ROCE is a relationship between profit (before interest and taxes), and capital employed. Profit is the difference between sales and cost. Capital employed is shareholders fund plus debt. Facebook’s debt is zero. Based on trend (Market Watch n.d.) it can be concluded that the growth of ROCE is associated with the increase in users, sales and equity. 1
2007 2008 2009 2010 2011 2012 (2Q)
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Revenue 153M 272M 777M 1.97B 3.71B 1.2 B
Cost 41M 124M 223M 493M 860M
ROCE -81% -20% 34 % 52% 47 % 43 %
SH Equity 273M 335M 868M 2.16B 12.35B
Gross profit = Net sales – Cost of goods. Financial information about Revenue and cost for 5 years shows that the trend between Revenue (sales) and cost did not change much, and that is why the growth stayed in the area of 75 % - 77 %. High sales volume is associated with the increase in users, which is growing in a straight line.
Net profit ratios
Net profit ratio = net profit / net sales (revenue), which shows how much of revenue is kept for net profit. The trend shows a stable average ratio about 25 %, though this ratio went up to 59 % in 2010. Company’s net income dropped (YCAHART 2012) from 746 M (March 2012) to 220 M in September 2012, which is reflected in company’s net income ratio (-31%). Facebook cited seasonal (Forbes 2012) trends and stock based compensation for the decline.
Current ratio refers to company’s short-term liquidity. It is expressed as a relation of current assets to current liabilities. This indicator shows if the company has enough assets to payoff short-term debts (Marcoaxis n.d.) . Facebook’s ranked in the 1st position when compared to Goggle and Yahoo current ratio values. Facebook’s current ratio is 11.38 times against Goggles’s 3.94 times and Yahoo’s 2.76 times. The historical data shows that the company maintained current ratio from 3 – 4 times during the years 2007 – 2011. Current ratio analysis ranks Facebook as liquid company.
Asset turnover (ATO) is a return on equity (REO) model indicator. It arrives from the concept of return on asset (ROA). The word “return” in financial analysis plays a vital role. It exhibits “what percent” of “something” is invested or sold is back. ATO represents relation; Sales / Total assets. It could be expressed in number or percent. ATO analysis (Market Watch n.d.) shows that the company management is successfully using its own assets.
Total assets 448M 505M 1.11B 2.99B 13.79B
Sales 153M 272M 777M 1.97B 3.71B
ATO 0.46 0.66 0.91 0.83 0.72
Earning per share (EPS) is an indicator that provides information of a company’s net income per share. Earning per share (EPS) is a valuable indicator applied to describe the operation from a shareholder perspective. It shows a company’s net income per share. It is necessary to note that the earnings per share formula refer only to common stocks. EPS is expressed as a ratio of net income to weighted average of outstanding shares. EPS is often used in the determination of the value of a stock. Facebook’s EPS ranged from $ – 0. 16 to $ 0.52. In 2011 company achieved the highest EPS. In the 2nd and 3rd quarters of 2012 company’s EPS is negative, which is associated with drop in net income. Companies share basic value is ~6,2$. Present market value of the share is 19$ or 12,8$, which is more than its basic value. Drop in 2012 net income (Financial analysis 2012) might be associated with a large amount of expenses. Facebook like other IT companies supports (Financial analysis 2012) the issue of “expenses first, revenue later”. That is why: the company should see an increase in revenue in the near future.