b1. Information contained in non-GAAP earnings numbers that GAAP earnings numbers do not give.
According to Harvard (2013), the non-GAAP earnings numbers normally include values that may have either been included or excluded from the GAAP earnings numbers that are comparable directly in terms of the income statement, balance sheet and the statement of cash flows. These numbers include the expected future financial position and performance of an entity.
b2. Merits and demerits of using non-GAAP earnings
The main advantage of non-GAAP measures is that it enables the reporting entity to give more information relating to metrics that are unique and specific to its industry while the main limitation of these measures is that they are highly subjective ad thus, not effectively comparable to other industry peers (PWC 2).
b3. SEC Position on non-GAAP earnings
The SEC requires that company`s must comply with Regulation G that governs press releases, conference calls and other forms of earnings presentations; and Item 10(e) which prohibits the use of non-GAAP statements as the primary financial reports in their annual filings.
c. Earnings Guidance
Earnings guidance refers to the view or expectation that the management of a company has of its future performance in terms of revenue, earnings and sales. This guidance may be used by the management of an entity to manage the expectations of the stakeholders, while the management may also choose not to use it so as to prevent the volatile movement in the company`s share price (McKinsey 2006).
d1. Role of security analyst
According to McClellan (207) security analysts are charged with the responsibility of researching and evaluating stocks so as to predict their expected performance in the near future and to advice their clients accordingly.
d2. Information contained in analysts` reports
This information includes the long term prospects of a stock, the short term expected price performance and the fundamental potential operating risks that a company is likely to face in the near and long term future (McClellan 207).
d3. Consensus Analyst Forecast
A consensus analyst forecast refers to an estimate that is based on the combined opinions of different analysts who follow a particular publicly traded company (Dixon 174).
d4. Number of analyst covering Google
Based on the company`s Analyst Coverage report, there are only 10 analysts who cover the Google stock price movement. In my opinion, this is a relatively small number of analysts and thus, the stock is not widely followed.
e. Quarterly earnings announcements
These reports are important because they give a snippet of the anticipated full year performance of a company. The link between the stock price of a company and its earnings can be summarized as the higher the earnings ratios of ROE and EPS, the higher the stock price (Shon 180).
h1. Google Quarter 4 2013 Report
The Total Revenue for the quarter grew 17% to $16.86B compared to that recorded in Q4 of 2012. Net Income for the quarter was $3.92B compared to $3.38B in 2012. The total revenue for the whole year 2013 grew by 19% to $59,825B up from 50,175B in 2012. Net Income for 2013 grew by 20% to $12,920B compared to $10,737 Billion in 2012.
h2. Difference between GAAP and Non-GAAP Net Income
GAAP Net Income for Q4 2013 was $3.92 Billion compared to non-GAAP Net Income of $4.84 Billion. The difference between the two figures is attributed to the operating income, operating margin and the revenue recognition methods used in Google`s international business.
i1. Google 2013 earnings and Stock price Movements
As the earnings of the company increased throughout 2013, the stock price also rose from $780 at the end of Quarter 1 to $1120 at the end of Quarter 4.
i2. Google stock price movement comparison with NASDAQ Index
The Google stock price generally traded higher and returned a superior return in 2013 compared to the cumulative movement and return of the NASDAQ Index. This proposition is evidenced by Google`s average return of 68% compared to NASDAQ`s 38%.
i3. Stock market perception of Google`s Jan 30 2014 quarterly report
The market perceived the Jan 30th 2014 Google quarterly report as good news since the price of the stock tremendously spiked upon the opening of trading on the day following the release of the report.
j1. Comparison of Q4 Earnings with the consensus analyst forecast
The Quarter 4 earnings report for Google exceeded the consensus analyst expectation as evidenced by the fact that Total Revenue for the Quarter stood at $16.9 Billion compared to a consensus expectation of $16.8 Billion from the analysts.
j2. Other factors contributing to the god performance
Other factors that were cited as having contributed to the superior performance was the company`s increased advertising revenue by 17% and the sale of the loss-making Motorola operation to Lenovo.
Works Cited
Dixon, Daryl. Securing Your Superannuation Future: How to Start and Run a Self-Managed
Super Fund. New York: John Willey and Sons, 2012. Print
McClellan, Steven. Full of Bull (Updated Version): Unscramble Wall Street Doubletalk to
Protect and Build Your Portfolio. London: FT PRESS, 2009. Print
PWC. Non GAAP Financial Measures. Price Waterhouse Coopers, May 2014. Web. 1 April
2016
Rajan, R. The misguided practice of earnings guidance. McKinsey and Company, 2006. Web.
1 April 2016
Shon, John. Option Strategies for Earnings Announcements: A Comprehensive, Empirical
Analysis. London: FT PRESS, 2012. Print
Skadden, David. Disclosure of Non-GAAP Financial Measures. Harvard Law School, May 23
2013. Web. 1 April 2016.
Yahoo Finance. Alphabet Google. Yahoo, 1 April 2016. Web. I April 2016.
