Comparative analysis of financial statement areas in SEC company disclosures

Financial statements allow investors to compare the performance of different publicly-traded companies. This is because there are specific rules that govern how each company can compile and present its statements, and these rules are enforced by the SEC. Two companies that compete in the mobile operating system and online advertising businesses are Apple and Google. This report will compare these two companies, using the financial statements for each for the 2012 fiscal year. The balance sheet will be the specific area of comparison.

For both companies, the last few years have been exceptionally profitable, and this is noted on the balance sheets of each. Both companies have had their assets and their equities increase significantly over the past few years as a result of their profits. The current assets for both companies have expanded, indicating that the operating business of each company has grown significantly. As well, the total assets of each has grown. When profits increase, they are usually found on the balance sheet under "retained earnings" in the shareholders' equity section. For both Apple and Google, the retained earnings has grown significantly in response to increases in the book value of each company.

One interesting item is where the company puts its profits. Both companies generate billions of dollars in free cash flow each year. Google leaves most of this in cash. Since 2008, the cash line on its balance sheet has increased from $15.8 billion to $48 billion. In comparison, Apple tends not to leave too much of its free cash flow sitting in cash. Five years ago, Apple had $22 billion in cash and now it has $29.1 billion in cash. This does not mean that Apple has been earning less cash than Google, however. In fact, the opposite is true. Apple simply diverts most of its cash to long-term investments. In the past five years, long-term investments have gone from $2.3 billion and a small part of the Apple balance sheet to $92.1 billion, which is over half of the company's assets. By contrast, Google ha $85 million in long-term investments five years ago and $1.4 billion in long-term assets now, indicating that it prefers not to lock away its cash in such long-term investments the way that Apple does.

There is also a difference on the balance sheet between the liabilities of each company. Normally, when companies grow rapidly with high profitability levels, their current liabilities would grow to reflect the increase in the size of the business but the debt levels might not grow at all, since the company can make its investments with cash. This is basically what has happened with Apple. The company has seen its short-term liabilities increase from $11.3 billion to $38.5 billion in the past five years. Its long-term debt has remained at zero, so the increase in long-term liabilities relates only to an increase in deferred income taxes, something that is likely to occur when sales are increasing. At Google, short-term liabilities have also increased, from $2.3 billion to $14.3 billion. However, the company has added three billion in long-term debt in fiscal 2011, something that seems to serve no purpose since that money is sitting in cash.