Running head: CORPORATE PERFORMANCE EVALUATION FOR FACEBOOK

CORPORATE PERFORMANCE EVALUATION FOR FACEBOOK COMPANY

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Corporate Performance Evaluation for Facebook Company

The evaluation of a firm's performance allows an individual to find the general market

perception as well as the company's worth. When the shareholders evaluate a company's

performance, it is mainly aimed at finding out if it is possible for them to risk their money with

the organization (Cao et al., 2015). It is thus essential for the owner of the business to evaluate

the performance of the company on his or her own to help them is strategizing towards meeting

their objectives. In this piece, I am going to provide an analysis of the weaknesses and strengths

of the Facebook Inc. and either recommending or failing to support the firm's stock purchase.

This tool is utilized in the estimation of the business performance and establishes if at all it is in

line with the established standards of performance in the marketplace.

Facebook Company was established in 2004 by Mark Zuckerberg where it began being a

social network for the students at Harvard University. Four months into the creation of this social

network, 30 more colleges were included in it (Bédard, & Courteau, 2015). Following this, the

university opened the system for the students at high school in 2005, and the social network

became available to everyone the following year. The social network was created with the aim of

enabling people to connect, discover, share and communicate with each other on mobile devices

as well as on personal computers. Facebook operates as a social network firm globally.

According to the Market Watch, Facebook is a website and a social networking service

which was created with the aim of making the world more connected and accessible. Facebook is

mainly used by individuals to enable proper connection with families and friends, the discovery

of what is trending around them as well as for sharing and expressing what matters to them and

their loved ones (Feldman, 2017). The company similarly provides a unique combination of
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relevance, reach, social context as well as engagement to enhance their ads value. The services

offered by Facebook include newsfeed, timeline, messages ticker, lists and even the mobile apps.

The primary focus of Facebook Company is the creation of value for all its marketers,

users and even developers since the firm supports the later to grow and build. Facebook has

globally over one billion users, and it has strived towards opening new entrances for the

marketers to enable them to reach out to a lot more individuals (Halland et al., 2015). This has

allowed the company one of the best service providers worldwide, especially in the mobile

network and website industry. Studies show that potentially attracting the Facebook fans tends to

be a valuable strategy for marketing communication. According to Bloomberg however, on a

yearly basis, this company has become able to grow its profits to over 7.9 billion dollars from 5.1

billion dollars. More impressively, Facebook has been able to limit their sales percentages by

being devoted to selling, administrative and general costs to around 22.5 percent from 35.1

percent, hence leading to a bottom line growth from the initial 5 million dollars to over 1.5

billion dollars.

Our texts depict that the income statements reveals that the revenue of a company as well

as its profits over a given period most commonly quarterly or yearly. This is also referred to in

some cases as the profit and loss statements, P&L or earnings statement. The stated bellow

serves as the annual income statement of Facebook Company.

Figure1:1 Facebook company annual income statement

Currency in US Dollars as of Dec 31st Dec 31st Dec 31st 2016 Dec 31st 2017
2014 2015
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Total Revenue 3.7billion 5.0 billion 7.8 billion 8.6 billion

The cost of sold goods 859.0 1,363.0 1,757.0 1,933.0

Gross profit 2,850.0 3,724.0 6,113.0 6,724.0

Total selling admin and 706.0 1,787.0 1,777.0 1954.0

general expenses

R and D expenses 387.0 1,398.0 1,414.0 1,556.0

Interest expenses -41.0 -50.0 -55.0 -61.0

Investment and interest 3.0 13.0 18.0 20.0

income

EBT and unusual items 1,694.0 493.0 2,753.0 3,028.0

Income tax 694.0 440.0 1,253.0 1,378.0

Continuing operations 999.0 52.0 1,499.0 1,649.0

earnings

Net income 999.0 52.0 1,499.0 1,649.0

Net income to common 667.0 31.0 1,490.0 1,639.0

including extra items

In our text, it is stated that the financial position statement or the balance sheet indicates

the firm's financial position at a particular time. As of 31st December 2016 for instance or at the

close of the business quarter, depicts the place at which Facebook is financial (Ossowski &

Halland, 2016). The term financial position has been severally mentioned to mean what the

organization owes and owns. That is, the company's assets and its different financial sources

which are used in the acquisition of such assets. These include loans from the lending institutions

like banks as well as the investments obtained from the company's shareholders. The stated

below is the Facebook's balance sheet.

