Yahoo 2012 Financial Analysis - Term Paper Example

number Publish Financial Analysis: Yahoo! Inc. Introduction Financial instrumentsare an integral part of almost all business systems around the globe as they help businesses to track and monitor their overall financial activity and health. These financial instruments, therefore, play a very useful role to help businesses tune up their financial engines and take important decisions accordingly. The public interest, by virtue of common stocks, too, is a pressing reason for businesses to maintain strict discipline in the financial management of their day to day business affairs. Income statements and balance sheets are considerably two of the more important accounting instruments in reflecting the fiscal situation of companies. Hence, balance sheets and income statements are frequently used by companies. Accounts of a particular company are likely to get affected as a result of variation in assets of company at one hand and liabilities on the other hand, respectively (Helfert 40). These financial instruments are, therefore, helpful to configure both assets and liabilities. The income statement is the overall view of the company’s financial state and tends to vary with the variation in cash and expenses. On the other hand, the balance sheet reveals the true picture of the current financial status of the company. Likewise various other standards are part of the financial practices across the world but almost all of them, ultimately, serve the same purpose. This report precisely aims to give an insight on the use of financial instruments namely the 10 – K for fiscal year ended December, 2012, by Yahoo! Inc., and the affect of different journal entries on EPS (Earning per share) & in net income. Earnings per share (EPS) serve as an indicator of a company's profitability. Allocating portion of a company's profit to each outstanding share of common stock is a standard activity. This report will also focus on multiple journal entries featuring the financial tool based on Form 10 K and their subsequent effects on net income and EPS. Journal Entries Journal entries are about reporting financial transaction in an accounting book of the company. These entries serve as source information to generate other financial reports (Wolfe). The financial statements (Form 10 - K) for Yahoo! Inc. for the year ended December, 2012, will remain the primary focus of analysis in the discussion ahead (Yahoo! Inc. 79). Duly consolidated Balance Sheet of Yahoo! Inc. is appended below, for referral, with regard to discussion on journal entries. Yahoo! Inc. Consolidated Balance Sheet December 31, 2012 ASSETS Current assets: Cash and cash equivalents 2,667,778 Short term marketable securities 1,516,175 Accounts receivable 1,008,448 Prepaid expenses and other current assets 460,312 Total current assets 5,652,713 Long term marketable debt securities 1,838,425 Alibaba Group Preference Shares 816,261 Property and equipment, net 1,685,845 Goodwill 3,826,749 Intangible assets, net 153,973 Other long term assets 289,130 Investments in equity interests 2,840,157 Total assets 17,103,253 LIABILITIES AND EQUITY Current liabilities: Accounts payable 184,831 Accrued expenses and other current liabilities 808,475 Deferred revenue 296,926 Total current liabilities 1,290,232 Long term deferred revenue 407,560 Capital lease and other long term liabilities 124,587 Deferred and other long term tax liabilities, net 675,271 Total liabilities 2,497,650 Commitments and contingencies - Yahoo! Inc. stockholder's equity: Preferred stock, $0.001 par value, 10,000 shares authorized; none issued or outstanding - Common stock, $0.001 par value, 5,000,000 shares authorized; 1,189,816 shares issued and 1,115,233 shares outstanding as of December 31, 2012 1,187 Additional paid in capital 9,563,348 Treasury stock at cost, 74583 shares as of December 31, 2012 (1,368,043) Retained earnings 5,792,459 Accumulated other comprehensive income 571,249 Total Yahoo! Inc. stockholder's equity 14,560,200 Non-controlling interests 45,403 Total equity 14,605,603 Total liabilities and equity 17,103,253 New Shares Issued to Market Yahoo! Inc. decided to sale its share in the market. Therefore, release of common stocks by the company is depicted through reporting a journal entry in account books of the company. The target audience, obviously, is the general public and the buying price for them is the same as Yahoo! Inc. issues i.e. 1 USD each share. Through the sale of a million shares, Yahoo! Inc. would generate cash liquidity worth one million USD on account of revenue. The sale of common stocks will affect two accounts. First of all, assets account, shows an increase due to an influx of cash worth one million USD. Through this transaction the anticipated imbalance of accounting balance sheet has been corrected. On the other hand the accounting balance sheet reported registration of common stock as stockholders’ equity. Since common stock is the evidence of ownership interest and does not considered as loan to the company; no added income source hence there is no increase evident in the net income of the company. On the other hand due to an accumulative increase in number of shares up to 2.8 million the EPS of Yahoo! Inc. is affected with the decrease. Since the earning of the Yahoo! Inc. remains static as a result of which noticeable decrease can be witnessed in EPS from the present $44.64 (basic) to S21.57 (basic) per share as no change is affected in the previous earning level of 41,733 USD. The journal entries are depicted in the table below: Cash and cash equivalent 1 Common stock no par value, 5,000,000 shares authorized; 1,189,816 shares issued and 1,115,233 shares outstanding 1 Two postings were made