Essay on Facebook Dominance & Capital Structure: A Look

Introduction

Facebook is the most dominant platform bin social media. The firm has been improving and getting strengthened after its initial offering to the public in 2012. The amount of money which is raised from the initial public offering enables the firm to make some timely investments in the initiatives of the mobile to keep intact the marketers involved and the user base (Kosinski et al. 2015).

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Capital Structure

The revenue for advertising has been increased results in the more accumulation of capital, thus reducing the use of debt in the firm. The investor's, in turn, are fueled bringing in the sustainable stock interest. There has been a significant improvement in revenue since 2012, which is 17.9 dollars billion in 2015 from 5.1 dollars billion in 2012. Without paying any dividends, the firm is getting to retain all the earnings for it to build up the equity capitalization base for a given time. The total earnings that have been accumulated have increased from 1.7 billion dollars at the end of the year 2012 to 9.8 billion dollars at the end of the year 2015. For the firms which are adequately capitalized, the earnings retained must be a critical part of their all capitalization of equity apart from the capital obtained from the share issuance. The accumulated earnings retained by the firm at the end of the year 2015 were almost a third of the firm's stock capital (Matsa, 2018).

It is expected that the retained earnings relative percentage over the stock should rise further soon when there are no substantial shares needed to be given for the capital above what its earnings internally can supply readily. With the capitalization of equity, which is active, the debt usage in Facebook's structure of money has been more negligible for some years after the initial public offering (IPO). The long term debt was totaling to 1.99 billion dollars end of 2012 and has gradually reduced to million dollars in the lease obligations of the capital (Matsa, 2018). The firm uses only long term debts provided its revenue, which is durable and also the position of the cash.

Dividends

Most of the investors may be reluctant to consider purchasing the shares of the firm that do not pay dividends. The allocation of capital decisions, on the other hand, is not written on a stone. In that, the firms that don't pay dividends currently may initiate the profits shortly. It may be possible if the underlying support fundamentals payout to the management and shareholders is willing and able to do so. Thus it is a belief that even if tech giant Facebook is not offering dividends currently, it could begin shortly to provide bonuses (Kosinski et al. 2015).

Facebook started like any other startup do, with the increasing revenue but with a lack of profitability. However, everything transitioned when effectively a firm monetized its user base massively. Facebook and the different properties it posses represent a massive platform of advertisement. Provided the total amount of time the users spend on the Facebook site, it shows that Facebook is a gold mine for a potential ad.

Working Capital

The working capital is a company's measure of operating and efficiency liquidity. The employed capital is typically calculated deducting the short term liabilities from the short term assets. It is a critical framework of the company's ability to proceed with its normal operations without the additional obligations of debt (Su & Chan, 2017).

The working capital can either be negative or positive, depending on the amount of the current debt the firm is having on its balance sheet. Generally, firms that possess a lot of working capital are more likely to experience growth in the future because they can improve and expand the operation using the available resources. Firms with negative or small working capital may have inadequate funds or lack funds, which are necessary for future working capital also indicates if the firm has enough liquid resources to satisfy current liabilities and the operational expenses.

International Finance Issues

There is a digital currency known as Libra, which was announced by Facebook to enable its billions of users to do financial transactions globally, in a way that could shake up the banking system of the world potentially. Libra is being considered as a way of connecting people who don't have access to the traditional platforms of banking. With almost 2.4 billion individuals who are using Facebook every month, Libra can be the game-changer of finance but will experience very close scrutiny when Facebook is continuing to reel from the privacy scandals series (Kosinski et al. 2015). Thus analysis shows that Libra could be lifting the profits of Facebook.

Cash Flow

The cash flow is taken as one of the very critical parameters to measure the earnings power of the company by the value investors since it is not estimated of Depletion, Depreciation, and Amortization. However, looking at the cash flow, one needs to look for a long term perspective because the cash flow of any year can be affected drastically by the spending plant, property, and Equipment of the business during that year. In the long term, cash flow should provide a good picture of the real power earnings of the firm. In the past 12 months, the cash flow average per growth rate share of Facebook was 14.50 percent every year (Su & Chan, 2017).

Inventory

The turnover of inventory is measuring how the firm is turning faster over its list within one year. Inventory turnover is the cost of goods sold over the total stocks.

Ethical Issues in Finance Faced by Facebook

The firm has a fragile ethical culture to lean on, and thus, little or no progress has been made to reduce the wrongdoing. The main moral issue in finance Facebook faces is;

Accounting

Conducting unethical practices in accounting and "cooking books" has been a severe problem in the firm. In some cases, a scandal may occur, and the financial statements may be reported inaccurately for the auditor to sign off despite the comments being wrong. Even though a quicker response may be made to the case, which demands the new financial reporting requirements to protect the consumers, an indication that there is a lack of trust in the financial accountability by the public may experience (Crane et al. 2019).

The Strengths of Facebook

The strength of Facebook supports it in the position of a market as the most significant social media player. The advantages are the factors internally that helps in building business competitiveness. The major Facebook strengths include; the sharp image of the brand, the broad base of consumers with the externalities, high revenue, and innovative workforce. The social network popularity of Facebook is coming with a stronger brand image. The firm is developing its business as a social service provider, which is reliable. Besides, the vast consumer base that the firm posses are the strength that results in more beneficial externalities (Gonzalez-Ramirez, Gasco & Taverner, 2015). For instance, the more significant number of users on Facebook helps the firm with the social networking mobile apps and websites that are more attractive to the advertisers, potential new members, and more hard for the social media companies, which as requested new to compete with the firm.

Weaknesses

The firm is suffering from some weaknesses which are based on the nature of the business. The advertisement online and social media technologies result in vulnerabilities that trigger competition, which puts more force on the firm. The failings that prevent Facebook from its long term success include; services and products which are imitable, advertisement online put negative experience on the users and low diversification (Gonzalez-Ramirez, Gasco & Taverner, 2015). Thus the weaknesses make the firm vulnerable to competition. For instance, other firms can directly compete with Facebook by developing their social networking services.

Recommendations

It is recommended for Facebook to diversify the business to lower the market risk exposure when exploiting the possible revenue sources to make the firm growing. It is also recommended that the firm must proceed with its investments in the research and development to raise the firms Facebook must also continue with the negotiating efforts with the government to open the market which it has not penetrated it has no presence.

References

Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

Gonzalez-Ramirez, R., Gasco, J. L., & Taverner, J. L. (2015). Facebook in teaching: strengths and weaknesses. The International Journal of Information and Learning Technology.

Kosinski, M., Matz, S. C., Gosling, S. D., Popov, V., & Stillwell, D. (2015). Facebook as a research tool for the social sciences: Opportunities, challenges, ethical considerations, and practical guidelines. American Psychologist, 70(6), 543.

Matsa, D. A. (2018). Capital structure and a firm's workforce. Annual Review of Financial Economics, 10, 387-412.

Su, C. C., & Chan, N. K. (2017). Predicting social capital on Facebook: The implications of use intensity, perceived content desirability, and Facebook-enabled communication practices. Computers in Human Behavior, 72, 259-268.