YAHOO INC. Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

YAHOO INC. Case Solution

Answer 2

The statement of cash flow includes inflows and outflows of cash from operating, investing and financing activities, giving a net cash balance at the end of the year. Yahoo’s wasn’t generating enough cash in years 6 and 7 but suddenly in 2008 the firm ended up with a huge cash surplus. Following were the factors that derived the cash flow of Yahoo:

Deferred Revenue:

The term deferred revenue is referred as unearned revenue in which the company has already received payments from clients but hasn’t provided services yet (Deferred Revenue, 2018). Deferred revenue was main turning point in Yahoo’s statement of cash flow. The company might had introduced new attractive and cheap policies to attract users but still, the services were not provided yet.

Depreciation and Amortization:

Both terms are non-cash items and companies usually account them as an expense but they don’t actually pay it, for the year 8 Yahoo had comparatively bigger amount of depreciation and amortization that was increasing the net cash flow from operating activities.

Tax benefits from stock options:

Yahoo successfully saved a huge amount of cash from taxes that were contributing a positive effect in year 8 and increasing the cash from operating activities. For the past two years from 2008, the company was unable to get tax benefits.

R&D Cash Inflows:

During the year 8 Yahoo purchased R&D unit that was making cash inflows with a big amount. That was another positive point in net cash from operating activities and increased the net cash of Yahoo. On the other side there were no such cash inflows in the year 2006 and 2007.

Accrued expenses and other Liabilities:

Liabilities and expenses increased during the year 2008 but the firm hadn’t paid them yet that was causing a cash surplus, comparatively for the last two years the expenses and liabilities were not that high.

Issuance of Common stock:

Yahoo’s performance was improving that’s why the firm took advantage of the moment and issued huge amount of shares in market to raise funds. Common stock was another big factor for cash surplus.

Answer 3:

Yahoo is a giant firm having long term focus and strategic plans, every firm wants to minimize risk and support themselves with a financial backup to target liquidity problems. Yahoo invested a huge amount of cash in marketable securities to overcome any cash defect that might have raised during the period. Marketable securities are highly liquid tool that can be sold quickly on a reasonable price in financial market, these are basically short term financial instruments having life of less than a year. (Mrketable securities, 2018) Moreover they do not cause big losses when a firm sells them. Similarly, Yahoo got its cash back when security matured to overcome any shortage of cash in statement of cash flow.

Answer 4:

Deferred revenue is referred to as the revenue that is unearned i.e. liability. Clients already paid for work to the firm but the work was not done yet. The firm had promised to provide services but later on, in this case Yahoo earned a revenue of 33.21B USD whereas services were yet to be provided. Earning the big amount of revenue didn’t mean that the firm’s profits were higher. The big amount of revenue expressed that the company had done a good job in sort of attracting customers with the help of advertising offers but the future was uncertain for profit.

Conclusion:

Overall, Yahoo is a huge online platform that provides space for the internet users as a portal and search engine. The firm was facing the liquidity problems in year 6 and 7 but suddenly, in year 8 the firm had cash surplus with significant numbers. The main factor for cash surplus were deferred revenue and issuance of common stock. Yahoo was also involved in the sale and purchase of short term financial instruments to overcome cash deficit that arose during the year.

Recommendations:

Yahoo should have focused on the cost deeply, the firm needed to negotiate with its service providers and suppliers in order to get low costs because Yahoo had already gathered revenue and they had to offer services in return. If the new sale terms and policies became successful then the organization needed to focus on same approach. Investing in marketable securities was an appreciable action by firm, Yahoo didn’t need big surplus of cash with it, they could have invested back money somewhere else to get some income..

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YAHOO INC. Harvard Case Solution & Analysis