The core business of Alphabet Inc.’s Google (GOOG) is selling online advertising space placed across its products from internet search to Gmail and YouTube. Google was the most visited website in the world as of December 2024 with almost 140 billion visitors. Advertisers can pay to have their websites show up in Google search results for specified search terms. The company has a huge user base to leverage for advertising dollars.
Potential future business segments for the company include smart devices, human longevity research, and urban infrastructure. These projects remain in various phases of research and development, however, and they don’t generate significant revenue. Financial ratios represent an effective method for analyzing a company’s core business.
Key Takeaways
- A company’s financial ratios include its operating margin, revenue growth, price-to-sales ratio, price-to-earnings ratio, and debt-to-equity ratio.
- Operating margin and revenue growth measure earnings.
- A company’s debt-to-equity ratio identifies how much debt it’s taken on to increase growth and for other reasons.
- Google scores well in every category.
Operating Margin
A company’s operating margin measures how profitable it is from its operations. It’s a valuable metric when analyzing a company’s core business because it disregards money the company made outside its normal operations. This might occur because it sold a business segment or cashed in a profitable investment.
The operating margin expresses operating income as a percentage of net sales. What constitutes a strong operating margin varies by industry but a value above 10% is generally considered good and a value above 25% is considered excellent. Google’s operating margin was excellent as of February 2025 at 34.30%.
Revenue Growth
Revenue growth compares a company’s revenue from the most recent quarter to its revenue from the same quarter in the prior fiscal year. A positive value, particularly growth over 10%, signifies that the core business is doing well. The company’s products and services are in demand and they’re priced right.
Google’s 2024 fourth-quarter revenue was 12% higher year-over-year. This is an encouraging sign. It shows that merchants are paying for ad placement in Google’s search results at an expanding rate.
Price-to-Sales Ratio (P/S)
The price-to-sales ratio divides a company’s market capitalization by its last 12 months of revenue. Market capitalization is the total value of all outstanding common stock. It’s determined by multiplying the share price by the number of shares outstanding. The P/S indicates how much value investors place on each dollar of revenue. It’s a good measure of whether you’re paying too much for the stock based on what a company is earning from its business operations.
Average P/S ratios vary based on the industry.
Google’s P/S is 6.46 as of February 2024. This is higher than average.
Price-to-Earnings (P/E) Ratio
The P/E ratio is the gold standard of valuation metrics. It compares a company’s share price to its earnings per share. The ratio indicates whether the stock is priced high, low, or in between based on the company’s earnings. It’s good for analyzing the core business because the market tends to be highly efficient. When the core business is doing well, this information is priced into the stock.
A high P/E ratio can indicate that investors are optimistic about a stock or it might simply mean that the stock is overpriced. A low P/E ratio sometimes suggests a good value buy, maybe because other investors have failed to discover the company’s earnings potential.
Google’s P/E ratio was 23.01 as of Feb. 21, 2025. This falls into the higher range for technology companies because they tend to have higher valuations relative to earnings but 15x is considered average across the board. A novice investor might see this ratio as indicating that Google is overpriced but it could be fairly valued when considered over the long term.
Debt-to-Equity (D/E) Ratio
Google has plans to expand its core business and bringing these big ideas to fruition requires capital to finance research and development.
Companies often raise this capital by taking on debt, at least in part. This tactic can put a company in a precarious financial position, particularly if the economy turns bad. The D/E ratio compares a company’s total debt to its equity.
Google’s D/E ratio was 0.04 on Feb. 21, 2025. This indicates a low debt load compared to its equity. Google’s D/E ratio has never risen above 10%.
How Is a Company’s Operating Margin Measured?
A company’s operating Margin can be identified by a very basic equation: its operating income divided by its revenue.
What Is a Good Debt-to-Equity (D/E) Ratio?
A lower ratio is better. A high ratio indicates that the company is using at least a fair amount of debt to finance its operations and its goals for growth. The British Business Bank puts a good ratio at 1 to 1.5 but there can be exceptions based on industry and the business’s stage of growth.
When Was Google Founded?
Google was founded in 1998 by Larry Page and Sergey Brin after they built a search engine in their Stanford University dorm room. They initially named the search engine “Backrub” but later changed it to Google. Its initial public offering came six years later in August of 2004.
The Bottom Line
A company’s key financial ratios include operating margin, revenue growth, price-to-sales ratio, price-to-earnings ratio, and debt-to-equity ratio. Google scores well according to each measurement. An operating margin above 25% isn’t just good. It’s great. And Google’s was 34.30% in 2025.
Keep an eye on all five ratios, however, if you’re thinking of investing in Google or any other firm. A share in Alphabet Inc. will set you back about $179 as of February 2025.
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