The Google 10-K Form is reproduced online at www.wiley.com/college/pratt.

REQUIRED:

a. Review the Google SEC Form 10-K and analyze the financial statements by assessing Google’s earning power and solvency, and provide support for your assessments. Start by using the ratio framework illustrated in Figure 5–3.

In Figure 5–3

b. Use the ROE model to analyze the financial statements. Comment on whether Google created shareholder value and identify the primary value drivers.
c. Based on the financial statements, make reasonable assumptions about Google’s sales growth, expense/sales ratio, sales/total assets ratio, and liabilities to total asset ratio for 2012, and prepare a simplified income statement and balance sheet for Google for2013.

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Formula Ratio PROFITABILITY RATIOS Return on equity Return on assets Return on sales (profit margin) Net Income Interest Expense(1 Tax Rate)]/Net Sales LEVERAGE RATIOS Common equity leverage Capital structure leverage Debt/equity ratio Long-term debt ratio SOLVENCY RATIOS Current ratio Quick ratio Net Income/Average Shareholders' Equity Net Income Interest Expense Tax Rate)]|/Average Total Assets Net Income/ Net Income Interest ExpenseTax Rate)l Average Total Assets/Average Shareholders' Equity Average Total Liabilities/Average Shareholders' Equity Long-Term Liabilities/Total Assets Current Assets/Current Liabilities (Cash + Marketable Securities +Net Accounts Receivable)/ Current Liabilities Interest coverage Accounts payable turnover*Cost of Goods Sold/Average Accounts Payable ASSET TURNOVER RATIOS* Receivables turnover Inventory turnover Fixed assets turnover Total asset turnover OTHER RATIOS (Net Income Tax Expense Interest Expense Interest Expense Net Credit Sales/Average Accounts Receivable Cost of Goods Sold/Average Inventory Sales/Average Fixed Assets Sales/Average Total Assets Earnings per share Price/earnings ratio Dividend yield ratio Stock price return Net Income/Average Number of Common Shares Outstanding Market Price per Share/Earnings per Share Dividends per Share/Market Price per Share (Market Pric Market Price+ Dividends)/Market Price