The company I chose to evaluate is Alphabet Inc., which is the parent company of Google.
- The return on investment (ROI) is one performance measure that can be used for evaluation. Alphabet Inc.’s ROI 5-year average is 14.20, compared to the industry ROI 5-year average of 16.85. Since the ROI is positive, this would indicate the company is performing well. That being said, there may be more appealing investment opportunities since the industry ROI 5-year average is 16.85
- Receivable Turnover would be an activity ratio and demonstrates the company’s ability to collect money from customers. Alphabet Inc. has a Receivable Turnover of 7.73, whereas the industry has a Receivable Turnover of 8.47. This would indicate Alphabet Inc. has turned over their accounts receivable 7.73 times in the past year, collecting accounts receivable in 47.2 days on average. The industry average would be collecting accounts receivable in 43.1 days, turning over accounts receivable 8.47 times per year.
- The Debt to Equity ratio would be one financing ratio. This ratio indicates how aggressive a company has been with leveraging its growth with debt. Alphabet Inc.’s Debt to Equity ratio is 2.67 compared to the industry at 34.84. A Debt to Equity ratio greater than 2.0 can indicate a risky investment.
- The Quick Ratio is an indicator of short-term liquidity. Alphabet Inc.’s Quick Ratio is 5.99, compared to an industry Quick Ratio of 1.94. This would indicate that Alphabet Inc. has $5.99 of liquid assets to cover each $1 of current liabilities, while the industry only has $1.94 of liquid assets to cover each $1 of current liabilities. Based on this ratio, Alphabet Inc. is performing quite well.
Overall, I think the company chosen, Alphabet Inc., performs well when compared to the industry. While ROI is slightly lower, the company is less risky based in the Debt to Equity ratio and also has a lot of short-term liquidity when looking at the quick ratio. Receivable turnover is slightly longer than the industry, but there is not a huge gap. Overall, this company does well and would be a solid investment, in my opinion.
Alphabet Inc (GOOG.O) Financials. (2019, January 14). Retrieved January 14, 2019, from https://www.reuters.com/finance/stocks/financial-highlights/GOOG.O