Footnotes or Other Sections:
Two other sections of the company financial statements are explored in this section. The sections selected are important concerning the investment decision. The earnings per share and dividend policy section for both Google and Apple Inc are discussed below.
Earnings per Share
Alphabet Inc./ Google:
The company computed NI per share of their three various types of stocks; Class A, Class B, and Class C. The company uses a two-class method for its computation. The NI per share computation shows the allocation as if the earnings are distributed to the shareholders. The computation of both NI per share is shown in the figure below which is taken from the company 10K report (Alphabet Inc, 2017, p. 76).
(Alphabet Inc, 2017, p. 79)
| GOOG | AAPL | |
| EPS-Basic | $ 18.27 | $ 9.27 |
| EPS-diluted | $ 18.00 | $ 9.21 |
Earnings Per Share
The computation shows that the company has converted to Class B shares to Class A shares for the sake of computing diluted EPS. The Basic NI per share for all three classes is $18.27. And the diluted income per share for all three classes of share is $ 18. The NI per share of 18 in 2017 as compared to the NI per share in 2016 of $27.85 (Alphabet Inc, 2017, p. 78), shows that the decline in the earnings of the company. The number of shares has also increased in 2017 however, that number is not large enough to be substantial.
Apple Inc.
The basic earnings per share for company Apple Inc is get by using the income and the weighted average of the number of common shares. For the computation of the dilutive stock, the treasury stock method is utilized. As per this method, an increment in the fair value of the share price would result in greater dilutive effect (Apple Inc, 2017, p. 46).
(Apple Inc, 2017, p. 47)
The basic earnings per share in 2017 are shown to be $9.27 which diluted to $9.21. The basic and diluted earnings per share in 2016 are $8.35 and $8.31 respectively. The rise in the earnings per share can be attributed to the increment in earnings/ Net income of the company.
Dividend Policy
Alphabet Inc./ Google:
The Alphabet Inc, the owner of the Google, has stated in its dividend policy in its annual report that it has never declared or paid any cash dividend to the owners of the capital or common shares. The company does not intend to distribute cash dividends shortly as well. They intend to retain their future earnings and are not expected to pay dividends in the foreseeable future (Alphabet Inc, 2017, p. 22).
It should be important in the investment decision. The investor is investing its funds on the expectation of realizing earnings from it. The earnings from investment in this stock would only realize capital gains and no dividends can be expected from it. It will be a crucial aspect of the investment decision.
Apple Inc:
Apple Inc. has a dividend policy under which it distributes dividend on a regular basis. It has paid $12.6 billion during the year 2017. In 2016, the company has paid a total cash dividend of $12 billion. The company is expecting to pay a dividend of $0.63. The company increases its dividends on an annual basis. The company is also planning to increase the dividend next year after the declaration of the board of directors (Apple Inc, 2017, p. 18).
The Cash Dividends declared per share during the last five years are shown below:
| 2017 | 2016 | 2015 | 2014 | 2013 | |
| Cash Dividends | $ 2.40 | $ 2.18 | $ 1.98 | $ 1.82 | $ 1.64 |
(Apple Inc, 2017, p. 21)
The amount of cash dividends is depicted in the table. It shows that the company is following its policy of annual increment in cash dividends. The annual cash dividends have increased from $ 1.64 in 2013 to $ 2.40 in 2017 (Apple Inc, 2017). It is a crucial fact which is considered during investment decision. The increasing dividend policy with the stable trend of distribution of dividends goes in favor of investing in this company
Compare the two companies:
Income statement:
Revenue:
| Net Revenue (in millions) | 2017 | 2016 | 2015 |
| AAPL | $229234 | $215639 | $233715 |
| GOOG | $110855 | $90272 | $74989 |
The revenue of Google has increased in the three years. The revenue of Apple Inc has declined substantially in 2016 and then recovered in 2017. The decline in 2016 of revenue was accounted for the decline in revenues of iPhone, iPad, and Mac (Apple Inc, 2017, p. 68). The decline was attributed to the geographical segment of the US, and China. These two geographic segments represent the highest revenue contribution to the company. They both constitute more than 10% of revenue (Apple Inc, 2017, p. 68). The revenue of Google has been an increasing trend. The increment can be attributed to the increase in revenue from Google segment and other bets segment (Apple Inc, 2017, p. 84). Looking at these two company’s revenues, the investment decision can be favorable towards Alphabet, Inc more than towards Apple Inc.
