Navya Reddy

nreddy@umbc.edu

FINANCIAL ANALYSIS OF
YAHOO! INC. FISCAL YEAR
2014
BALANCE SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT

Navya Reddy
nreddy@umbc.edu

Introd

uction
Founded in 1994 by two Stanford PhD candidates, Jerry Chih-Yuan Yang and David
Filo, Yahoo! Inc. has grown into a company that helps you find what you're looking
for on any Internet-connected device. Yahoo is a guide focused on informing,
connecting and entertaining its users. By creating highly personalized experiences
for its users, Yahoo! keeps people connected to what matters most to them, across
devices and around the world. In turn, Yahoo also creates value for advertisers by
connecting them with the audiences that build their businesses. Yahoo is
headquartered in Sunnyvale, California, and has offices located throughout the
Americas, Asia Pacific (APAC) and the Europe, Middle East and Africa (EMEA)
regions.
The company provides a variety of products and services. The company's offerings
to users include: Yahoo! Search, Yahoo! News, Yahoo! Sports, Yahoo! Finance,
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Yahoo! Entertainment and Lifestyles, Yahoo! omg!, Movies, TV and Music, Yahoo
Shine!, Yahoo! Video and Yahoo! Toolbar.
Yahoo! also provides communication tools including Yahoo! Mail, Yahoo! Messenger,
Yahoo! Groups, Yahoo! Answers, Flickr, Mobile & Emerging Products, IntoNow from
Yahoo! and Connected TV, which provides a wide range of communication and
social services to users and small businesses across a variety of devices.
Of late, the companys financial performance has been under scanner as the
companys primary source of revenue Advertising has taken a beating from
competitors like Google and Facebook. Though the companys share price has
been increasing in the last few months, the same can be attributed primarily to the
companys stake in Alibaba.com, the Chinese ecommerce portal and Yahoo Japan.
Yahoo has been seriously contemplating actions like spinning off its core operation
and spin off of Alibaba.com stake.
The Company faces significant competition from online search engines, sites
offering integrated internet products and services, social media and networking
sites, e-commerce sites, and broadcast and print media. The Company also
competes with advertising networks, exchanges, demand side platforms and other
platforms, such as Google AdSense, DoubleClick Ad Exchange, AOLs Ad.com and
Microsoft Media Network, as well as traditional media companies for a share of
advertisers marketing budgets and in the development of the tools and systems
for managing and optimizing advertising campaigns. Its competitors include
Google, Facebook, Microsoft, and AOL.

Navya Reddy
nreddy@umbc.edu

For the purpose of this analysis, we will be comparing the financial statements of
Yahoo! Inc. with that of Google Inc. Google has been the primary competitor of the
Yahoo in different areas. Yahoos core internet business has not been able to
compete with Google and Facebook in spite of various product innovations and
acquisitions.
About Google, Inc. (Alphabet, Inc.)
Alphabet, Inc. is a newly founded holding company for the Google group of
businesses. Under the new operating structure, its main Google business will
include search, ads, maps, apps, YouTube and Android and the related technical
infrastructure. Businesses such as Calico, Nest, and Fiber, as well as its investing
arms, such as Google Ventures and Google Capital, and incubator projects, such as
Google X, will be managed separately from the Google business.
The present report will be analyzed in four parts:

Comparative Income Statement Analysis

Comparative Balance Sheet Analysis
Comparative Cash Flow Analysis and
Ratio Analysis

Comparative Analysis of Income Statements

The income statement provides the results of the operations of a business. Important components of
income statement are net sales, cost of goods sold, selling expenses, office expenses etc. The
components are matched with their corresponding figures of previous years individually and changes are
noted. The comparative income statement gives an idea of the progress of a business over a period of
time.
The analysis and interpretation of income statement will involve the following:
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The increase or decrease in sales should be compared with the increase or decrease in cost of
goods sold.

To study the operating profits.

The increase or decrease in net profit is calculated that will give an idea about the overall
profitability of the concern.

Comparative Income Statements of Yahoo! Inc.

All values USD Millions.

Increase/Decrease%

2014

2013

Fiscal year is January-December.

