Why social network industry has no inventory and large cash in balacesheet - Essay Example

Why social network industry has no inventory and large cash in balance sheet Why social network industry has no inventory and largecash in balance sheetInventory and cash are some of the common features of the statement of financial position organizations’ accounts. The social media industry does not have inventories in statements of financial position while cash and cash equivalents has very high value. This discussion explains the observations. The type of products that the industry offers explains absence of inventories in statement of financial position of the industry’s players and the statements for Facebook and Twitter are examples.

The products are services for advertising, attracting audience, and medium for transactions between third parties and do not require inventory, for production, distribution, or maintenance (Albarran, 2013). Lack of need for inventory therefore explains absence of inventory from accounts of companies in the industry. The industry is also profitable, based on trend in technology that makes its products marketable and low costs. These lead to high proceeds and therefore high value of cash and cash equivalents and $ 3.

323 million for Facebook in the year ended 2013 and $ 0.841 million for Twitter in the same period are examples. The industry is also oligopolistic, a factor that concentrates proceeds among few players. Consequently, cash and cash equivalents have to be high per player, compared to values in competitive industries in which many players share the markets’ proceeds (Albarran, 2013).Conclusion The types of products that the industry offers, which do not require inventory for production, maintenance, or delivery explains lack of inventory while high profitability and oligopolistic nature of the industry explains the high value of cash and cash equivalents that firms report in the industry.

ReferenceAlbarran, A. (2013). The social media industries. New York, NY: Routledge.