Yahoo! The Market Capitalization of Yahoo As Essay

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Yahoo!

The market capitalization of Yahoo as of April 29, 2011 is approximately $23.18 billion. The purchase price for a company often includes a premium to entice stockholders to sell their shares to the bidder. Alexandridis (2010) notes that the mean acquisition premium for large acquisitions is around 38%. This would give Yahoo! An implied acquisition price of $32 billion.

From a financial perspective, Yahoo is a healthy company. It is very liquid, with high current and quick ratios of 3.06 and 3.0 respectively. Yahoo's interest coverage ratio is 1.7, which is a little bit lower than might be preferred, but the company has a very low level of long-term debt ($138 million) that would likely be retired as a result of this transaction. Yahoo has strong earnings as well, recording a record $1.231 billion in net income last year. However, there is cause for concern, in that Yahoo's cash flow from operations has declined in each of the past three years, from $1.918 billion in 2007 to $1.

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24 billion today. This indicates that there may be long-term issues with the company's business model.

Indeed, Yahoo is experienced negative growth in sales, down 24% last year compared with an increase of 37% for the industry. The company also experienced a quarter-over-quarter decline in net income, and has a five-year sales growth average of just 3.76%, compared with an industry average of 42%. This indicates that while the Internet information business is growing, Yahoo is not. Its five-year average ROE is 6.9%, compared with 21.9% for the industry average; the five-year average ROA is 3.3%, compared with 18.2% industry average and its five-year average ROI is 3.8%, compared with a 21.3% industry average. Yahoo is simply underperforming in the industry (MSN Moneycentral, 2011).

This chronic underperformance, and more importantly the….....

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