Sales/Revenue

-1.64%

4,605

4,682

Cost of Goods Sold (COGS) incl. D&A

-2.08%

1,365

1,394

Gross Income

-1.46%

3,240

3,288

SG&A Expense

11.52%

3,021

2,709

Unusual Expense

62.03%

128

79

11526.67%

10,464

90

Non-Operating Interest Income

-55.17%

26

58

Interest Expense

392.86%

69

14

Pretax Income

1560.66%

10,512

633

Income Tax

2539.22%

4,038

153

Non-Operating Income/Expense

Equity in Affiliates

17.95%

1,058

897

Consolidated Net Income

446.99%

7,532

1,377

Minority Interest Expense

0.00%

10

10

Net Income

450.66%

7,522

1,366

EPS (Basic)

491.27%

7.45

1.26

-6.17%

988

1,053

491.27%

7.45

1.26

-6.26%

1,004

1,071

-31.71%

825

1,208

Basic Shares Outstanding

EPS (Diluted)
Diluted Shares Outstanding
EBITDA

Analysis: The Revenue and Gross Income of the company have remained more or
less the same in 2014 compared to 2013. The Companys non-operating income
increased drastically in the year ending December 2014. The net income of the
company registered an increase of 450% in 2014. The net income attributable to
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Yahoo! Inc. for the year ended December 31, 2014 included a pretax gain of
approximately $10.3 billion and an after-tax gain of $6.3 billion related to its sale of
American Depositary Shares of Alibaba Group in Alibaba Groups initial public
offering in September 2014.
In addition, in the year ended December 31, 2014, the company recorded gains of
approximately $98 million related to sales of patents, a gain on the Hortonworks
warrants of $98 million, a goodwill impairment charge of $88 million, and net
restructuring charges of $103 million related to its cost reduction initiatives. The
tax impact of the items referred to above was $3.9 billion, and in the aggregate,
these items had a net positive impact of $6.0 billion on net income attributable to
Yahoo! Inc., for the year ended December 31, 2014.

Comparative Balance Sheet Analysis

The comparative balance sheet shows the different assets and liabilities of the firm on different
dates to make comparison of balances from one date to another. A comparative balance sheet is expected
to study the following aspects:
i For studying the current financial position or liquidity position of a concern one should examine the
working capital in both the years. Working capital is the excess of current assets over current
liabilities.
iiFor studying the long-term financial position of the concern, one should examine the changes in fixed
assets, long-term liabilities and capital.

Navya Reddy
nreddy@umbc.edu

iii

The next aspect to be studied in a comparative balance sheet is the profitability of the concern. The
study of increase or decrease in profit will help the interpreter to observe whether the profitability
has improved or not.

After studying various assets and liabilities, an opinion should be formed about the
financial position of the concern.

Comparative Balance Sheets of Yahoo!, Inc.

Assets
All values USD Millions.
Fiscal Year is January-December
Cash & Short Term Investments
Total Accounts Receivable

Increase/Decrease%

2014

2013

138.20%

8,118

3,408

9.73%

1,116

1,017

Other Current Assets

-22.63%

465

601

Total Current Assets

92.98%

9,699

5,026

Net Property, Plant & Equipment

-0.07%

1,488

1,489

Total Investments and Advances

791.75%

44,953

5,041

10.54%

5,634

5,097

Intangible Assets
Other Assets

24.03%

160

129

Total Assets

268.70%

61,960

16,805

72.46%

2014
238

2013
138

3,025

Liabilities & Shareholders' Equity

All values USD Millions.
Accounts Payable
Income Tax Payable
Other Current Liabilities
Total Current Liabilities
Long-Term Debt

5.24%

1,265

1,202

237.99%

4,529

1,340

5.37%

1,217

1,155

Navya Reddy
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Provision for Risks & Charges
Deferred Taxes

65.93%

1,120

675

10749.66%

16,166

149

Other Liabilities

-64.76%

117

332

Total Liabilities

530.78%

23,175

3,674

Common Equity (Total)

