Samsung, Google, IBM, Apple, and Facebook are global technology companies. The five tech corporationsoffer investment choices to potential investors that wish to capitalize their surplus money. However, the five companies have variations in the level of financial risks, capital reserves, and potential rewards. It, therefore, implies that investors ought to critically evaluate aspects that go beyond the financial performance, trends in profitability, and the ability to generate revenues. The table below shows a comparison of the companies’ financial patterns throughout four years (All the numbers are in thousands).

Trends in Net Income

Percentage Change in Net Income

From the profitability figures above, it is apparent that Samsung reported the highest income in 2017 compared to other technology companies. Accordingly, Samsungrecorded a consistent increase in the net income, unlike other companies whose income fluctuated from one year to another. Profitability is fair in Apple Company considering that it reported a substantial increase in its profits in 2016 and 2017 fiscal years. For the case of IBM, the company is risky to investors considering that it hasfluctuation in profits. However, profitability is not the only predictor of IBM’s financial affairs,and, therefore, comparison with other financial indicators is required. Google, on the other hand, also hasincome fluctuation that is similar to that of IBM. Facebook recorded the highest improvement in profitability trends with a growth of 177%, from 2015 to 2016. However, it is evident that the five companies experienced turbulent economic times in 2017. This situationexplains the decline in the profitability of these companies during this fiscal year.

Profitability Ratios

Return on Equity (ROE) =     Net Profit

Average Shareholders’ Equity

Return on Equity Ratios

The Returns on Equity (ROE) is an accounting and financial metric that assist investors in ascertaining the financial ability of a business enterprise to utilize shareholders’ funds the in generation of profits. According to Dong, Hirshleifer, and Teoh (2012), ROE measures the value of income that a company can generate from every dollar of shareholders’ investments. It is effective, especially when comparing the financial performance of business enterprises in the same industry. In most instances, ROE of about 15% per annum is the most appropriate for investors. Accordingly, investors are discouraged from investing their funds in corporations that have an ROE of less than 5%. Also, the ROE that exceeds 35% implies that the company subjects shareholders’ funds to high risks in generating profits. In this case study, Facebook, Google, and Samsung have fair ROE that guarantees investors potential rewards upon investing their money in the companies. It suggests that Apple and IBM are facing high risks in using shareholders’ investment to maximize their profits.

Return on Assets

            It is a profitability ratio that is used to evaluate earnings that a company can generate from the share of its income-generating assets. The interpretation is based on the reasoning that the higher the return on assets, the better the company to potential investors.

Return on Assets = Net Income

Total Assets

The five corporations have effectively utilized their assets to generate income. It implies that all companies’ income generating assets are effectively used to acquire returns that are employed to finance routine operations. As such, investors needto understand whether the company’s assets are lying idle, or used to generate profits. Accordingly, Facebook is the leading company with a rate of 18.85% on its return on assets. The second technology company is Apple Inc. with a rate of 14.2%.

Dividend Payouts

From dividend payout trends above, it is apparent that Samsung, IBM, and Apple paid dividends to their investors continuously. Over the same period, Google and Facebook never paid dividends to theirinvestors. It, therefore suggests that Samsung utilizes a significant proportion of its capital reserves to pay dividends. Also, the value of its dividends is higher compared to the other four competitors in the technology industry.

Conclusion and Recommendation

Facebook reported a consistent increase in its net income and closely followed by Google Company. The other corporations have fluctuating financial performance,and, thus, pose uncertainties and high risks to investors. However, Google and Facebook did not pay dividends for four years. This aspect discourages investors interested in dividends rather than capital gains. As such, it is recommended that anindividual should invest $10 M in Samsung Inc. The company pays dividends,and, therefore, implies that one can expect rewards from the investment, unlike Facebook and Google that does not reward shareholders for their investments.

Reference

Dong, M., Hirshleifer, D., &Teoh, S. H. (2012). Overvalued equity and financing decisions. The

            Review of Financial Studies, 25(12), 3645-3683.

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