Question

3–14. (Analyzing the cash flow statement) (Related to Checkpoint 3.3) Google, Inc. (GOOG), is one of the most successful internet firms, and it experienced very rapid growth in revenues from 2011 through 2014. The cash flow statements for Google, Inc., spanning the period are as follows:

(US$ millions)	12/31/2014	12/31/2013	12/31/2012	12/31/2011
Net income	$ 14,444	$ 12,920	$ 10,737	$ 9,737
Depreciation	3,523	2,781	1,988	1,396
Amortization	1,456	1,158	974	455
Deferred taxes	(104)	(437)	(266)	343
Noncash items	2,693	2,268	2,288	2,004
Changes in working capital	364	(31)	898	630
Cash flow from operating activities	$ 22,376	$ 18,659	$ 16,619	$ 14,565
Capital expenditures	(10,959)	(7,358)	(3,273)	(3,438)
Other investing cash flow items, total	(10,096)	(6,321)	(9,783)	(15,603)
Cash flow from investing activities	(21,055)	(13,679)	(13,056)	(19,041)
Interest and financing cash flow items	(1,421)	(300)	(99)	81
Total cash dividends paid	−	−	−	−
Issuance (retirement) of stock, net	−	−	−	−
Issuance (retirement) of debt, net	(18)	(557)	1,328	726
Cash flow from financing activities	(1,439)	(857)	1,229	807
Foreign exchange effects	(433)	(3)	3	22
Net Change in Cash	(551)	4,120	4,795	(3,647)

Answer the following questions using the information found in these statements:

1. Is Google generating positive cash flow from its operations?

2. How much did Google invest in new capital expenditures over these four years?

3. Describe Google’s sources of financing in the financial markets over these four years.

4. Based solely on the cash flow statements for 2011 through 2014, write a brief narrative that describes the major activities of Google’s management team over these four years.

Answer 1

Yes, Google is generating positive cash flow from its operations. It generated positive cash flow from operations for all the years provided here i.e. 2011 to 2014.

The amount that Google invested in new capital expenditures over these four years is:

Year	Amount
2011	3,438.00
2012	3,273.00
2013	7,358.00
2014	10,959.00
Total	25,028.00

Debt is Google’s main source of financing. Over these four years the company did not issue any new stock but regularly raised funds by issuing debt.

From the company’s cash flow statements over the four years that is provided here we can say that Google’s management team is focusing on expansion and this can be seen from the increasing trend of its capital expenditures (capex). The increased level of capex is translating into higher levels of net income for the company. The management is financing a part of this expansion by issuing new debt.