196.31%

38,742

13,075

Total Shareholders' Equity

196.31%

38,742

13,075

Accumulated Minority Interest

-21.43%

44

56

Total Equity

195.38%

38,786

13,131

Liabilities & Shareholders' Equity

268.70%

61,960

16,805

Analysis:
From the analysis of balance sheets of Yahoo!, it can be observed that assets of the
company have increased significantly in 2014 compared to 2013. Total Assets
increased by 268% primarily due to the increase in cash & short term investments,
long term investments and advances. The fixed assets of the company remained
more or less the same.
The current liabilities of the company have increased significantly in the year
ending December 2014 mainly contributed to the provision for Income Tax
payable. The long term liabilities of the company have also increased significantly
due to the deferred taxes. The company's long term debt has remained the same
in 2014 while the shareholders equity increased by 196%.
During the year ended December 31, 2014, the company received net proceeds of
$9.4 billion from the sale of Alibaba Group ADSs in Alibaba Groups IPO. As a result
of the IPO, the company no longer accounts for Alibaba Group using the equity
method of accounting, and reflect its remaining investment as an equity security

Navya Reddy
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rather than in investments in equity interests. This has contributed to the

significant increase in total investments and advances of the company.

Comparative Analysis of Cash Flow Statements

A cash flow statement is a financial statement that shows how changes in balance
sheet accounts and income statements affect cash and cash equivalents, and
breaks the analysis down to operating, investing, and financing activities.
Essentially, the cash flow statement is concerned with the flow of cash in and out
of the business.
The statement captures both the current operating results and the accompanying
changes in the balance sheet. As an analytical tool, the statement of cash flows is
useful in determining the short-term viability of a company, particularly its ability
to pay bills.
Cash flow analysis can be done by determining the three types of activities.
1. Determining cash flows from operating activities
2. Determining cash flows from investing activities
3. Determining cash flows from financing activities

Navya Reddy
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Comparative Cash Flow Statements of Yahoo! Inc.

Operating Activities
All values USD Millions.
Net Income before Extra ordinaries
Depreciation, Depletion & Amortization

Increase/Decrease (%)
Fiscal year is January-December.
446.99%

2014
7,532

2013
1,377
629

-3.50%

607

Deferred Taxes & Investment Tax Credit

-654.76%

466

-84

Other Funds

1982.79%

-10,893

-523
1,398

Funds from Operations

Changes in Working Capital
Net Operating Cash Flow

-263.66%

-2,288

-1668.97%

3,185

-203

-24.94%

897

1,195

0.05%
9.97%

2014
-375

2013
-341

-31.17%

-859

-1,248

1,198

Investing Activities
All values USD Millions.
Capital Expenditures
Net Assets from Acquisitions
Sale of Fixed Assets & Businesses
Purchase/Sale of Investments

-496.41%

-4,749

Other Uses

-80.00%

-5

-25

Other Sources

-11.99%

345

392

-16456.52%

3,762

-23

0.05%
0.00%

2014
0

2013
0

34.51%

-3,855

-2,866

Net Investing Cash Flow

Financing Activities
All values USD Millions.
Cash Dividends Paid Total
Change in Capital Stock
Issuance/Reduction of Debt, Net

0.00%

Other Funds

-114.88%

-167

1,122

Net Financing Cash Flow

130.62%

-4,022

-1,744

Exchange Rate Effect

155.56%

-46

-18

Miscellaneous Funds
Net Change in Cash

0.00%

-200.00%

590

-590

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Navya Reddy
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Free Cash Flow

-38.74%

525

857

Analysis:
The Companys operating activities for 2013 and 2014 have generated adequate
cash to meet its operating needs. For the year ended December 31, 2014,
operating activities provided $897 million in cash. Net income of the company for
the year ended December 31, 2014 was $7.5 billion, which was adjusted for the
following increases related to non-cash items: depreciation, amortization of
intangibles and accretion of Notes discount of $666 million, stock-based
compensation expense of $420 million, tax benefits from stock-based awards of
$146 million, deferred income tax expense of $466 million, goodwill impairment
charge of $88 million and losses from sales of investments, assets and other of $35
million, offset by the gain on sale of Alibaba Group ADSs of $10.3 billion and other
reductions for non-cash items including: earnings in equity interests of $1.1 billion,
excess tax benefits from stock-based awards of $150 million, gains on sales of
patents of $98 million, gain on Hortonworks warrants of $98 million, and
restructuring reversals of $3 million. Additionally, the company received dividends
of $84 million from Yahoo Japan and working capital sources of cash of $3.5 billion,
which were partially offset by working capital uses of cash of $274 million.
On September 24, 2014, Alibaba Group closed its IPO. Yahoo! cash proceeds of
$9.4 billion (net of underwriting discounts, commissions, and fees of approximately
$115 million) from YHKs sale of 140 million Alibaba Group ADSs.

