Facebook Financial Statements

for fiscal years 2014 and 2015

Financial Accounting

Objective

• Communicate information about financial condition and performance
  • potential lenders can evaluate whether they should lend to a company
  • potential investors can evaluate whether they should invest in a company
• Financial information includes financial about the reporting company’s
  • Economic resources, claims against a company (Balance sheet)
  • Effects of transactions and other events and conditions that change those resources and claims (Income, Comprehensive income, Stockholders’ equity and Cash flow Statements)

Financial statements

Balance sheet (Statement of financial condition)

• Picture of financial condition
• Assets (A) = Liabilities (L) + Equity (E)
  • Assets resources that have probable future benefits
  • Liabilities claims on resources
  • Equity residual interest in the assets of an company after deducting liabilities

• The balance sheet equation is:
  • On Dec 31, 2015 these amounts are:
  • On Dec 31, 2014 these amounts are:

Liquidity and solvency ratios

• Current ratio = \(\frac{CurrentAssets}{CurrentLiabilities}\)

• Calculate Facebook’s Current ratio on:

  • Dec 31, 2015:
  • Dec 31, 2014:

• Based on the Current ratio Facebook has more current assets to satisfy current liabilities on Dec 31, 2015 compared to Dec 31, 2014?

- Debt to equity ratio = \(\frac{TotalLiabilities}{TotalEquity}\)

• Calculate Facebook’s Debt to Equity Ratio on:

  • Dec 31, 2015:
  • Dec 31, 2014:

• Based on the Debt to Equity Ratio Facebook is more risky on Dec 31, 2015 compared to Dec 31, 2014?

• Amount that Facebook expects to collect from customers:

  • On Dec 31, 2015 is:
  • On Dec 31, 2014 is:

Collections

• Amount that Facebook does not expect to collect from customers
  • On Dec 31, 2015 is:
  • On Dec 31, 2014 is:
• Amount that customers owe Facebook:
  • On Dec 31, 2015 is:
  • On Dec 31, 2014 is:
• The percent of amounts owed that Facebook doesn’t expect to collect from customers:
  • On Dec 31, 2015 is:
  • On Dec 31, 2014 is:

Income statement

• Performance during period
• Revenue – Expenses = Net Income (Net Earnings)

Profitability ratios

• Operating Margin = \(\frac{Operating Income}{Total Revenues}\)

• Calcuate Facebook’s Operating Margin for the year ending:

  • Dec 31, 2015:
  • Dec 31, 2014:
  • Dec 31, 2013:

• Based on Facebook’s Operating Margin:

  • More profitable in 2015 compared to 2014?
  • More profitable in 2014 compared to 2013?

- Profit Margin = \(\frac{Net Income}{Total Revenues}\)
+ Calcuate Facebook’s Net Profit Margin for the year ending: + Dec 31, 2015: + Dec 31, 2014: + Dec 31, 2013:

• Based on Facebook’s Net Profit Margin:
  • More profitable in 2015 compared to 2014?
  • More profitable in 2014 compared to 2013?

Statement of Cash flows

• What activities generated cash and what activities used cash
• Cash inflows and outflows divided into 3 sections
  • operating
  • investing
  • financing
• The change in Facebook’s cash and cash equivalents account for year ending:
  • Dec 31, 2015 is:
  • Dec 31, 2014 is:
  • Dec 31, 2013 is:
• Does Facebook use the direct or the indirect method to present Net cash provided by operating activities?
• Amount of cash expenditures to purchase property and equipment during 2015 is:
  • Use Facebook’s account titles to record the journal entry for these purchases.
• Proceeds from issuing common stock during 2013 is:
  • Use Facebook’s account titles to record the journal entry for the stock issuance.
• Acquisitions during 2014 include:
  • WhatsApp on Feb 19
    • Total amount? In cash? In Facebook shares?
      • WhatsApp: cash 4 + stock 12
  • Oculus on March 25
    • Total amount? In cash? In Facebook shares?
  • The section of the cash flow statement indicating the cash given in the acquisitions is:
    • Account title?
      • Oculus: cash 0.4 + shares 1.6

Facebook

• Financial statements that follow from the SEC’s website. Facebook’s ticker is FB

Balance statement

(amounts in millions)

