Net Income
$
14,136.00
Other Comprehensive income
$
(98.00)
$
14,038.00
Stock-based Compensation
$
4,279.00
Balance at December 31,2015
$
122,642.00
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Reformulated Financial Statements Analysis
Balance at December 31, 2015
$
120,331.00
Transactions with shareholders
Common stock
$
664.00
Repurchases of capital stock
$
(1,780.00)
$
(1,116.00)
Comprehensive Income
Net Income
$
16,348.00
Other Comprehensive income
$
(1,901.00)
$
14,447.00
Stock-based Compensation
$
5,151.00
Balance at December 31,2016
$
138,813.00
Balance at December 31, 2016
$
139,036.00
Transactions with shareholders
Common Stock
$
298.00
Repurchases of capital stock
$
(3,693.00)
$
(3,395.00)
Comprehensive Income
Net Income
$
19,478.00
Other Comprehensive income
$
(528.00)
$
18,950.00
Stock-based Compensation
$
6,700.00
Balance at December 31,2017
$
161,291.00
Balance at December 31, 2017
$
152,502.00
Transactions with shareholders
Common Stock $
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Reformulated Financial Statements Analysis
212.00
Repurchases of capital stock
$
(4,846.00)
$
(4,634.00)
Comprehensive Income
Net Income
$
12,662.00
Other Comprehensive income
$
1,410.00
$
14,072.00
Stock-based Compensation
$
7,694.00
Balance at December 31,2018
$
169,634.00
Balance at December 31, 2018
$
177,628.00
Transactions with shareholders
Common Stock
$
148.00
Repurchases of capital stock
$
(9,075.00)
$
(8,927.00)
Comprehensive Income
Net Income
$
30,736.00
Other Comprehensive income
$
(1,216.00)
$
29,520.00
Stock-based Compensation
$
9,353.00
Balance at December 31,2018
$
207,574.00
Biblical Application
Financial statements are very important because they help shape an idea of how a
company is doing financially. This is very important to potential investors, who need to know
how your business is doing before they invest a ton of money into it. This is why it is so
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Reformulated Financial Statements Analysis
important that financial statements are as accurate as possible. This way you are giving an
accurate representation of how your business is doing, and not tricking investors into putting
money into your company, not knowing the whole picture. The Bible says in Proverbs 28:6,
“better is a poor man who walks in his integrity than a rich man who is crooked in his ways”
(ESV). Keeping integrity is important even if it means losing investors. It is better to be honest
than to lie and end up losing more people in the end.
