Google and Microsoft as the Companies that are Fully Incorporated - Literature review Example

?Google verses Microsoft Google verses Microsoft. Google and Microsoft are it companies that are fully incorporated operating in an equally competitive market. They are engaged in the provision of essential IT services that help promote several businesses operations. Businesses are engaged in stiff competition most so in the current situation where the level of technology is at its pick. Google incorporation was established in the year 1998 with the main objective of ensuring sustainable IT solutions to the business sector (Sherman, 2011). They offer a variety of IT products that include the operating systems, design of site operations by companies, products that facilitates efficient advertising. The company majorly engages in the provision of search, advertising, operating system platforms, and enterprise services in general. Microsoft on the other hand does not deal so much on different products than those of Google. Microsoft came into existence in the 1980’s with the major object of ensuring that business IT solutions are well effected, it offered the earlier IT services that included the Microsoft office tools which it has kept upgrading till recent. Its latest product is the Bing, which has been developed to counter the Android that is a product provided by the Google incorporation. Microsoft had been divided into five divisions in terms of the product, hence termed as product divisions. They include; Windows and Windows Live Division, Server and Tools, Online Services Division. All the above are engaged in the production and distribution of operating system products including their upgrade components, Microsoft Business Division; this departments is that which is engaged in the actual business operations which ranges from management to marketing, this department is that which fuels the objectives of helping businesses achieve active business solutions. Entertainment and Devices Division takes care of the entertainment sector. This is a major revenue-generating center for Microsoft incorporation and the corporation derives most of its income from this branch of the division. Microsoft employs the Total Quality Management style (TQM) of leadership. This is a management style where the every employee in the organization employs a proactive measure to ensure that the VMO’s of the organizations are met. Total Quality management also involves management by providing services high quality services that can withstand international completion. Google on the contrary employs a sought of beaurcratic management leadership style where a chain of command flows from the CEO downwards (Vise, 2008). Other competitors are Apple, twitter, Face book which are also IT service companies in the industry. Google financial ratios Name Formula 2008 2009 2010 Current Ratio Current Assets/Current liabilities 8.7 10.6 4.1 Return on Asset EBIT/Total Assets 8.4% 5.8% 5.1% Return on equity EBIT/Shareholders Earnings 13% 16% 14.1% Debt ratio Total debt/Equity 8.1% 7.6% 2.1% Fixed asset turnover Inventory/Fixed Assets 32.2 41.2% 21.4% Dividend payout ratio Earnings/Ordinary Shares 1.8% 2.1% 2.7% P/E ratio MPS/EPS 1.18 2.86 3.27 The movements in their financial ratios determine the performance of any company. The ratios as identified above are determines the liquidity of the company, profitability, the long-term prospects, and even the growth of the company. Liquidity on this case is shown by the current ratio. The current ratio shows the value of current assets as compared to the liabilities of the companies. Google has high progressively increasing current assets ratio. This shows overcapitalization. It therefore means that, Google has invested much on Current assets than they have liability. The impact of this is that the company risks having liquidity problems in the future since the since it does not have an appropriate liquid cash to undertake their day-to-day operations. Profitability ratios are return ratios that depicts the profitability trends of the company. It is normally the wish of any investor to make profits. A business risks closure when the profits keep declining over the periods. The ratios are shown by the return on assets and the return on equity ratios. The return on Assets ratio of Google keeps declining over the years, this shows that the sales for Google may be decline over time. Operating Expenses may have also been on the rise leading to reduced margins. As have been realized again, Google have invested much on Current assets. This has threatened the growth of the company. Reduction in profitability has also scared away investors in the company. The debt ratio shows the ratio of total debt to that of equity of the shareholders. The debt to equity ratio has also been on the decline since the year 2008, 2009, 2010. It has been 8.4%, 7.6%, 2.1% respectively. This depicts that the number of shareholders have been increasing. The company may also have employed strategies like share splits to increase the number of shares. The reduction in the debt equity ratio shows that the company has reduced the dependence of the company on debts in its operations. This strategy may have been employed to minimize the risks that the company faces of collapse due to overcapitalization. The operation performance of the company has also been measured. The company has also shown a prospect of very effective future performance. This is shown by the tremendous and consistent increase in the fixed asset turnover ratio over the years. It may also been associated overinvestment in fixed assets. This may also translate into overcapitalization, which even reduces the profit margins. The return to the respective shareholders depends on the profitability of the company. The higher the profits realized by the company, the higher there may be the dividend payable to the shareholders. This also depends on the dividend policy of the firm, it may