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Navya Reddy
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As of February 26, 2015, the company paid returns to its stockholders at least half
of the after-tax proceeds (approximately $3.1 billion) received from YHKs sale of
the Alibaba Group ADSs in the IPO.
As of December 31, 2014, the company had cash, cash equivalents, and
marketable securities (excluding Alibaba Group and Hortonworks equity securities)
totaling $10.2 billion compared to $5.0 billion at December 31, 2013. The increase
was due to the net cash proceeds of $9.4 billion received from the sale of 140
million Alibaba Group ADSs in the IPO. This was partially offset by the repurchase
of approximately 102 million shares of its outstanding common stock for
approximately $4.2 billion and $859 million used for acquisitions.
During the year ended December 31, 2014, the $3.8 billion provided by investing
activities was due to $9.4 billion in cash proceeds from the sale of Alibaba Group
ADSs, net of underwriting discounts, fees and commissions, proceeds from sales
and maturities of marketable securities of $3.2 billion, $254 million in proceeds
received from settlement of derivative hedge contracts, and $86 million in
proceeds from sales of patents, partially offset by $7.9 billion in purchases of
marketable securities, $372 million used for capital expenditures, $859 million
used for acquisitions, and $74 million used for additional equity investments.
During the year ended December 31, 2014, the $4 billion used in financing
activities was due to $4.2 billion used for the repurchase of shares of its common
stock at an average price of $40.94 per share, $22 million used for distributions to
non-controlling interests, and $295 million used for tax withholding payments
related to net share settlements of restricted stock units and other financing

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activities. This use of cash was partially offset by $308 million in cash proceeds
received from employee stock option exercises and employee stock purchases
made through its employee stock purchase plan, and an excess tax benefit from
stock-based awards of $150 million.

Ratio Analysis
Ratio Analysis is one of the important techniques which are used to measure the
establishment of relationship between the two interrelated accounting figures in
financial statements. This analysis helps to Management for decision making. Ratio
Analysis is an effective tool which is used to ascertain the liquidity and operational
efficiency of the concern.
Main Purpose of Ratio Analysis is in ascertaining the financial performance of a
concern.
a Liquidity Ratio facilitates to identify whether the company has enough
capability to meet short term obligations/requirements.
b Profitability Ratios like Gross Profit Ratio, Net Profit Ratio and Operating
Ratio give a picture of profitability position of the concern.
c Long term solvency and the leverage ratios such as Debt-Equity
Ratio and Interest Coverage Ratio convey a firms ability to meet the interest
cost repayments schedules of its long-term obligations and show the
proportions of debt and equity in financing of the firms.

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d Activity Ratios such as Inventory Turnover Ratio, Debtor Turnover Ratio,

and Working Capital Turnover Ratio measure the efficiency with which the
resources of a firm have been employed.

Liquidity Ratios
Liquidity Ratios

Yahoo

Google

Current Ratio

2.14

4.8

Quick Ratio

2.14

4.8

Cash Ratio

1.79

3.83

The current ratio gives a sense of the efficiency of a company's operating cycle or
its ability to turn its product into cash.

All the three liquidity ratios of Yahoo! Inc.

are lower than the ratios of its closest competitor Google, Inc. even though the
standalone ratios seem to be pretty good.

Profitability Ratios
Profitability Ratios
Gross Margin
Operating Margin
Net Margin
Return on Assets
Return on Equity
Return on Total Capital

Yahoo
70.36
4.75
163.34
19.1
29.03

Google
61.55
25.37
21.16
11.51
14.52

27.76

13.77

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Navya Reddy
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The gross margins of Yahoo! Inc are relatively better than that of Google, but
Operating Margin is very low. This implies that Yahoo! Inc is spending more on
operating expenses and needs to keep a check on this. Net Margin of Yahoo is
again very good, but this can be attributed to extra ordinary items like sale of
stake in Alibaba and other transactions.
The ratios like Return on Assets, Return on Equity and Return on Total Capital of
Yahoo are again better than that of Google, but again these can be due to the extra
ordinary one time profits through the sale of stakes.