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Currency in US Dollars, cost Dec 31st Dec 31st Dec 31st 2016 Dec 31st 2017
of assets in millions as of 2014 2015

Cash and equivalent 1,511.0 2,383.0 3,322.0 3,654.0

Total cash and short term 3,907.0 9,625.0 11,448.0 12,593.0

investment

Other receivables --- 450.0 50.0 55.0

Total receivables 546.0 1,169.0 1,159.0 1,275.0

Prepaid expenses 148.0 470.0 460.0 506.0

Total current assets 4,603.0 11,266.0 13,069.0 14,376.0

Gross equipment and 1,924.0 3,272.0 4,141.0 4,555.0

property plant

Accumulated depreciation -449.0 -881.0 -1,259.0 -1,385.0

Net equipment and property 1,474.0 2,390.0 2,881.0 3,169.0

plant

Goodwill 81.0 586.0 838.0 922.0

Long term deferred charges --- --- --- ---

Other long term assets 89.0 56.0 220.0 242.0

Total assets 6,330.0 15,102.0 17,894.0 19,684.0

Liabilities and equity

Accrued expenses 56.0 145.0 195.0 215.0

Capital lease obligations 278.0 364.0 238.0 262.0

current portions
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Total other 424.0 467.0 564.0 621.0
current liabilities

Current unearned 74.0 7.0 12.0 13.0

revenue

Total current 898.0 1051.0 1,099.0 1,209.0

liabilities

Long term debt --- 1,503.0 --- ---

Capital lease 396.0 490.0 236.0 260.0

Other old 134.0 300.0 1,087.0 1,196.0

liabilities

Preferred stock 614.0 --- --- ---

convertibles

Total preferred 614.0 --- --- ---

equity

Additional 2,683.0 10,093.0 12,296.0 13,526.0

capital paid

Retained 1,605.0 1,658.0 3,158.0 3,474.0

earnings

Total common 4,283.0 11,754.0 15,469.0 17,016.0

equity

Total equity 4,898.0 11,754.0 15,469.0 17,016.0

Total equity and 6,330.0 15,102.0 17,894.0 19,684.0

liabilities

Facebook company balance sheets and income statements or the Pro Forma financial for

the next two fiscal years is as shown in the above analysis. The company is expected to generate

profits of over 5.0billion dollars by the end of 2015 and benefit of close to 7.8billion dollars by

the end of 2016. According to the text, the projected financial statements or the so-called Pro

Forma financial statements are compelling tools used by business managers or financial analysts
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(Bleaney, 2016). The tools are also helpful to the manager by enabling him to concentrate on

how the policy changes of the company affect the financial situations of the company. Facebook

company's financial statements and the balance sheets for the following fiscal year, realizing a

ten percent growth in both costs of goods sold and in the general sales.

Complete ratio analysis for the previous financial year using two of such ratios as

financial leverage, liquidity, asset management, market value, and profitability

Financial ratios Equation value

Liquidity

Current Ratio (Current liabilities)/(current assets) 10.88

Quick Ratio (Current liabilities)/(current assets –inventories) 10.88

Financial leverage

Debt to equity (Shareholders’ equity)/(total liabilities) 2.08

Debt ratio Total assets/total liabilities 12.55

Assets management

Total assets turnover (Total assets)/(sales) 0.38

Inventory turnover (Inventories)/ (cost of goods sold) 5.76

Profitability

Return on assets (Total assets)/(net income) 8.04

Return on equity (Shareholders’ equity)/ (net income) 9.95

Market value

Price to earnings (Earnings per share)/ (common stock market price) 73.32

Earnings per share (Outstanding shares)/ (net earnings) 91.47

Return of equity calculation by the use of the DuPont system

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DuPont Analysis Equation Equations Results

ROE (Equity)/ (income) 9.95

Net Profit Margin (Revenue)/(Net income) 17.94

Assets turnover (Assets)/(revenue) 3.40

Equity multiplier (Equity)/(assets) 10.57

The capitalization of a company describes the composition of the company's long term

capital or permanent capital which entails the combination of both the company's equity and

debt. The proportional and reasonable use of equity and debt by a company in supporting it's

supporting its assets is an essential indicator of the strength of the balance sheet.