be partly pay-off or 100% pay out. The pay out of Google has been on the rise over the years, this is because the company may have been improving in their profitability hence they may have seen the need to provide an incentive to the share holders and even attract others. This predicts positive returns in the operations in the company. The strength of the company though so low in index form, has been progressively on the rise. This shows that the performance of the company in the stock market has been tremendous and so that positive. Investor confidence is retained by this and, the increasing trend shows that more investor can be attracted to buying the shares of Google Corporation. Microsoft financial ratios Name Formula 2008 2009 2010 Current Ratio Current Assets/Current liabilities 8.37 7.71 4.1 Return on Asset EBIT/Total Assets 8.4% 10.8% 16.1% Return on equity EBIT/Shareholders Earnings 11% 15% 18.1% Debt ratio Total debt/Equity 8.1% 9.6% 12.1% Fixed asset turnover Inventory/Fixed Assets 32.2 41.2% 38.4% Dividend payout ratio Earnings/Ordinary Shares 1.75% 0.8% 0.71% P/E ratio MPS/EPS 2.18 2.46 3.01 The performance of Microsoft as opposed to the one for Google is quite different. This is majorly because they are competitors and they are always striving to beat the other that is a common good for the consumer. The basis of competition of the two firms is based on growth and accessibility of the market. Their level of technology employed by the two companies is also at par that means that if they have to compete then it is only on grounds of looking for the new markets. The current ratio of Microsoft has been on the decline depicting an increase in the current liabilities of the company. The liquidity of the company is therefore so high meaning the company can easily take care of the short-term financial obligations of the firm. The profitability of the firm has also been on the rise over the three years. This is likely to impact positively on the other aspects of the organization like the dividend policy can be changed. Return on assets may have been because of the improved sales or the company may have worked on a strategy that is geared towards minimizing costs as much as possible. Leverage ratio shows the company’s dependence on debt financing or equity financing. A company that is highly dependent on debt financing risks stability and control in its operations. If a company is highly dependent on debt financing then the operations are highly controlled by the creditors. The leverage ratio of Microsoft inc. as shown by the debt equity ratio that has been increasing consistently over the years. They are 8.1%, 9.6%, and 12.1% respectively. This shows that the company has either reduced its dependence on debt or increased its shareholding through increased equity. This depicts that the performance of the company may be is stable in the future. Fixed asset turnover shows the operations of the company in terms of stock and inventory. It increased from the year 2008 to 2009 and then fell in the year 2010. They are shown by 32.2%, 42.2% and 38.4% respectively, they are again higher as compared to those of Google Corporation. This shows that the operation efficiency of Microsoft is better than that of Google in terms of inventory and a balance exists between the inventory and assets. Dividend policy of the firm is also reducing tremendously. This means that the company may have been increasing shareholding of the company by increasing the shares and either holding the dividend to be shared constant or increasing it at a decreasing pace. The strength of the firm in the stock market in the stock exchange market is equally positive. The securities by the firm are highly attractive to the investors. This is because of the boosted investor confidence due to the prospects of growth of the company in the market or industry. The Financial investment-based guideline to investments in a company includes the analysis of risks, the periods of the investments and the status of the company should be considered (Cusumano, 2009). In relation to risk analysis and operations in the stock market, Microsoft Corporation has an edge due to its better performance in the stock market as depicted by the P/E ratio. In the analysis of risks, benefits are also brought on board. If risks are more that the benefits then it is a company that is not wise investing in. but it should also be noted that higher risks are also related to higher returns and vice versa . The timeline of the investment to be undertaken is a factor to be considered before making any investment. the timeline can also assist the prospective investor determine the degree of risk that the company is likely to face in the future. The longer the time the higher the risks that is likely to be experiences by the investor. This is so most so in the case of investment in stocks that experiences a wide fluctuation in sock operations. This depends on whether the investment is intended to be long term or short term. Microsoft has future prospects of growth as has been shown by the analysis of the ratios. The ratios of Microsoft Company have proved stronger than those of Google. It is also much prudent that before the risks and time line is considered, it is wise that the company itself is analyzed and it is rating in the financial markets determined. The company in terms of operations, management, and the relevant aspects of the organization should be analyzed so that the company’s stability is known with respect to the future. If the company is expected to last long or growth is future oriented, then it would only to be known through analysis. References Cusumano, M. A. (2009). Microsoft secrets: how the world's most powerful software company. New York: Simon & Schuster. Sherman, C. (2011). Google power: unleash the full potential of Google. New York: McGraw-Hill. Vise, D. A. (2008). The Google Story: For Google's 10th Birthday. Detroit: Delta Trade Paperbacks. Read More