Operating Expenses:
The operating expenses of the company show the expenses which are incurred to operate the company for the selling of its products and services. The Apple Inc. operating expenses include the research and development expense, selling, general and admin expense (Apple Inc, 2017, p. 39).
| Operating Expenses (in millions) | 2017 | 2016 | 2015 |
| Apple Inc | $26842 | $24239 | $22396 |
| Alphabet Inc. | $39126 | $31418 | $27465 |
The operating expenses of Alphabet, Inc have increased in the last three years as depicted in the table (Morningstar.com, 2018). The operating expenses of the Apple Inc have also increased in last three years. Apple Inc costs, advertising costs as selling and administrative costs in its operating costs (Apple Inc, 2017, p. 46). The operating expenses of Apple Inc are about 10% of its net sales value. The following screenshot from the 10k Report of Apple Inc (Apple Inc, 2017) shows the percentage of revenue deducted in operating expense.
(Apple Inc, 2017, p. 27)
The selling, general and admin costs are about 7% of the net sales revenue value in 2016 and 2017. Looking at the sales and marketing expense of Alphabet Inc. in the following table, we can see that it alone contributes to the 11% of the net revenue value (Alphabet Inc, 2017, p. 36).
(Alphabet Inc, 2017, p. 36)
The selling and marketing expense increased by 2408 million in 2017. The increment was spent on promotion and advertising of the hardware products, cloud services, and for YouTube (Alphabet Inc, 2017, p. 36).
Looking at this from the investment perspective, the increment in the operating expenses without any substantial relative profit is not considered to have efficiently managed and operated. It is not the case for both companies. For both companies, the operating expenses are increasing with increase in revenue. Thus, by this section, investment decision cannot be made.
Research & Development;
(Alphabet Inc, 2017, p. 36)
The investment in the research and development shows the prospects in the innovation of the company. Alphabet Inc. investment in R&D has been increasing as a value, but lower as a % of total revenue because of the increment in revenues.
(Apple Inc, 2017, p. 27)
The research and development only represent 5% of the total net sales. The budget has increased by 15% in 2017 (Apple Inc, 2017, p. 27). Moreover, the amount invested in R&D is higher in Alphabet Company. However, the revenue generated by using this research is much greater for Apple Inc. However, the investment decision should be towards the one who is spending more on R&D, i.e. Alphabet Inc.
Profit Margin
| GOOG | AAPL | |
| Net Income | $ 12,662.00 | $ 48,351.00 |
| Revenue | $ 110,855.00 | $ 229,234.00 |
| Profit Margin | 11.42% | 21.09% |
Apple Inc is generating more profit margins as compared to the Alphabet Inc. Thus, Apple Inc has more advantage of investment.
Operating Margin
| GOOG | AAPL | |
| Operating Income | $ 26,146.00 | $ 61,334.00 |
| Revenue | $ 110,855.00 | $ 229,234.00 |
| Operating Margin | 23.59% | 26.76% |
Similar like Profit margin, the operating margin is also higher for Apple Inc as compared to Alphabet Inc. the interesting part to note here is that the operating margin of both companies is above 20%, whereas the profit margin of Apple remains above 20% but for Alphabet Inc it decreased to 11%, showing higher operating expenses. The attractive investment as per this ratio is Apple Inc.
Gross Profit
| GOOG | AAPL | |
| Gross Profit | $ 65,272.00 | $ 88,186.00 |
| Revenue | $ 110,855.00 | $ 229,234.00 |
| Gross Profit Ratio | 58.88% | 38.47% |
Interestingly, Alphabet Inc has a higher gross profit margin as compared to Apple Inc, showing Apple’s higher cost of revenue. This factor goes in favor of Alphabet Inc.
Balance Sheet:
Debt:
Looking at the Liabilities portion of both companies.
| GOOG | AAPL | |
| Total Debt | $ 44,793.00 | $ 241,272.00 |
The Apple Inc total liabilities portion is much higher than that of Alphabet Inc. Furthermore, the total liabilities of Apple Inc has increased in 2017 as compared to 2016 because of the increment in long-term debt, non-current liabilities commercial paper, and accounts payable (Apple Inc, 2017, p. 41). The total liability of Alphabet Inc has also doubled in one year (Alphabet Inc, 2017, p. 46). However, it is much less in proportion than the Apple Inc.