The management performance assessment by the calculation of economic value added

Economic value added EVA=NOPAT- (WACC*TOC

equation

NOPAT= Net operating profit after tax=EBIT * (1-T)

TOC (average) = ATOC=total assets-(total current liabilities –short

term debts)

T= Tax 44.53

EBIT= Earnings before tax and interests 2,753,000

WACC Weight average cost of capital 1.73%

NOPAT = 2,803,000

Average ATOC = 15.8billion

Economic Value Added 2,803,969.77

A summary of the findings in addition to the recommendations for purchasing or failing

to buy stock from Facebook

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In Facebook Company, there is an expensive stock which has a high P/E ratio. Looking at

the valuation of Facebook and when one has a look at where the yearly earnings could lie in the

next five years could assist in making a rational decision on whether or not to make purchases of

stock from the firm. The company possesses both operating leverage and rapid growth of

revenue (Bédard & Courteau, 2015). It is always essential for those investors who have the wish

to make investments on the common stock of a company which is publicly traded to look at and

examines the company's ratio of price to earnings. A price to earnings ratio which is high often

shows that the potential investors would expect more significant growth in revenues as compared

to those firms which experience a lower ratio of price to earnings.

One cannot merely rely on the firm's price to earnings ratio since in itself; it does not

narrate the company's story. The investors should, therefore, take it with a grain of salt in case

they are finding future projections (Feldman, 2017). On the future looking projections, for

instance, there are a lot of uncertainties. What matters mostly in Facebook company is the fact

that the company's model of profitable business together with the real impressive growth. This,

however, is not a guarantee of purchasing the company's stock since when one is buying shares

from such companies as Facebook, he or she needs to take a lot of care since the stocks are often

priced as enthusiastically as in the Facebook Company.

There are a lot of questions one is supposed to ask him or herself before commencing

investments in such firms as Facebook. The items would include finding out the market

capitalization at which Facebook company will be public, Wanting to know the primary involved

metrics of pricing in the company and finding out its growth rate in the future for proper

projections (Halland et al., 2015). It is also important to inquire about the company's price to

book, the growth rate as well as the price to sales. Of a greater essence again is finding out where
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the company begins to plateau especially after gaining more than 800 million users as well as

their top out. Having looked at all the financial position facts of Facebook Company, I would

recommend that the investors purchase stock from the firm. This is because Facebook Inc. is a

firm that possesses over a billion mobile users and customers both locally and overseas.

Additionally, the balance sheet of this company is very solid mainly made possible by the

continuous growth of shareholders' equity, short term investment growth and ensuring there is no

long term dept. There is also growth evident in earnings and revenues in Facebook Company. It

is also important to note that this company, the Facebook firm, also boasts an upward margin of

profits and their free cash flow stands to be above 3 billion dollars (Ossowski & Halland, 2016).

In summation, the tool used in this case is utilized in the estimation of business

performance and establish whether or not the performance estimated is correspondent with the

standards of performance which are already established in the market. By conducting a financial

evaluation of such a company as Facebook Company which has both domestic and international

customers and users, one can know the worth of the company regarding assets and cash flows

(Bleaney, 2016). This evaluation is also vital in the establishment and acquisition of the

knowledge about the general and public perception of individuals about the company primarily

in the marketplace. It sends signals to the investors showing them how their shares are likely to

perform to know whether or not they should risk what they have to invest in the firm, that is if

the company can generate the income and revenue which is expected by those investors. Before

making any investments in an organization, one is required to understand clearly the risk level he

or she is willing to take. One needs to understand critically that there is always no guarantee on

the return from the investment since one is unable to predict what the future holds and

additionally do not know the foreseen uncertainties with the firm in question.
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References

Bédard, J., & Courteau, L. (2015). Benefits and costs of auditor's assurance: Evidence from the

review of quarterly financial statements. Contemporary Accounting Research, 32(1), 308-

335.
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Bleaney, M. (2016). The extractive industries sector: essentials for economists, public finance

professionals and policy makers by Håvard Halland, Martin Lökanc and Arvind Nair,

with Sridar Padmanabhan Kannan.

Cao, M., Chychyla, R., & Stewart, T. (2015). Big Data analytics in financial statement

audits. Accounting Horizons, 29(2), 423-429.

Feldman, M. A. (2017). The Essentials of Finance and Accounting for Nonfinancial

Managers. Quality Progress, 50(1), 60.

Halland, H., Lokanc, M., & Nair, A. (2015). The Extractive Industries Sector: Essentials for

Economists, Public Finance Professionals, and Policy Makers. The World Bank.

Ossowski, R., & Halland, H. (2016). Fiscal Management in Resource-rich Countries: Essentials

for Economists, Public Finance Professionals, and Policy Makers. The World Bank.