This assignment is based on Google Inc.’s most recent annual financial statement
ID: 2454139 • Letter: T
Question
This assignment is based on Google Inc.’s most recent annual financial statements. You can obtain the firm’s financial statements from the firm’s corporate web site at https://investor.google.com or from the SEC at http://www.sec.gov/edgar.shtml. Unless otherwise indicated, all questions relate to the current period’s financial statements. Please do not copy and paste information from the firm’s annual report but respond with your assessment.
How much expense was included in Google’s 2014 income statement for share-based compensation?
Why did Google have expense for share-based compensation when the firm did not issue any stock options in 2014?
What is the full name of the model that Google used to value its employee stock options?
a. What did Google report for basic earnings per share in 2014?
What did Google report for diluted earnings per share in 2014?
i. Were all of Google’s stock options included in the computation of diluted EPS?
Why or why not?
a. Compute Google’s price-to-earnings ratio using diluted earnings per share and the year-end share price of $526.40 per share.
b. Would you purchase Google stock given this price-to-earnings ratio? Please explain why you would or would not.
https://investor.google.com/pdf/20141231_google_10K.pdf this is the link pdf for the annual report all information needed should be in the report
Explanation / Answer
1. Share based compensation expense reported in 2014 financial statements of Google Inc is $4,279,000
2. Because they recognize the expense based on straight line method over the vesting period
3. Black-Scholes- Merton (BSM) option pricing model
4. Basic EPS = $21.37 PER SHARE, Diluted EPS = $21.02 per share
6. P/E ratio using diluted EPS = =526.4/21.02 = 25.043