It is also evident from the debt to equity and debt ratio. Apple has a 0.6 debt ratio as compared to 0.2 debt ratio of Alphabet Inc.
| GOOG | AAPL | |
| Total Debt | $ 44,793.00 | $ 241,272.00 |
| Total Assets | $ 197,295.00 | $ 375,319.00 |
| Debt Ratio | 0.23 | 0.64 |
| GOOG | AAPL | |
| Total Debt | $ 44,793.00 | $ 241,272.00 |
| Total Equity | $ 152,502.00 | $ 134,047.00 |
| Debt to Equity Ratio | 0.29 | 1.80 |
The more dependent a company is in debt source of financing, the riskier its business is. Thus Alphabet Inc is the better choice.
Current Assets:
The current assets of the company Alphabet Inc. are evident not only increases in value in one year (Alphabet Inc, 2017, p. 46) but also it is equal to the amount of Apple Inc current assets, whereas Apple Inc is earning much larger earnings than Alphabet Inc. It is also evident from the current ratio of both companies. Alphabet Inc has five times more current assets as its current liabilities, whereas Apple Inc current ratio is not even double. The better liquidity profile of Alphabet Inc makes it a better investment decision.
| GOOG | AAPL | |
| Current Assets | $ 124,308.00 | $ 128,645.00 |
| Current Liabilities | $ 24,183.00 | $ 100,814.00 |
| Current Ratio | 5.14 | 1.28 |
Intangible Assets:
The intangible assets of software companies are an important part of their worth. The value of intangible assets of Google has decreased from $3307million to $2692M, and Goodwill has increased from $16468M to $16747M in 2017 (Alphabet Inc, 2017, p. 46). The increase in goodwill is a positive sign of increasing company value. The Goodwill value for Apple Inc has also increased from $5414 million in 2016 to $5717 million in 2017 (Apple Inc, 2017, p. 40). The goodwill of Alphabet Inc. is much higher than that of Apple Inc showing its public worth.
Statement of Cash Flow:
The highest investing of Apple Inc has also been to purchase marketable securities, and for the acquisition of PPE. As for financing activities, the highest activity has been the repurchase of common stock consuming $32900 million, and proceeds from the issuance of term debt, releasing $28662 million in funds (Apple Inc, 2017, p. 43).
The highest investing activities of Alphabet Inc. have been to purchase of marketable securities, and for maturities and sale of marketable securities. In financing activities, the highest activity has been the repayment of debt by $13728 million and proceeds from the issuance of debt releasing $13,705 million in funds (Alphabet Inc, 2017, p. 51).
Footnotes/Other Sections
The analysis of the sections of earnings per share and dividend policy shows that the dividend policy of Alphabet Inc. is not a good sign for investing in it. As per the earnings per share, the Alphabet Inc. is better investment decision.
Investment Decision:
| Section | Better Company |
| EPS | Alphabet Inc |
| Dividend Policy | Apple Inc |
| Debt Ratio | Alphabet Inc |
| Current Ratio | Alphabet Inc |
| Profit Margin | Apple Inc |
| Research & Development | Alphabet Inc |
| Cash Flow | Apple Inc |
| Good Will | Alphabet Inc |
| Better Company All Over | Alphabet Inc/ Google |
As per the ratio analysis, and financial statement analysis, the better option for investment is Google with its high liquidity, low debt ratio, higher EPS, and higher Good Will.
References
Alphabet Inc. (2017). Alphabet Inc 10K Repor 2017. Retrieved from https://abc.xyz/investor/pdf/20171231_alphabet_10K.pdf
Alphabet Inc. (2018). Investor Relations. Retrieved, from https://abc.xyz/investor/
Apple Inc. (2017). Apple 10K Report 2017. Retrieved from http://files.shareholder.com/downloads/AAPL/6128778344x0x962680/D18FAEFF-460A-4168-993D-A60CBA8ED209/_10-K_2017_As-Filed_.pdf
Apple Inc. (2017). Earnings Releases and 10‑K Annual Reports. Retrieved from http://investor.apple.com/financials.cfm
Morningstar.com. (2018). Google . Retrieved from http://financials.morningstar.com/income-statement/is.html?t=GOOG®ion=usa
+447462439809