in the account books of the company. The cash account affected by a transaction of one million USD, therefore, the major component of assets will show an upward trend. While on the other had common stock component shows an upward trend with the posting of one million USD in stockholders’ equity account. Purchase of New Equipment Yahoo! Inc. purchases equipment worth four hundred million USD. By disbursing only 25% of the total amount they will be able to add up desired equipment to their existing infrastructure. The remaining part which is 75% of the total payment will be paid in future through signed notes. An immediate effect in company’s total asset base will take place with the arrival of equipment while, liabilities, under the head of account payable, are likely to indicate an increase as a result of signed notes. Since the imbursement for the procurement of the tools was made in cash, it stands to affect the asset section with decrease of one hundred million USD. Compound entry needs to take effect in the current scenario thus following entries are admitted to the journal: Property and equipment, net 400 Cash and cash equivalent 15 Accounts payable 300 Three postings are evident in the journal above. Since the equipment purchased was the property of Yahoo! Inc. a posting of four hundred million USD is applied in the category of assets; property, plant and equipment. The initial payment for the procurement was made in cash; therefore, an entry of one hundred million USD is reported in cash and cash equivalent accounts. Likewise posting of three hundred million USD is depicted in accounts payable which means the liabilities of company increased. In the given circumstances the net income of Yahoo! Inc. remains unchanged because procurement of new equipment does not affect sales of the company. Likewise EPS will not be affected as it is inter linked with the earning of the company. Similarly the purchase of equipment was not made from the earning account hence there is no change in the overall earnings of Yahoo! Inc. Providing Services to Clients There are a huge number of clients that benefit from the usage of valued services extended by Yahoo! Inc. These clients are valued at estimated service based revenue of one hundred million USD. Yahoo! Inc. is likely to receive payments from these clients, on account of provision of their valued services, through the mechanism of billing or invoicing. The pending amount towards customers, in fact, is the revenue of the company yet to be realized in company’s account. The payment for services will only take effect in the relevant account once company starts receiving cash payment from those clients (Needles, Powers and Crosson 373). Until then this revenue will be represented in the books under the section liabilities; head titled as Accounts Receivables. The journal entries for aforementioned state of account will take place as shown in the table below: Accounts receivable 100 Service payments 100 Two postings worth one hundred million USD were made in the account books of the company under the heads of accounts receivable and revenue. So far no increase is evident in company’s net income in lieu of company’s outstanding amount towards the customers. And it is for this reason the EPS of company continues to remain unaffected too. In summary company’s net income and EPS remains unchanged. Payment of Salaries to Employees Yahoo! Inc. is liable to pay salaries to their workers for the stipulated period of time they work for the company. It is assumed that Yahoo! Inc. pays off fifty million USD in salaries to its various employees. This means that salary payment is a regular financial activity for the company. Since salary payments are being paid in cash it is likely to affect the two accounts. The journal entries for aforementioned state of account will take place as shown in the table below: Salaries 50 Cash and cash equivalent 50 Paying off salaries will always be regarded as an expense; therefore, it has direct impact on the net income of the company. On the other hand EPS of Yahoo! Inc. is likely to affect as it is directly linked with the net income of the company. In the present scenario the EPS of the company will decrease. There were two postings made in accounts book. The salary head shows posting of fifty million USD. Obviously the payment of salaries was made through cash so another posting worth fifty million USD is evident in cash account under the section of assets. In summary the overall asset of Yahoo! Inc. is affected with a declining trend. Conclusion Changes in financial statement (Form 10 – K) for Yahoo! inc. were examined with the application of four different financial conditions. It is observed how journal entries, tentatively, affect the net income and, in turn, EPS. It is also learnt that net income of the company and EPS (Earning per share) directly correlates with its gross income. Moreover, no change takes place in business books unless actual cash transaction takes its effect either in Accounts Payable or Accounts Receivable. Further Research Avenues Expansion in company’s financial assets through liquidation of stock tends to affect net income and EPS but needs to be investigated in more detail. Reinvestment of cash arrived through sales of common stocks and its subsequent effects on income demands in-depth inquiry. Works Cited Helfert, Erich A. Financial Analysis - Tools and Techniques - A Guide for Managers. New York: McGraw-Hill, 2001. Print. Needles, Belverd E., Marian Powers and Susan V. Crosson. Financial and Managerial Accounting. New York: Cengage Learning, 2010. Print. Wolfe, Lahle. About.com. 31 October 2013 . Yahoo! Inc. “Yahoo! Inc. 2012 Annual Report.” 2012. Yahoo! Inc. 30 October 2013 . Read More