	Dec 31, 2015	Dec 31, 2014
Cash and cash equivalents	4,907	4,315
Marketable securities	13,527	6,884
Accounts receivable, net of allowances for doubtful accounts of $68 and $39 as of December 31, 2015 and December 31, 2014, respectively	2,559	1,678
Prepaid expenses and other current assets	659	513
Total current assets	21,652	13,390
Property and equipment, net	5,687	3,967
Intangible assets, net	3,246	3,929
Goodwill	18,026	17,981
Other assets	796	699
Total assets	49,407	39,966
Current liabilities:
Accounts payable	196	176
Partners payable	217	202
Accrued expenses and other current liabilities	1,449	866
Deferred revenue and deposits	56	66
Current portion of capital lease obligations	7	114
Total current liabilities	1,925	1,424
Capital lease obligations, less current portion	107	119
Other liabilities	3,157	2,327
Total liabilities	5,189	3,870
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,293 million and 2,234 million shares issued and outstanding, including 8 million and 13 million outstanding shares subject to repurchase, as of December 31, 2015 and December 31, 2014, respectively; 4,141 million Class B shares authorized, 552 million and 563 million shares issued and outstanding, including 3 million and 6 million outstanding shares subject to repurchase, as of December 31, 2015 and December 31, 2014, respective	0	0
Additional paid-in capital	34,886	30,225
Accumulated other comprehensive loss	-455	-228
Retained earnings	9,787	6,099
Total stockholders’ equity	44,218	36,096
Total liabilities and stockholders’ equity	49,407	39,966

Income statement

(amounts in millions, except as noted)

	Year ending Dec 31, 2015	Year ending Dec 31, 2014	Year ending Dec 31, 2013
Revenue	17,928.00	12,466.00	7,872.00
Costs and expenses:
Cost of revenue	2,867.00	2,153.00	1,875.00
Research and development	4,816.00	2,666.00	1,415.00
Marketing and sales	2,725.00	1,680.00	997.00
General and administrative	1,295.00	973.00	781.00
Total costs and expenses	11,703.00	7,472.00	5,068.00
Income from operations	6,225.00	4,994.00	2,804.00
Interest and other income/(expense), net	-31.00	-84.00	-50.00
Income before provision for income taxes	6,194.00	4,910.00	2,754.00
Provision for income taxes	2,506.00	1,970.00	1,254.00
Net income	3,688.00	2,940.00	1,500.00
Less: Net income attributable to participating securities	19.00	15.00	9.00
Net income attributable to Class A and Class B common stockholders	3,669.00	2,925.00	1,491.00
Earnings per share attributable to Class A and Class B common stockholders:
Basic (in dollars per share)	1.31	1.12	0.62
Diluted (in dollars per share)	1.29	1.10	0.60
Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
Basic (in shares)	2,803.00	2,614.00	2,420.00
Diluted (in shares)	2,853.00	2,664.00	2,517.00

Cash flow

(amounts in millions)

	Year ending Dec 31, 2015	Year ending Dec 31, 2014	Year ending Dec 31, 2013
Cash flows from operating activities
Net income	3,688	2,940	1,500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,945	1,243	1,011
Lease abandonment	0	-31	117
Share-based compensation	2,960	1,786	906
Deferred income taxes	-795	-210	-37
Tax benefit from share-based award activity	1,721	1,853	602
Excess tax benefit from share-based award activity	-1,721	-1,869	-609
Other	17	7	56
Changes in assets and liabilities:
Accounts receivable	-973	-610	-378
Prepaid expenses and other current assets	-144	-123	355
Other assets	-3	-216	-142
Accounts payable	18	31	26
Partners payable	17	-28	12
Accrued expenses and other current liabilities	513	328	-38
Deferred revenue and deposits	-9	10	8
Other liabilities	1,365	346	833
Net cash provided by operating activities	8,599	5,457	4,222
Cash flows from investing activities
Purchases of property and equipment	-2,523	-1,831	-1,362
Purchases of marketable securities	-15,938	-9,104	-7,433
Sales of marketable securities	6,928	8,438	2,988
Maturities of marketable securities	2,310	1,909	3,563
Acquisitions of businesses, net of cash acquired, and purchases of intangible assets	-313	-4,975	-368
Change in restricted cash and deposits	102	-348	-11
Other investing activities, net	0	-2	-1
Net cash used in investing activities	-9,434	-5,913	-2,624
Cash flows from financing activities
Net proceeds from issuance of common stock	0	0	1,478
Taxes paid related to net share settlement	-20	-73	-889
Proceeds from exercise of stock options	0	18	26
Repayment of long-term debt	0	0	-1,500
Principal payments on capital lease obligations	-119	-243	-391
Excess tax benefit from share-based award activity	1,721	1,869	609
Net cash provided by (used in) financing activities	1,582	1,571	-667
Effect of exchange rate changes on cash and cash equivalents	-155	-123	8
Net increase in cash and cash equivalents	592	992	939
Cash and cash equivalents at beginning of period	4,315	3,323	2,384
Cash and cash equivalents at end of period	4,907	4,315	3,323