Financial performance comparison of Google and Microsoft

Google and Microsoft Financials

Strayer University Assignment 5 Financial management Bus 508 Google, aleader internet information searching, challenged big manes internet technology.Compare contrast Google's business model financial management Micrsoft's, launched Bing

Google and Microsoft financial and business performance

The increase in internet users and technological advancement has made Microsoft and Google record increased number of customers. The success of any company will entirely be dependent on the financial position and financial records it pose. "With intense competition, managers and stakeholders have to develop and adopt strategies that ensure growth in market share and growth in the profits" Foley, 2008.

Google is one of the companies that has recorded growth in performance and increased the number of users within the shortest period. It is also important to note that the company was not adversely affected by the economic recession that hit companies across the globe.

Google and Microsoft core businesses

Both Google and Microsoft are in the tech industry. The two firms have engaged in the provision of software and search engines where internet users get the opportunity to get information of their interest. Google has posed a threat and challenged Microsoft in the technology industry. Both Microsoft and Google have competing products in as much as they have diverse core businesses. Whereas Microsoft main business is the provision of windows operating system for the PC and dominates in the desktops, Google main service is the provision of search engines that also displays adverts. Microsoft enjoyed monopoly status, which made the corporation realize large amounts of profits and it still enjoys monopoly in the selling of operating systems of desktops Rittinghouse & Ransome, 2010.

Google continue to experience growth in the technology sector specifically on the web. The company is the main provider of software that is used by businesses for advertisement and other information search. Google has further engaged in collection of their users' data and records to enable them increase their share in the industry.

The leading web provider, Google, makes its profits from the advertisement cost paid by companies that advertise on their sites. The other core services like the Google maps and Gmail have also been a major reason why the company has recorded growth. The simple Google products and the continuous improvements will definitely make the company dominate the industry (Foley, 2008). Microsoft has also diversified their services to make them relevant in the dynamic market. Whereas the company's sale of operating system declined, Microsoft earnings increased in other businesses like cloud computing and new software that are preferred by businesses and nonprofit institution Rittinghouse & Ransome, 2010.

One market segment that both the companies continue to struggle for control is the small and medium businesses that are increasingly embracing technology and internet use as a way of growth.

During recession, the economy is at the slow down and businesses record low returns. To survive the losses, businesses must ensure that their growth is not affected by the slow economic down turn. In the case of the tech sector, Google is likely to survive the effects of the recession. This is because of the increasing growth and the diversified portfolio the company's hold. The higher price earnings ratio shows the relationship of earnings of the company and the market price of the shares. It therefore means that investors of Google will record higher earnings for their investments. The higher earnings per share will also mean that the investors in Google have better returns compared to those of Microsoft.

When making investments decisions, investors are guided by the profitability of the company. Investors will choose to invest their money in the most profitable companies because the company's will have prospects of growth and return. At the same time, profitable companies are likely to pay their shareholders better dividends than those companies are with lower profitability. Looking at the profitability ratios, investors will likely chose to invest in Microsoft. The higher returns on assets and return on equity makes the investors forecast better return in the future Porter, 2009.

As can be observed from the ratio calculation, Google recorded a decline in their return on equity from 18.39% in 2010 to 16.75% in 2011. On the other hand, Microsoft return on equity remained constant at 41% showing a stable performance. A look at the return on the assets is also in line with the return on equity. Google return on assets is 13.42 while Microsoft return on assets is 21.3%. Both the companies recorded a decline on their profits in the year 2011 as compared to the year 2010.

Management and leadership styles

The success of any organization entirely depend on the management and leadership style adopted by the managers of the company, both Google and Microsoft had to develop management styles that were in the best interest with the vision and mission of the company. Leadership is the act of inspiring others in order to have the right actions and results realized. In as much as the two companies had different management and leadership styles, both were geared towards improving the performance and output of the company.

For Google, innovation played a greater role. The company believed on the adoption of new ideas and management supported their staff in instituting innovative and crazy ideas. To promote innovation and creation of new ideas, Google management avoided bureaucracy and complex structures that delayed the knowledge formation. The management believed that the crazy and simple ideas had a lot of impact on the success and the realization of their markets desires. Moreover, the management laid emphasis on the demand of their customers. They gathered information through surveys and integrated the customers' expectations on the operations of the company. Small ideas were valued in adding value to the company's customer's demands.

The company management was also patient in creating value and improving services to the customers. Larry Page, the company's founders also valued team management and delegation of roles in ensuring tasks execution. A single individual but a management team that composed of various experts and intellects did not lead Google.

Microsoft management on its side practiced better management to realize the growth and success of the firm. First, Gates believed in inculcating the appropriate culture of inspiring employees and making them have fun on the work they do. Through this, the workers got motivated and were therefore willing to spend more time working for the company. The company's management also realized the need of having a clear vision and mission that provided the employees and the stakeholders in drawing a clear road map and courses of action. The vision had to be communicated so that everyone had the obligation of contributing his or her share in the company's success.

In addition, the employees of Microsoft were action oriented and were smarter people who would have the work done. During recruitment, Gates ensured that friends and colleagues were employed because these were people who were willing and ready to corporate with the management Foley, 2008.

The management thus had the knowledge on the employees and won their loyalty making the business grow faster. The management of Gates further believed in the creation of a good image to attract and retain their customers' loyalty. The company transformed to contribute to the welfare of the community by becoming philanthropic and participation in corporate social responsibility.

Finally, the company's management transformed their areas of failure and weaknesses into areas of innovation and improvements. These good management practices made Microsoft improve their technologies and realize growth with time.

Financial basis of making investment decisions

In making investment choices between two companies, the financial analysis will play a significant role. Because potential investors are outsiders, they will fully depend on the financial information that is published or the audited financial reports of the business. First, the profitability of the business will be used in making investment choices. From a company income statement, potential investors get to determine the prospects of growth and the ability of the firm to pay dividends Porter, 2009.

From the income statements, the cash flows of a firm will be determined to ensure smooth and timely payment of debtors.

Secondly, investors' choice in the two companies will be determined by the gearing level of a company. "This financial criteria, determines whether the company is likely to become bankrupt or to meet the financial needs of the company" Porter, 2009.

A company that is most funded by creditors might likely have several legal claims that may impair the growth prospects of the business. Moreover, the ratio of capital contribution may be determined by the legislations. Where the state, though its agencies prohibits a percentage of funding by creditors, the investors choice must remain restricted.

A company prospect of growth and expansion of its activities can be reflected from the financial statements. For instance, a trend analysis of the performance of a firm will reveal the increase in sales and costs. The increase in the business segments and new business liners will be revealed in the financial statement and analysis of the firm's business model. The growing number of customers of Google and their new inventions make for instance make the investors forecast better performance in the future. Microsoft on the other hand has to ensure it fights any threat that is likely to impact negatively on the control. This explains why the business has engaged in diversification strategy to ensure that in cases losses are realized in some business segment, the impact is mitigated by increased returns in other sector. The finance department of the firms must thus ensure control in costs and strategies of increasing the income if the performances are to be sustained.

Conclusion

In conclusion, the competition in the technology industry will continue to intensify with the increase in internet users. The provision of these services will demand for assiduous innovation and integration of customers demands. Microsoft and Google competition is expected to continue for the benefit of the users of their services. The software and search engines must be made simpler and easier to be used by the customers. The financial performance of the company will reflect how effective the services and management are.