Liquidity Ratios
Capital Structure Ratios

Yahoo

Google

Total Debt to Total Equity

3.14

5.01

Total Debt to Total Assets

1.96

3.99

Interest Coverage Ratio

3.18

150.48

Yahoo has better Debt to Equity and Debt to Total Assets ratios compared to
Google, which means the company is having lower debt portion. But, the interest
coverage ratio of Google far outstands that of Yahoo which implies that Google has
more than sufficient earnings to cover its debt even though having a higher debt
ratios than Yahoo.

Turnover Ratios

Yahoo

Google

Receivables Turnover

4.32

6.29

Total Assets Turnover

0.12

0.54

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Navya Reddy
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Turnover measures a firm's efficiency at using its assets/receivables in generating

sales or revenue - the higher the number the better. Google has better receivables
turnover and total assets turnover than Yahoo.

Valuation Ratios
Valuation Ratios
P/E Ratio
Price to Sales
Price to Book Value
Total Debt to Enterprise Value

Yahoo
139.64
11.01
1.22
0.03

Google
35.92
5.54
3.45
0.02

The P/E ratio and Price to Sales Ratio of Yahoo is very high compared to that of
Google, which means Yahoo is overvalued in terms of share price. But, the Price to
Book Value of Yahoo is much lower than Google. This implies that Google is well
placed in terms of Sales and Earnings while Yahoo is well placed in terms of Assets.
Total Debt to Enterprise Value of Yahoo is marginally higher than that of Goolge.

Per Share Data

Per Share Data
Earnings Per Share
Tangible Book Value
Working Capital
Capital Expenditure
Sales
Operating Profit

Yahoo
7.45
35.34
5.52
0.37
4.59
0.22

Google
19.95
123.93
93.92
15.95
95.81
24.31

Long Term Liabilities

19.9

14.45

All the per share data items of Google are much better compared to that of Yahoo.
This is a negative indication on the performance of Yahoo compared to its
competitor.

Conclusion

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Navya Reddy
nreddy@umbc.edu

Yahoo! Inc. has been one of the early players in the internet market. The company
has been the first and the best in many of the services it offered. But of late, the
company has not been able to sustain the tough competition from companies like
Google, Facebook and Microsoft. In terms of Financial Performance, the company
has been giving mediocre results. But, still the companys share price has been
zooming over the past few years because of the strategic investments the
company has been making in companies like Alibaba.com.
The company is cash rich and is actively seeking acquisitions which can add value
to its products. The company should also focus on new product development and
aggressive marketing to get a strong hold on the growth oriented technology
sector. The company has a huge experience and financial resources to achieve the
same. The standalone financial statements of Yahoo look good, but when
compared to Google, Yahoo is clearly an underperformer.
Of late, Yahoo has been in the news with rumors spreading on the divestiture of the
companys core business and private equity firms eying the company for a
potential buyout. In light of these developments, only active traders are advised to
keep invested in the company as the share price may be subject to huge
fluctuations based on the developments in the company. Long term investors can
wait for some more time to get a clear picture on the future of the company.

References:
https://info.yahoo.com/about-us
https://investor.yahoo.net/
https://info.yahoo.com/press-center/article/yahoo-introduces-yahoo-messenger-mobile140000108.html

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http://quotes.wsj.com/YHOO/financials
http://quotes.wsj.com/GOOGL/financials
http://quotes.wsj.com/YHOO/financials/annual/balance-sheet
http://quotes.wsj.com/YHOO/financials/annual/income-statement
http://quotes.wsj.com/YHOO/financials/annual/cash-flow
http://quotes.wsj.com/GOOGL/financials/annual/balance-sheet
http://quotes.wsj.com/GOOGL/financials/annual/income-statement
http://quotes.wsj.com/GOOGL/financials/annual/cash-flow

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Yahoo! Inc. Balance Sheet Assets

Yahoo! Inc. Balance Sheet Liabilities And Equity

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Yahoo! Inc. Income Statement

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Yahoo! Inc. Operating and Investing Activities

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Yahoo! Inc. Cash Flow Statement Financing Activities

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Google Inc. Balance Sheet Assets

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Google Inc. Liabilities And Equity

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Google Inc. Income Statement

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Google Inc. Cash Flow Statement Operating and Investing Activities

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Google Inc. Cash Flow Statement Financing Activities

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